DO NOT DISTRIBUTE. B2B Exchanges: The next industrial revolution? Paul Farris, Darden School

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1 B2B Exchanges: The next industrial revolution? Paul Farris, Darden San Diego, 9/26/00 Sponsored by: NRF - PricewaterhouseCoopers - Darden Survey: Respondent Roles Seller/Potential Seller 20% Buyer/Potential Buyer 47% Operator 7% Both Supplier and Operator 7% Both Buyer and Operator 20% 1

2 Survey: Exchange Trading Methods Fixed-Pricing One-to-One Negotiation Seller-Driven Auction Buyer-driven (reverse) Auction Continuous Two-Way System Survey: Exchange Trading Methods Fixed-Pricing 37% One-to-One Negotiation 63% Seller-Driven Auction 33% Buyer-driven (reverse) Auction 67% Continuous Two-Way System 67% 2

3 Survey: #1 Exchange Drivers Lower Purchase Costs Reduce Inventory Costs Expand market globally Increase trading community Lower supply chain costs #1 42% 3% 10% 7% 39% Survey: #2 Exchange Drivers Lower Purchase Costs Reduce Inventory Costs Expand market globally Increase trading community Lower supply chain costs #2 14% 40% 14% 18% 17% 3

4 Survey: Least Important Exchange Drivers Lower Purchase Costs Reduce Inventory Costs Expand market globally Increase trading community #5 4% 26% 32% 23% 8% Lower supply chain costs Survey: Exchange Commitment PARTICIPANT Commitment % MRO Suppliers Mfg. Input Suppliers Systematic Sourcing Suppliers Spot Sourcing Suppliers Suppliers without EDI 4

5 Survey: Exchange Commitment PARTICIPANT INVOLVEMENT % MRO Suppliers 54% Mfg. Input Suppliers 46% Systematic Sourcing Suppliers 29% Spot Sourcing Suppliers 29% Suppliers without EDI 21% Most Exchanges to be funded from operations. How? Survey: Revenue Generation Transaction fees Sub. Fees % Savings Listing Fees Posting Fees Advertising Fees Info. Licensing Fees Revenue Sharing Software Licensing Info. Selling Fees 5

6 Most Exchanges to be funded from operations. How? Survey: Revenue Generation Transaction fees 83% Sub. Fees 50% % Savings 33% Listing Fees 21% Posting Fees 17% Advertising Fees 17% Info. Licensing Fees 4% Revenue Sharing 12% Software Licensing 12% Info. Selling Fees 8% Survey: Exchange Profitability Profitability Time Frame Expectation % Within 1 Year 1-3 years 3-5 years Greater than 5 Years Never Not Sure 6

7 Survey: Exchange Profitability Profitability Time Frame Expectation % Within 1 Year 13% 1-3 years 44% 3-5 years 4% Greater than 5 Years 0% Never 22% Not Sure 17% Survey: Activity Levels ACTIVITY% SUPPLIER SALES BUYER PURCHASES Less than % Unspecified 1 7

8 Survey: Activity Levels ACTIVITY% SUPPLIER SALES BUYER PURCHASES Less than 10 22% 9% % 39% % 21% % 4% % 0% 9% Unspecified 27% 17% B2B Partnering: Formal or Loose? Formal, Contractual Loose, Collaborative 8

9 Survey: Vendor Relationships? Exclusive, Non-exclusive, Both? Exclusive Non- Exclusive Both Survey: Type of Purchase Activity Systematic Sourcing Spot Sourcing Both 9

10 Survey: Type of Purchase Activity Systematic Sourcing 26% Spot Sourcing 13% Both 61% Survey: Degree of Integration INTEGRATION LEVEL Expectation % Fully Integrated Partially Integrated Entirely Separate Operation 10

11 Survey: Degree of Integration INTEGRATION LEVEL Expectation % Fully Integrated 4% Partially Integrated 91% Entirely Separate Operation 4% Survey: Source of Management Team Hired from Outside 57% From Parent Company 44% 11

