Date: April 15, 2000

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The Industry Standard's "iB2B: The Other 95% of Internet Business" was
held March 22-25, 2000, at the Boca Resort & Club, Boca Raton, Florida
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Dear Clients, Partners, Friends, and Members of the B2Blues Club:

Sorry to start with a down note, fellow B2Bers. But does it seem to you like the bloom is off the rose a bit? The buzz off the old B, so to speak?

Thanks to those who sent nice responses to my last report, by the way. But I'm thinking this report may not get half the readership that first one did.

This B2B stuff seems, well, kinda old-hat now, know what I mean? And to think just a few short weeks ago, we were dancing in the aisles, doin' that conga-line thing, smokin' cigars, swillin' martinis, cavorting on the beach, our portfolios hotter than a Florida sidewalk in August. And, now? Well, as I just heard someone say this week:

"B2B? That's, like, so last-month, dude!"

Ouch, talk about a comedown. First the world bashed the living daylights outta B2C (including many of us in Boca)--now, they're having at B2B like there's no tomorrow!

But, my friends, repeat after me:

"Screw the naysayers--full speed ahead!"

There is a tomorrow. And to back that up, as well as buck you all up out there--you B2B faithful--I'm gonna lay it all out for you....by devoting this second of my reports on "iB2B" to the high points of the conference. A little recap of what the presenters had to say--facts, figures, predictions, comments--to support how very bright a future does indeed lie ahead for B2B.

So, consider these pearls of biz-to-biz wisdom:

- How big is the B2B opportunity? An audience vote at the outset (via handheld remote) found 32% pegging it at $9 trillion--roughly the size of the U.S. economy. Another 16% said $40 trillion! FedEx CEO Fred Smith later said his firm predicts 'Net B2B to be "a multi-trillion-dollar business over the next five years--dwarfing B2C, at only about one-tenth the size."

- If the B2B market is so big, why did B2C happen first? "Think about it--the Web was the first technology we learned at home, then brought to work. Just the opposite of the cell phone," said Mark Walsh, CEO of VerticalNet.

- Where's the source of value in B2B? Cost efficiencies, revenue generation shifting to an IT platform, and communication (the killer app of the Web), which will make *information* about transactions the basis for valuable new products and services -- that according to co-host Larry Downes, author of "Unleashing the Killer App."

- How good is business getting at VerticalNet? CEO Mark Walsh says an astounding 20% of the leads they get at their sites turn into a sale, and their average transaction is up to $25,000. At their electronics vertical alone, VerticalNet is already doing 10% of the entire market for gross spot sales in electronic components.

- Will 'Net-based B2B ultimately win out? "Not believing is not an option," said Walsh of VerticalNet. "The Web simply accelerates bad companies going away, and good companies coming on. The winners will be either the pure plays, or pure play divisions of established companies."

- Where will these pure plays get capital? Co-host Danny Rimer of The Barksdale Group reminded us that between $0.5 and $1.0 billion of venture capital is being invested *per day* now in Internet and tech companies. Just the previous week's total was 3X the number for the same week last year. And the majority of that capital is now being invested in B2B. (He mentioned http://www.VentureWire.com as a way to keep up on the latest private company fundings.) And VCs hardly have it all to themselves--HP's Nick Earle told us his company just announced a $1.5 billion fund for startups, targeted at those who've done their last VC round, but have not yet gone public.

- What penetration does the Internet have today? "Still less than 40% of the U.S. population is on the 'Net," noted Jeff Levy, founder of incubator eHatchery. "So, when it gets to 80%, think of the opportunity!"

- How patient do we need to be with Internet B2B? Bill Burnham of Softbank Ventures reminded us that "the uptake in B2B takes longer-- system integration takes a lot of time and money."

- How different is the Old Economy from the New Economy? "It's all about productivity," said FedEx CEO Fred Smith. "The Internet has the ability to make these old-line companies quantumly more productive." He later noted: "i2 has said their objective is to save their customers $50 billion over two years, and I'm sure that's true."

