Date: October 12, 2000

**********************************************
The Industry Standard's Second "iB2B" Conference was held
October 2-4, 2000, at The Palmer House Hilton, Chicago, IL
**********************************************

(to subscribe to our list of heavy-duty New Economy execs, now 2000+ strong,
and receive future conference reports, click here and give us your contact info)

Dear Clients, Partners, Friends, and
Fellow Knowledge-Seeking Missiles:

Okay, sorry for another overdone B2B word play. But it just felt sooooo right this time, considering the circumstances. I promise not to do it again...or may I B2B struck down by lightning--okay?

--------------------------------------

Which brings up a fitting comment
host Narry Singh made in his intro,
referring to all those silly acronyms:

"Looking back, linguistic
anthropologists will wonder
what the hell we were up to!"

--------------------------------------

Then again, the subject line above wasn't anything you didn't know already if you live in the intense, ever-changing world of business-to-business on the web. No flash of brilliance.

But, hopefully, this communique will help you understand a little better what's going on right now, with insights from a bunch of smart B2B players, including those fighting it out in the ditches for position, brand, or market share, even survival.

It's a slice of the current state of the nascent B2B commerce industry, touching on what's being tried and what works, but also on how difficult it is out there: (1) for the startup, independent (neutral?) marketplaces to get liquidity, not to be speak of investor capital and parterships; and (2) for the consortia of bricks-and-mortars (coBAMs) to get traction--or just get beyond the news release!--let alone figure out how to manage themselves with such seemingly conflicting owner interests. Then, there are the so-called market-maker independents, and the beginnings of partnering with the *traditional* exchanges, who no doubt hold their share of the cards.

But first a word from our sponsors....

The format of this email is simple: selected insights I was able to grab from the firehose of content that was iB2B Chicago. It's long, I warn you (but good).

The quotes are presented by session, but otherwise there's no particular order or progression. Just the most coherent, intelligently stated, honest, sincere, and/or controversial quotes I was able to glean from my (very thick) notebook. Some are no more than simple descriptions of what a given exchange is trying to do, or what its business model or vision is all about. You draw your own conclusions.

Now, unfortunately,I was *not* able to cover all the sessions [sigh]....because, as mentioned in my first report, many were concurrent. No one could have. I was so wishing I could be in two places at once. But such is the plight of the modern conference attendee/knowledge-seeker. Too much information, too fast -- drinking from the...well, you know.

Here's one guy's attempt at capturing it -- ear to brain to paper to keyboard (the old-fashioned way)....

Quotes, Insights, and Sound-Bites from iB2B Chicago:

A selection from the host's intro:

"We've just scratched the surface of B2B. Up till now, the hype-to-content ratio has been absurd...Never before has so little been said and had such an impact on the market!"

"It's the economics -- the metrics won't go away. Prepare for new ones. The financial marketplaces will give us these, and many are yet to be unearthed."

"The value in B2B is in network intelligence, not just automation."

"It's all about execution. It's not sexy, not always fun--but it's what the industry needs now."

- Narry Singh, Producer & Host, iB2B Chicago,
and VP, Global Trading, Rapt Inc.

------

From the keynote session with Myron Scholes:

"A neutral market can't be successful. You can't be neutral and make money. Neutrality is a wonderful concept, but not necessarily an economic proposition."

"A traditional exchange teaming up with an e-market makes for a *multilateral* market, which is more efficient than a bilateral one."

"How do you decide which e-market to join? Well, when you have a shock like the 'Net, it takes time for people to digest it."

- Myron Scholes, Partner, Oak Hill Platinum Partners,
and Nobel Laureate in Economics, 1997

------

From the opening keynote panel:

"Our exchange is a true bid-ask format, where buyers and sellers negotiate for complex transactions, averaging $180,000. So, It's different from a lot of others. Our trading volume is now up to $2 billion per month."
- Rusty Braziel, Chairman, Altra Energy

"Agriculture is an $80 billion 'input' market. We represent 30 large companies, and 23,000 farmers are already using our site. We provide deep, rich content and try to create 'knowledge value'. Ag is extremely capital-intensive. Our benefit is we take working capital out for the players."
- Kip Pendleton, CEO, Direct Ag

"We're the old GE Information Services. We now do one billion transactions per year, with a value of $1 trillion. We've enjoyed record growth in the EDI business--20 to 30% year-over-year growth. It's a $20 trillion global market."
- Harvey Seegers, CEO, GE Global eXchange

