I recently had the opportunity to sit down with VerticalNet’s President and
Chief Executive Officer Mark Walsh. Among other things, we discussed Mark’s thoughts on the
entire B2B landscape and also what we can expect from VerticalNet going
forward. In Part I, Mark Walsh talks about the broad face of B2B commerce.
Part II Friday goes into more detail on VerticalNet.
The interview is a continuation of the series I began last week entitled
“The B2B Ladder Approach.” The article featured three top-tier
business-to-business companies; Safeguard
Scientifics (SFE), Internet Capital Group (ICGE),
and VerticalNet (VERT).
Reporter@Large: As a leading figure and one of the most experienced
executives in the B2B space, what is B2B e-commerce truly about in your
view?
Mark: Well, the consumer marketplace, the things we buy as consumers and the
Internet’s ability to deliver them to us, or let us find them, is
fascinating.
But the very things the Internet is good at: finding the low cost supplier
and driving down prices, actually cripples the retail environment. The low
cost supplier is always rewarded because consumers are all cost conscious,
if not price driven. There is very little loyalty.
On the other hand, the Internet for business markets mostly enhances what
the entire business market wants. So I think B2B e-commerce is really more
about product information, product supply, multi-vendor sourcing, comparison
and auctions that than it is about price. The B2B buyers are far less price
conscious than consumer buyers and often use price as the last metric when
deciding on a purchase. The Internet allows businesses to find multiple
sellers, compare information about the products, reach out to the buyers,
engage the buyers in conversation and then pursue that conversation either
online for the transaction or offline, for a lot of transactions.
What is really amazing about the B2B market is that there is so much more
robust a texture to it than the B2C market. There are small companies,
medium sized companies and large companies. Large companies have the issues
of what the Internet can mean to how they sell things. Medium sized
companies see the Internet as an incredible opportunity to reach up and get
bigger companies as customers. Small companies see the Internet as a way to
truly level the playing field, in how they get their products out to market
and in some cases how they buy products and source products themselves, at
prices that are more appealing.
Sort of the wrapping and the bow on top of everything is the idea that B2B
markets are by their very nature global from day one, kind of the secret
sauce that accelerates a lot of the value. Just as a quick data point, 40
percent of the traffic on our sites is non-U.S. traffic and we’ve done
nothing to promote that.
Reporter@Large: It’s interesting that you mentioned the small, medium and
large sized B2B companies. Forrester projects the B2B market to do $1.3
trillion in transactions by 2003. Is there room for a lot of success stories
here, or are we talking about a few big winners?
Mark: I think that’s a matter of timing. When the car business got big in
the U.S., there were 50 car companies. When the telephone business started
to gain traction in the U.S., there were 300 telephone companies. Obviously
we’ve seen consolidation in both industries. I think it depends on the
calendar of your question. It is my contention that much like the consumer
onlin
e business in 1992, 1993, and 1994, when there were 4,000 bulletin
boards all servicing individual audiences, there were eight online services,
some aiming at businesses, some aiming at consumers, all with growing
audiences but all with relatively similar products.
Now six or seven years
later, there is effectively kind of one major online service and there are a
bunch of suppliers of information and community builders like a Yahoo! Then
there are the service providers underneath that like the Amazons and eBays.
I think you’ll see a similar consolidation (within the business-to-business
market). I think it will take some time though, where the companies that
have reasonable business models, that are well financed, execute and are
focused will certainly be well positioned.
Reporter@Large: Will financing, or lack there of it be the driving force
behind consolidation in the business-to-business sector?
Mark: Well, I think money matters, and for folks like us, our equity is of
value. We’ve also raised $175 million and have a strong balance sheet that
allows us to sweeten the offer with good old hard cash. So I think those
with a “war chest” of cash and some stock that is of meaningful value have a
leg up in the M&A game from those who do not.
Going back to the root of your questions, Will there be consolidation and
will there only be a few winners? I kind of disagree with that. I think
there will be some striations of winners depending on the services offered.
I think there will be multiple winners because this market is so much bigger
than the consumer market. It’s easy to take what has happened in the
consumer market and then turn the binoculars over to the B2B market and then
say ok, whose the AOL, Yahoo! and Amazon over here, implying AOL is the
network, Yahoo! is the community play and Amazon is the sales play.
Well, I
don’t think the B2B space is going to be that clear at all. There is not
going to be one infrastructure play, one community play and one sales play
for all of business-to-business. I think there are going to be maybe 2-3
winners in lots of different layers, which makes it more complicated but
there is so much more money at stake, there is lots of room to have winners.
Reporter@Large: You mentioned a company’s “war chest.” A large backer of
yours, Internet Capital Group (36%), certainly brings a large war chest to
the “B2B battle.”
Mark: I think Internet Capital Group is doing it the right way. Their
proposition to the shareholders is “look, we’re smart guys…we found
VerticalNet…VerticalNet is the poster-child for our ability to discover, get
to know, finance, and in some cases nurture, then send these strong
companies out of the nest, and let them grow strongly on their own…and guess
what, we’re smart enough to find more of those.” I think for many casual
shareholders and for many more professional shareholders, ICGE is a darn
good bet because they will find more VerticalNets, more market makers, and
more infrastructure companies that really chase and dominate markets where
there is lots of money.
So it’s great to have Internet Capital Group on the team because they’re
fascinating to bounce ideas off of. I don’t know of any other place that has
the strength of deal flow that ICGE has right now. We have a lot of deal
flow too. It’s incredible how many companies are coming to us saying would
you invest in us, can we use your back-end infrastructure to launch a
vertical. We call that “VerticalNet in a box” where we launch unbranded
“verts” for somebody else and we’re paid on the back-end. But ICGE is really
the Grand Central Station of deal flow right now.
(Editor’s Note: Tomorrow, Mark will discuss VertcalNet’s progress to date, as well as
plans for the B2B “portal” going forward. Among other things, you’ll hear
about VerticalNet’s focus on creating more transaction oriented,e
-commerce,
revenues. I also asked Mark if he had any plans for IPOing any of the
company’s individual verticals.)
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