Net Markets – Yesterday and Today: Net Markets – Yesterday and Today


What is a Net Market?: What is a Net Market? An Internet-based marketplace that creates new market efficiencies and associated value-added services, such as information, trading, infrastructure and trust A net market has the following characteristics: Creates new revenue models Has multiple buyers and sellers Can be vertical or horizontal, leveraging domains of knowledge Enables dynamic pricing Needs a strong community to be successful Developed by start-ups or spin-offs of global 2000 companies


Why are Net Markets Important?: Why are Net Markets Important? Net Markets will capture 37% of global online B2B transactions, or $2.7T out of $7.3T by 2004 (Gartner Group) Third party marketplaces will transact 15-20% of B2B e-commerce, generating revenue of $400-500B by 2003 (Merrill Lynch) Market capitalization of $800B -- $1.5T by 2003 Net Markets will grow from 18% of total B2B transactions in 1998 to 29% in 2003, totaling $438B out of $1.5T (Bear Stearns) Market capitalization of $228B by 2002


Who Will Be Most Affected by Net Markets? : *Note: Does not include financial services Sources: Bear, Stearns & Co. Inc.; Forrester Research Who Will Be Most Affected by Net Markets?


10,000 Net Markets Predicted by 2002*: © 2000 CSC All rights reserved. *Gartner Group Click to edit Master title style 10,000 Net Markets Predicted by 2002*


What’s So Great About Net Markets? : What’s So Great About Net Markets? Improve overall market efficiency Reduce transactional costs by integrating sourcing, purchasing, and billing Wider choices of buyer & selling trading partners, particularly for smaller companies Centralizes access to information Pricing better reflects supply & demand, improves allocation and utilization Attractive business model for Net Market Makers -- once critical mass is achieved Network effects Barriers to competition, high switching costs, good margins Low incremental costs to increase membership & sales Leverage market data both to improve market & resell


Key to Net Markets: Price Discovery: Key to Net Markets: Price Discovery Static pricing Sell products at fixed prices, typically from catalogs single vendor or aggregated (multi-vendor) Discount pricing rules or schedules for preferred customers (pre-negotiated) or volume purchases Dynamic pricing Increases market efficiency, welfare of buyers and sellers Reduces “lost” revenue (buyers willing to pay more) and failures to transact (sellers would accept less to make sale) Works particularly well when limited or unstable supply or demand creates price uncertainty and volatility Prices typically vary over time and across transactions Factors other than price and quantity can affect deals Markets may incorporate multiple pricing models -- dynamic and static -- for different products and situations


Dynamic Pricing Models: Our Approach Dynamic Pricing Models


Summary of Pricing Models: Summary of Pricing Models Dynamic Pricing Fixed Pricing One to One One to Many Many to Many Many to One


Net Markets Design Issues: Net Markets Design Issues Market size, transaction volumes & deal sizes Volatility of supply & demand Fragmentation of buyers, sellers, intermediaries Relative market shares (and power) of players Relative cost of sales & distribution -- “pain points” Commodity vs. complex/custom Existing price setting models Importance of branding & relationships to price Industry adoption of technology Competition How to make money - who pays what and when


Net Markets Can Play Different Roles and Face Different Success Factors and Economics: Competitive bidding events run on behalf of large buyers and sellers Subscription/savings-based fee 12 - 15 “steady” buyers Independent ownership One or more sellers offering bundled and unbundled products and services Many sellers and many buyers One or more buyers signaling demand for products and services Seller-Driven Net Market Neutral Net Market Buyer-Driven Net Market Prime and secondary product committed by major steel mills who are equity owners of the business Seller pays 2% commission U.S. Market focus Owned by LTV, Steel Dynamics, and Weirton Independent “third party” allows members to offer prime and secondary product Negotiation or fixed-price Seller commission < 1% focus on Global Markets Net Markets Can Play Different Roles and Face Different Success Factors and Economics


Business View of Net Markets: Business View of Net Markets Activities


Conceptual Architecture for Net Markets: Conceptual Architecture for Net Markets


Logical Architecture for Net Markets: Logical Architecture for Net Markets


Technology Map for Net Markets: Market Participants Participant Info. Systems Technology Map for Net Markets


Selected Net Market Component Vendors: Selected Net Market Component Vendors Catalog Management: CardoNet, Mergent, Hologix, Cohera, Saqqara, Asera, VerticalNet/Isadra,


Net Market Maker Value-Added Services: Net Market Maker Value-Added Services


Net Market Application Services: Net Market Application Services Catalog Management Data Whse/ DSS Product Configurator Personalization Content Management Community Dynamically customizing the presentation of a market Web site to members through mapping rules that match appearance and content against profiles that reflect member identities, registered characteristics and preferences, and prior interactions with the site Providing non-transactional benefits to market members through value-added information and communication channels promoting interactions and relationships between members such as discussion groups, on-line chat, and aggregation of member-supplied content. Assembling and maintaining an up-to-date catalog of goods and services available in the market through a uniform representation that facilitates buyer search and identification of desired products. This often involves integration with seller-side back-end systems Extracting market postings and transactions to data marts for off-line decision support analysis. Market makers can generate market price and trend reports, and offer query capabilities to members, producing important recurring revenues from subscriptions. Supporting the life cycle of value-added information to be made available to market members, covering content specification, authoring or collection, editing, approving, categorizing, publishing, aging, renewal, and retiring Augmenting catalog management with capabilities for buyers to define, manage, and search markets for specifications of highly customized products or complex combinations of products in terms of product, delivery, and service attributes Trading Engine Enables the core dynamic price formation capability of a Net Market, encompassing a variety of models including Auctions, Reverse Auctions, Exchanges, Negotiations and hybrid (multiple stage price discovery processes)


A Year Later…”What Happened?”: A Year Later…”What Happened?”


Summary: Summary It’s the Business Model and the Value Proposition…..stupid! Don’t let VC’s manage the Exchange Old Economy experience is a “good” thing Technology is the enabler “only”…it is not the “only” thing! There’s more to “price”…than “price” Relationships/trust are critical…and these take time! And leverage margin for all! The future?