"Many firms are still invested in non-Internet platforms like EDI, and that's not going away. There won't be a cold-turkey adoption of XML. Besides, XML is fragmenting as we speak."
- Harvey Seegers, CEO, GE Global eXchange

"The good news is that volume and liquidity are going up. The not-so-good news is that there's an incredible amount of noise in the marketplace. VC money froze, and so did some customer decisions. Is there more pressure now on tactical financial performance? Yes."
- Rusty Braziel, Chairman, Altra Energy

"Will the consortia survive? It's wait and see. The panic to do something we saw in April is not there today."
- Rusty Braziel, Chairman, Altra Energy

"There was $200 million invested in the B2B ag space last year, but very little now. There are only 4-5 companies competing now that have the liquidity and capital structure to succeed. But we consider it a long race."
- Kip Pendleton, CEO, Direct Ag

"GE's been doing trading exchanges for 30 years. They always take a long time to develop. I've never seen one that happens like the business plan says."
- Harvey Seegers, CEO, GE Global eXchange

"Why's the money so impatient? The market's saying. 'Where's the beef?' But the reality is it will take a while--that part hasn't changed."
- Harvey Seegers, CEO, GE Global eXchange

"EDI may be a $1 trillion industry now, but it took 20 years to get there. There are hundreds of trading markets around the world."
- Harvey Seegers, CEO, GE Global eXchange

"It's somewhat of an unnatural act to get suppliers to sign up, because these markets are often about beating them up. So, exchanges that are *relatively neutral* will be the ones to succeed."
- Harvey Seegers, CEO, GE Global eXchange

"Neutrality is overrated, but it works in some markets."
- Harvey Seegers, CEO, GE Global eXchange

"Pure independence is not really happening that much."
- Rusty Braziel, Chairman, Altra Energy

"One large consortium in our business is Rooster.com, which got the industry a lot of attention....But for our firm, it will be hard to stay independent for a long time. The question becomes, how fast can you go? The big companies like Cargill [a Rooster.com backer] have 28 pages and 19 decision-makers for a capital budget! Though they're a great company, that's too slow."
- Kip Pendleton, CEO, Direct Ag

On metrics......

"How do you measure a young exchange? There's one simple answer: the number of transactions. Not the number of people who've signed up, not transaction value, not inventory. Then you measure how fast that number of transactions grows. Ours are now up to 12-13,000 per month. But I have yet to see a hockey stick anywhere, except in my business plans."
- Rusty Braziel, Chairman, Altra Energy

"In ag, there will be explosive growth. It's a low-margin business that *has* to take working capital out! The economy requires it....Our transactions are generally small in dollar amount. But we've now determined that fully 60% of suppliers online know who we are. Our average user visit is 18-19 minutes, and we know what they're looking at."
- Kip Pendleton, CEO, Direct Ag

"The internal metrics we use include 'active trading relationships' -- we've found that to be very important in the early life of an exchange. The long-term potential of your 'network effect' is directly proportional to that."
- Harvey Seegers, CEO, GE Global eXchange

On revenue models......

"Ours are transaction fees, licensing revenues, and professional services fees. There seems to be some bad mojo going on about transaction fees, but we don't feel that way. Also, we license our software on an ASP basis, and sell our professional services on a time and materials basis."
- Rusty Braziel, Chairman, Altra Energy

"We get distribution fees ranging from 20-40%, and 29 of our current 30 relationships pay us those. We're also beginning to capture 'marketing fees" -- not like an ad agency, but a consulting firm -- helping our partners market. That's a new and emerging revenue source."
- Kip Pendleton, CEO, Direct Ag

"We see a strong move to subscription-based services."
- Harvey Seegers, CEO, GE Global eXchange

"All this talk about transaction fees trending to zero, I see a need to clarify. Transaction fees for order-matching may be dead, but for value added services, not so?"
- moderator Narry Singh, to which
the panelists all nodded in agreement

On consolidation......

