Leslie Walker's .com Live
Discussion with Arthur B. Sculley
Co-author of "B2B Exchanges"
1 p.m. EST: Thursday, April 13, 2000
B2B or Not 2B? That is the question. You have surely noticed that B2B stocks are red hot on Wall Street, and a new business-to-business marketplace forms almost every day. You may be wondering, why now? Why did business-to-business e-commerce move to the World Wide Web so long after consumer retailing? After all, it seems illogical that Sears, Roebuck and Co., Procter & Gamble Co. and General Motors Corp. would lag years behind Amazon, eToys and other consumer Web sites.
But in reality, business-to-business e-commerce is nearly as old as the Internet. It preceded the birth of the Web in the early 1990s and has been moving slowly to the Web ever since. However, in the past year, the slow march of business to the Web has turned into a stampede.
Arthur B. Sculley
"B2B Exchanges: The Killer Application of the Business-to-Business Internet Revolution" by Arthur B. Sculley and W. William A. Woods, reveals the nature of the revolution occurring in B2B transactions as a result of the development of numerous B2B exchanges.
Tune in Thursday and join Arthur B. Sculley to discuss the stampede towards a fully wired economy.
Hello everyone and welcome to Arthur Sculley. Let's go to the questions!
Let's start with some basics. What is an Internet B2B exchange, and which elements of the exchanges are having the biggest impact in how companies do business?
Arthur B. Sculley: A B2b exchange is simply a members only global electronic trading platform generally focused on a specific industry vertical like steel or paper where multiple buyers and sellers trade throughout the day. Similar to stock markets, the prices generally change frequently in what we call dynamic pricing.
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In the past few months, we've seen an announcement almost daily from old-guard industrial giants that are creating new Internet marketplaces. Is this part of a struggle for financial control of the emerging digital markets? Can you talk about the tension between the old-line players and pure-play Internet start-ups?
Arthur B. Sculley: Although B2b exchanges first started over 4 years ago, the major growth has happened aver the past 15 months. In our data base which we used for our book "B2B Exchanges", we have over 500 B2B exchanges and we estimate that today there are probably over 800. Most of the exchanges have been set up by entrepreneurs although that started to change about six months ago. As you say, many old economy companies have recently teamed up with competitors to form new B2B exchanges in such areas as auto parts, chemicals, aerospace parts, electric utilities etc. As they are giants they will definitely play a major role, but it is not clear whether these new exchanges will have the independence and neutrality to be successful. There is definite tension right now and in the end there will in many cases only be one winner in each vertical.
How can all those new business-to-business Web sites we read about in the newspaper day after day all hope to make money? Are many of them shallow storefronts with little prospect of generating real profits?
Arthur B. Sculley: Only the most liquid B2B exchanges will make money at the end of the day, and there will be many that don't make it. however, the rewards to the winner will be very substantial.The business model generally is to charge a commission on each trade.
B2B stocks are getting hammered worse than most tech stocks on Wall Street. Why is that?
Arthur B. Sculley: In comparison to B2C stocks, there are still very fewB2B companies that are public to date. Therefore, demand far exceeded supply for B2B and several of those stocks got over valued. However, there are many B2B companies now in registration at the SEC so over the next year there will be a much larger selection to choose from
What difference will B2B exchanges ultimately make to consumers? Will retail prices decline, or will these new Internet market makers keep the cost savings?
Arthur B. Sculley: B2B exchanges will be driving out the inefficency in the supply chain and reducing the cost of carrying large inventories. In most cases those cost savings will be passed to the consumer. The losers will be the brokers, agents, sales forces and distribution channels.
In your opinion, which are the most important emerging companies in the B2B sector?
Arthur B. Sculley: Tw areas. First, the infrastructure, software and service companies to B2B. Examples would be i2 Technologies, Ariba, IBM, Exodus and MCI/Worldcom. Second, the B2B exchanges themselves. It is still too early to pick the winners there.