12 Survey: Representation of Interests Buyer Representation Seller Representation Neither (remain neutral) Survey: Representation of Interests Buyer Representation 27% Seller Representation 22% Neither (remain neutral) 50% 12

13 Survey: Fraud Protection PROTECTION METHOD Expectation % Authentication & Tracking Digital Signatures Anonymity Survey: Fraud Protection PROTECTION METHOD Expectation % Authentication & Tracking 86% Digital Signatures 4% Anonymity 10% 13

14 Will XML play a critical role in the design of the exchange? Yes 100% No 0% Survey: Current Data Transmission Standards EDI XML Both 100% expect XML to play a critical role in the exchange design. 14

15 Survey: Will the exchange choose a technology partner through a strategic partnership Yes 100% No 0% Survey: Which value-added services will be included? Escrow services Invoicing Payment processing Shipping & warehousing Credit analysis Receivable mgt Analytical research tools Inspection Insurance Currency services 15

16 Survey: Which value-added services will be included? Escrow services 4% Invoicing 54% Payment processing 54% Shipping & warehousing 38% Credit analysis 21% Receivable mgt 30% Analytical research tools 21% Inspection 17% Insurance 8% Currency services 12% Survey: Which collaborative value-added services? Forecasting Planning Logistics EDI Translation 16

17 Survey: Which collaborative value-added services? Forecasting 50 % Planning 37 % Logistics 37 % EDI Translation 25 % Survey: Which Information Services? Industry Updates Standardized Documents Bulletin Boards Tailored News Discussion Forums Commodity Prices Stock Quotes 17

18 Survey: Which Information Services? Industry Updates 54% Standardized Documents 54% Bulletin Boards 46% Tailored News 38% Discussion Forums 29% Commodity Prices 25% Stock Quotes 4% B2B Customer-Support Services Help Desk Feedback Systems Training Sessions for Members Trade Facilitators Complaint Resolution 100% expect to support multiple languages 18

19 B2B Customer-Support Services Help Desk 62% Feedback Systems 58% Training Sessions for Members 54% Trade Facilitators 46% Complaint Resolution 33% 100% expect to support multiple languages B2B Exchange Concerns Brand Association Effects Anti-Collusion Reviews by Regulators Effects on Dynamics of existing Relationships ROI Regarding Prior EDI Investments 19

20 B2B Exchange Concerns Brand Association Effects 4% Anti-Collusion Reviews by Regulators 21% Effects on Dynamics of existing Relationships 72% ROI Regarding Prior EDI Investments 4% B2B Exchange Funding Borrowed Funds 0% Cash Flow from Operations 58% IPO 4% Individual Angel Investor 4% Corporate Angel Investor 12% Venture Capital Firm 8% Buyer Partner/Seller Partner 46% 20

21 What user groups will participate? Owners/Shareholders 46% Sellers or Suppliers 71% Buyers or procuring Companies 75% Brokers or other Intermediaries. 30% Listed Companies 42% Issuers of Traded Products.. 8% Data vendors and service providers. 12% General public 0% Government 8% Infomediaries 0% Content suppliers 4% Participants John Corrigan Mike Frank, Target Herb Kleinberger, PwC Jerry Miller, Sears Paul Farris, U. Virginia 21

22 Discuss the Objectives, Organizations and Business Models of B2B Exchanges in Retail Provide a forum to discuss emergence of best practices for retail exchanges Focus on the key issues for exchange design and management? Look at this from the perspective of business model Critical stage of development Network effects: How do we assess critical mass? The value created by consumer hubs tends to increase linearly in the number of buyers; the value created by B-to-B hubs increases as the square of the number of participants. --Mohanbir Sawhney and Steven Kaplan, Let s Get Vertical, Business 2.0, September 1,

23 Format Introductions, disclosures of our points-ofview Series of questions Response of panelist in a rotating batting order Ask audience to commit by filling out the appropriate survey item Ask for audience observations/questions Disclosure of results to date. 23