"We have several more competitors now than last year. There's an increased velocity factor in our business-- about 100 different e-markets in energy right now. A number of them will remain, ceratinly not just one."
- Rusty Braziel, Chairman, Altra Energy

------

From the "Portal Strategies" panel:

"We're a 'distributed portal' -- for 6000 independent ag dealers who have long-standing relationships with their customers. We bring them into the New Economy."
- Tim Moulton, COO, Rooster.com

"The focus of consumer portals has been on eyeballs -- quantity. Ours is more on the *who* -- in other words, quality."
- Jay Kilberg, VP/GM, AviationNow.com

"There are about 1.9 million farmers out there. But, more importantly, there are *25 million* households surrounding them. And they're coming to us asking where to get products and services."
- Tim Moulton, COO, Rooster.com

"About half our customers are now B2B. It starts with phase one, getting audience. Then phase two, transactions. Now it's going to phase three, connecting trading partners in a distributed network."
- Bill Daniel, Senior VP, Vignette

"We're an independent company, and the focus is now on governance and the set up of the company, including additional investment. Our model allows us to take risks that the owners can't. And it's better than the VC-ownerhsip approach, because that only allows one chance. We have the luxury of many tries, more patience."
- Tim Moulton, COO, Rooster.com

"What are our top value-added services? Sub-communities, career services, aircraft financing, and collaboration tools--to name a few."
- Jay Kilberg, VP/GM, AviationNow.com

"Our model is to drive transactions. We can't survive without that. Our four backers expect it."
- Tom Moulton, COO, Rooster.com

"Our value-added services are these: Number one, the opportunity for farmers to market their crops beyond their geographic boundaries. Number two, financing-- credit opportunities beyond the local banker."
- Tim Moulton, COO, Rooster.com

"We're seeing a lot of our content customers now wanting to add syndication."
- Bill Daniel, Senior VP, Vignette

------

From the "Value-Added Services" panel:

"We're seeing almost every player in the Fortune 1000 making moves in this direction, to create their own e-marketplace."
- Kevin Surace, CEO, Perfect.com

"What about the talk of transaction costs going to zero? Well, we walk away from thousands of them today because there's no margin. Do we contribute to that by telling customers our margin? No, we have not done 'transparent pricing' to date."
- Robert Kramich, VP, e-Business & Marketing, NECX.com

------

From the keynote interview of the CEO of i2:

"We focus on the part of B2B where the inefficiency resides: the way business partners interact."

"It won't be companies competing in the future, but value chains. The weak link is the corporation."

"My advice to young B2Bs? I'd focus on building niche markets. That's where the value is."

"Which consortia will succeed? Those with independent business leadership. A good example is e2open. The others are too slow and will get killed."

- Sanjay Sidhu, CEO, i2 Technologies

------

From the keynote interview of Ray Lane:

"Current business practices are not economically viable for the future...We've spent 30 years trying to disaggregate vertical structures, creating lower costs for everything, outsourcing everthing. But innovation is becoming more difficult--with big companies, legacy systems, legacy mindsets. The macro view is this: it's better to start over than try to fix it."

"Companies have been considered the highest order, but the 'Net brings the *supply chain* to the highest order. Customers care about two things: visibility and delivery. The company is now an ecosystem, or a brand."

"I'm bullish about B2B exchanges, but not in their current form. My advice is to get started and continue to innovate in a niche. And, if you're thinking about competing with the consortia, I think you have some advantage against those whose owners can't leave them alone."

"Larry believes the world is going to fewer, bigger servers. I don't--that's just a temporary solution. I think there's a huge opportunity in peer-to-peer, where everyone's a client, and everyone's a server. That could be the next stage."

"I'm focusing on an idea now, one that the partners have nominated as a major initiative: the 'Real-Time Enterprise.' In the old economy, one (sales) transaction typically created 100 other transactions internally! So I'm looking for those who innovate business processes, and new companies that discover standards for web sites to integrate with legacy systems."

- Ray Lane, former Oracle COO, now a
General Partner at Kleiner Perkins

(and, in response to the question: Who's Larry's successor?)

"God? [huge laughs] It won't be anyone inside."

------

From the closing keynote panel:

"The state of B2B now reminds me of elephants dancing. It stirs up a lot of dust, which takes, like, 26 months to settle."
- (moderator) Mohanbir Sawhney, Professor of EC
and Technology, Kellogg Graduate School of Management,
Northwestern University

"One model that's doing well now is e2open--whose backers are Nortel, IBM, Matsushita, and others. The platform and CEO are chosen. The partners felt good about making the technology decision because they had an independent VC as interim CEO (John Mumford of Crosspoint). For his role, he got a 20% stake. And, of course, we got a stake, too."
- Mahmoud Mamdani, Managing Director,
Morgan Stanley Dean Witter

"We're not opposed to VC money--it's just a matter of what's the cost of it?"
- Chan Galbato, CEO, Choiceparts (a consortium)

"Our partners [owners] are precluded from competing with us."
- Chan Galbato, CEO, Choiceparts (a consortium)