- How early are we in B2B 'Net commerce? "It's just starting," said Stratton Sclavos, CEO of VeriSign. "About 30% of businesses are already into e-procurement. But by 2001, 91% will purchase off the 'Net." He also quoted Andy Grove of Intel, who says only 5% of the servers required for e-commerce have been deployed. Added Jake Winebaum, cofounder of incubator eCompanies, "B2B is only 20% invented. But the next 80% will happen in only 2 to 3 more years."

- How anxious are companies to get started? "They want to be trading in 60 days in our experience," said Nick Earle, HP's president of e-Services. "That's not even enough time for their IT department to do an evaluation!" (The implication being that you'll only succeed with competent outside technology partners.)

- What's another B2B leader finding the market needs? "Even though we provide a technology platform," said Keith Krach, CEO of Ariba, "our customers are also coming to us for their *business model* -- where's the revenue? what's the best equity share with our partners? can you help us with culture? So we've formed a business unit for strategy consulting."

- Where's the value short term? "The spinouts in three years could be worth way more than their parent firms," said Nick Earle, president of HP's e-Services unit, "because they're capturing waste in the business ecosystem. Old companies will morph into new ones, if they can capture liquidity." Keith Krach of Ariba added: "If you're doing a spinout, make sure there's enough equity for the employees."

- Where's the value long term? "In 20 years time, the top market-cap companies will be the trading communities," Earle of HP said. "That's why Larry Ellison is buying into them." Added Narry Singh, partner at The McKenna Group: "There will be 25,000 to 30,000 'Net markets out there -- but maybe only 1 or 2 winners in each vertical."

- What's the new model? "It's the P-V ratio now: price-vision," said Earle of HP. "And a new type of company is coming: the 'super incubator,' which the VCs are figuring out." His prediction regarding the move by big companies joining forces to form trading communities: "The CEOs of, say, 5 companies in the car business, plus Oracle and Commerce One, won't be able to work together."

- And another prediction for 'The Next Big Wave'? Jake Winebaum of eCompanies says it will be those companies that can start from scratch, not having the baggage of re-tooling like others. (Co-host Larry Downes also noted that it's information-based companies that have a leg up--those that don't have to manufacture--entertainment included.) Jake's incubator and VC fund has just the model for starting from scratch: unlike the traditional VC approach, which takes at least 60 days to get the supporting services engaged, eCompanies put its own in-house services in place immediately. "Sometimes we even build the company to meet the opportunity," Winebaum said. [Hint: Expect at least two B2B launches from eCompanies very soon.]

- Also a key requirement: How quickly can you globalize? "That's the strong point of working with HP or IBM," said Earle of HP. "Sign the contract today, launch in 20 countries tomorrow. We did it with Ariba." A figure quoted by IDC later was that the U.S. now accounts for 56% of B2B online commerce, but global growth will shrink that portion to 38% by 2004.

- What's the killer app of B2B 'Net commerce? "Community is where the value is," said Rick Villars, VP of EC strategy at IDC. He forecasts that, by 2004, digital trading marketplaces will account for 56% of B2B online commerce. "And every business, even retail, will have to play in the online spot markets. By 2003, you'll even start seeing online commerce leaders like Dell and GE going to the independents."

- What's another key, related revenue stream? "Business intelligence is the last one to get mentioned," added Villars of IDC. "But business wants to pay for this. First, however, huge privacy issues have to be worked out."

- And the understatement of the conference goes to...? Ed McCabe, VP of Internet Research at Merrill Lynch, who really went out on a limb at the final session by volunteering: "Own a few good stocks in B2B -- there will be home runs."

Gee thanks, Ed. Like we didn't know that. But maybe his understatement was a hint of something to come, way back then (three weeks ago). A *few* he said? *good*? and *will* be home runs? Regardless, we can now all clean up on those leadership B2B stocks, at bargain-basement prices.

Anyone care to guess the bottom? Me, I say screw the waiting and guessing--I'm dollar cost averaging, and...

goin' waaaay long on B2B,
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Graeme Thickins, Founder & Principal Consultant
GT&A Strategic Marketing Inc.
*Twin Cities *LA *San Francisco *Anywhere
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Fax: 612/944-1673
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