Besides charging a commission on each trade, what other factors make up the business model for a successful B2B exchange?
Arthur B. Sculley: Membership fees, co-marketing revenue share and sale of trade data based on deals concluded on the exchange. That data is aggregated so confidentially is protected.
What's surprised you most about how B2B markets are evolving online?
Arthur B. Sculley: I am surprised by the how quickly old economy companies are now responding and teaming together to form their own exchanges. Also, Europe and Asia missed the boat with B2C but they are agressively working to close the gap with the U.S. on B2B and B2B exchanges.
How do B2B exchanges create value? Tell us more about the data these new Net markets are collecting on industries, for example--—how valuable is it, and how does it differ from data that was available about industries before the Internet came along?
Arthur B. Sculley: The exchanges create value by bringing multiple like minded buyers and sellers together in a secure and familar electronic enviornment. They also provide community building services like news and data feeds, analytic and rating services.
The data being collected can be extremely valuable particularly on prices of completed trades. However, the exchange must convince its members that it is SRO (self regulated organization) that it does miss use the data.
The main difference is more up to date and detailed pricing information.
We are halfway through today's dialogue. Please keep your questions rolling in!
Please tell us more about what’s going on in Europe and Asia on the B2B front.
Arthur B. Sculley: Europe and Asia are watching the B2B exchange development in the U.S. very closely. Numerous new B2B exchanges in traditional industries such as utilities, oil, transportation, chemicals are now in formation in Europe and Asia.
There’s a lot of confusion about the different business models of companies that set up exchanges, such as Commerce One and Ariba. How much equity do these companies typically take –-if any—-in the exchanges they create?
Also, can you give a range on transaction fees—--what percent the markets typically charge buyers and sellers.
Arthur B. Sculley: Companies such as Ariba, Commerce One, Oracle and i2 become the technology partners. There equity stake can vary from zero to over 20% depending on the role they play. the average I would say is closer to 5%.
Commission fees vary enormously. Depending on the industry you can find fees over 5% per transaction value to only one basis point in the financial services industry.
Ariba's recent partnership with Bank of America to provide B2B e-commerce platform solutions propelled their stock upwards. How does this broad partnership affect opportunites for smaller niche companies looking to do business with BoA?
Arthur B. Sculley: As this world is moving so fast, I think there are numerous opportunities for niche players. The key is forming partnerships with the larger companies that may have a stronger relationship with companies like Bank of America or have stronger sales forces.
What kind of regulation do you think electronic business exchanges will or should face from government or other independent bodies?
Arthur B. Sculley: It is very important for b2B exchanges to have a strong SRO (self regulating organization) function in place. That should reduce the need over regulation from government. However, there are some broad anti-competitive issues which may arise as the exchanges get bigger and government I am sure will look into this. The challenge is not to over regulate a major trend which will make the global economy much more efficient and in many cases a more level playing field for smaller companies.
We are nearing the end but have time for another quick question or two.
Do you hear horror stores from inside large corporations about the radical changes the Internet is ushering in? Also, how many
corporate heads do you think are still stuck in the sand?
Arthur B. Sculley: Major change is inevitable, but one hopes it is well thought out. I think most CEOs now " get it" in the sense that the Information Age and New Economy are here to stay. The key issue is how to deal with it without canabalizing existing business too much. There is no easy answer to this, but my co-author, William Woods and I feel that most companies will have to reinvent themselves over the next 5 years to survive. The change we are just starting to go through is much bigger than than the Industrial Revolution in my opinion.
That's all for today folks.
Arthur B. Sculley: Leslie, this has been great fun and I appreciate the opportunity to try to answer the excellent questions I received today. This is a very exciting period we are all going through and no one has the easy answers. Many thanks to all your subscribers at the Washington Post. Arthur
That’s all the time we have today. Thanks to Arthur Sculley for answering our questions. Please join us again in two weeks, when our guest will be Ellen Pack, co-founder of Women.com.
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