"The main question I had when being recruited was related to independence. I won't have three bosses."
- Chan Galbato, CEO, Choiceparts (a consortium)

"Our board is made up of me and two members from each of our backers. The board structures the debate--there are no parochial interests! You really need to ask yourself, do you really trust these people? Look 'em in the eye."
- Chan Galbato, CEO, Choiceparts (a consortium)

"You need to recruit bright people who ask you difficult questions. The business needs different perspectives than just what brought us together."
- Chan Galbato, CEO, Choiceparts (a consortium)

"What's the role of consultants? There are basically two reasons you're hired: capability or cannon fodder. We speced the Enron marketplace in six months, and built it in three. Their market cap went up $15 billion in two days when it was announced. The previous consultant said it couldn't be done. Someone has to stand up and be willing to have the wrong answer, to take the heat. The point is to get to critical mass as soon as possible."
- John Sviokla, Vice Chairman,
Diamond Technology Partners

"What will happen to successful exchanges? What is the liquidity event? Some will become growth companies, if they have the capacity to really innovate. And some will become utilities. For the former, I'm reminded of the definition I once heard of the essence of software development: 'Shooting the wounded, and ripping babies from mothers.' Otherwise, developers will never stop!"
- John Sviokla, Vice Chairman,
Diamond Technology Partners

"We belive the 'utility' type exchanges won't be successful. The history of industrial cooperatives was short."
- Mahmoud Mamdani, Managing Director,
Morgan Stanley Dean Witter

"The cooperative model is not necessarily bad--it can work. But you probably can't be be both models. You have to be one or the other."
- Chan Galbato, CEO, Choiceparts (a consortium)

"How do you arrange the equity structure for a consortium? Well, you award people for how they contribute to the exchange. Early revenues are more valuable, for example. And you set aside a portion of the equity that is to be earned--that's a very powerful motivator between the owner/partners."
- Mahmoud Mamdani, Managing Director,
Morgan Stanley Dean Witter

"How do you deal with Covisint? (answering an audience question) It's too soon to tell, since they've been distracted by the FTC. But start planning now how you'll work with them. And continue a letter-writing campaign to the partner CEOs, saying 'Get your act together!' "
- Mahmoud Mamdani, Managing Director,
Morgan Stanley Dean Witter

"But don't use Covisint as an excuse not to do anything in your own organization."
- (moderator) Mohanbir Sawhney, Professor of EC
and Technology, Kellogg Graduate School of Management,
Northwestern University

"There are a lot of opportunities for small players to be involved. Some consortia have up to 21 partners. We believe the consortia exist to provide value-added services to the industry."
- Mahmoud Mamdani, Managing Director,
Morgan Stanley Dean Witter

"Remember, there are other ways than consortia to benefit some industries. Distributors are stepping up in some."
- Mahmoud Mamdani, Managing Director,
Morgan Stanley Dean Witter

"The failure rate of consortia will approach that of dot-coms, about 80%."
- (moderator) Mohanbir Sawhney, Professor of EC
and Technology, Kellogg Graduate School of Management,
Northwestern University

--------

That's it for iB2B, our second and final report. But watch for more conference reports soon. Look for me in the Big Apple during Internet World week (in the press room mostly), then in Carlsbad, CA, for Herring's "NDA" -- which I hear is close to a sellout at 700+.

For reference, our first iB2B report lives here.

Again, please just reply "yes" if you'd like to continue receiving my reports. General feedback is always appreciated. And, if you have something specific to share about the iB2B event or the issues it raised, I'd welcome hearing about it.

your faithful, unstoppable, B2Baudacious (sorry),
yet semi-hard-working conference hound,
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Graeme Thickins, Founder & Principal Consultant
GT&A Strategic Marketing Inc.
*Twin Cities *LA *San Francisco *Anywhere
Voice: 952/944-1672
Fax: 952/944-1673
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
And Editor-in-Chief:
"Branding & Marketing to Win
in the Knowledge Economy(tm)"
http://www.gtamarketing.com
...A Unique Resource for CEOs...'Net Startup Founders...
VCs and Analysts...Marketing & Business Development
Executives...and Other Shapers of the New Economy...

(a web site and email list of senior executives in Internet and
new media, including VCs, angels, analysts, investment bankers,
and related professionals, now 2000+ strong and growing!)

Catch me at upcoming conferences and events like Upside's Preview,
Fall Internet World, Red Herring's NDA, The Personalization
Summit, The Standard's "i_dentity," and more....

And, hey, if you have opinions about other events I should
be covering, please let me know, would ya? Thanks.