Less e, More Commerce

Monday 5th February 2001

Karen Mollis sells fish. As operations manager for Bapobs, a fish wholesaler based in Bluff, she's the sole front-office staffer in a 12-person seafood processing operation. And by the way, she's also one of the earliest New Zealand adopters of an e-commerce solution with the potential to completely alter the nitty-gritty of how we all do business.

The technology is the e-marketplace. In an over-simplified -definition, that's a sort of internet-based trading hub bringing -buyers and sellers together and avoiding much of the tedious paperwork.

Mollis probably doesn't see herself as a revolutionary. What she sees is that instead of making up to 40 phone calls to supermarkets every morning, to sell the results of the previous day's filleting -operations, she now logs on every afternoon and lays out the day's offerings on the online equivalent of a fish stall. By the time she arrives for work the next day, all or most of it is sold.

Holy schnappers!

The marketplace she uses is Southfresh.co.nz, a dedicated seafood portal, and one of only three New Zealand business-to-business -portals up and running for more than six months (the others being computer reseller site Qualitydirect.co.nz and e://volution's gene-ral site evolveto.com). Southfresh lists Bapobs' fish alongside its competitors, and the software allows the 25 -supermarkets on the system (including the major Pak 'N Save and New World supermarkets in Auckland), and a few restaurants and wholesalers, to order what they need. The system can also generate courier -orders automatically, and Southfresh is planning to add net settlement -facilities and e-MAF certification for exporters in the future. -Perhaps the biggest advantage for Mollis is that for all the fish she sells through the system - about 70% of her business - she only has one client to bill (Southfresh) and it pays on time.

In return, suppliers like Bapobs pay a percentage of each deal. Once the majority of Southfresh's users are fully on the system that percentage is expected to be 2.5-3%, the company says, though it's a bit more at the moment. At that price, says another user, Chester Walls of Nelson-based Aquafresh, there should be enough cost -savings made to offer supermarkets a better price as well as bump up his own margin a bit.

It's all rather whizzy, but sounds, well, complicated? Actually, neither Walls nor Mollis consider themselves technofiles. Walls reckons once the internet-based system was -installed and running it took his office staff about 30 minutes to learn how to use it. And with total business growing at around 15-20% a year, he is also counting on the marketplace to help him with his next project - expansion into Australia. Southfresh boss Toby Warren is already negotiating with Australian supermarkets to get them onto the -system. If he's successful, there's a ready-made potential market for Aquafresh across the Tasman.

John Blackham, a director of think tank New Zealand Inc, -describes Southfresh as "operating an e-business that is, according to Gartner Group analysis, three years ahead of anything being -developed in the US". In fact, Blackham says, its nearest rival (a US company backed by more than $US120 million of venture capital) "has nothing to match the capability of this New Zealand-developed system". The reason no one outside the seafood industry has heard of Southfresh, potentially the largest e-commerce business in -Australasia, is that there isn't a trendy "e" prefix anywhere, argues Blackham.

L-commerce

That's because Warren doesn't have much time for "e-commerce". Despite being the main mover behind the seafood e-marketplace and not far off setting up a similar portal to deal in nursery plants (see Plants2Go diagram), Warren's just a plain "old economy" businessman (which, in e-speak, must make him a POEB). Southfresh is, he says, a system that allows buyers and sellers of fish to do business more -efficiently. For seven years from 1992, the company connected -supermarkets and suppliers using fax and phone. Introduced in October 1999, the online system simply introduced a new gadget, the internet, to improve efficiency. "Did we talk about 'f-commerce' when the fax came in? Or 'l-commerce' when we did it over lunch?"

Warren's bluntness is refreshing in a world obsessed with the jargon of e-commerce: there are third-party-owned or industry-backed e-marketplaces, sometimes known as net-marketplaces; vertical and horizontal portals; Unlimited even came across a "vortal".

E-shite aside, the numbers projected for e-marketplaces are -stunning. Jupiter Communications estimates total US internet trade will grow more than 20 times, from $US336 billion now to $US6.3 trillion in 2005 - by which time the internet will have 42% of total (online and offline) US business-to-business trade (it has about 3% now). By 2005, the research house says, e-marketplaces will account for 35% of B2B online commerce (now 2%). The percentage will be even higher in some industries, such as food and beverages, and motor vehicles and parts. Jupiter estimates that in five years' time, 41% of online trade in the US will be done through an e-marketplace.

No figures have yet been produced for e-marketplace participation in New Zealand, but the New Zealand-based arm of international IT research house IDC estimates total B2B e-commerce -expenditure will reach $US915 million ($NZ2.3 billion) by 2004. If you use the US experience as a model, adjust for our late start and possibly slower uptake, you have something like $450-550 million -potentially --pas--sing through New Zealand ----e-marketplaces by -2004.

Not surprisingly, these sorts of numbers have spawned huge e-marketplace growth. A Deloitte -Research study estimates some 1400 e-marketplaces have been launched or announced worldwide, all fighting for the B2B dollar. Unlimited found 19 real or -proposed e-marketplaces in New Zealand alone (see table). Experts predict many of these local and overseas marketplaces - some say the majority - won't survive. The ones that do will be those that -attract and retain participants (and their transactions) in a competitive environment.

Marketing hype

The phenomenon is big, and many will fail. Should you and your company be embracing e-commerce marketplaces, right here, right now? Go back to the Jupiter figures. By 2005, e-marketplaces will -account for 15% of total US business-to-business trade. Or to put it another way, 85% of trade won't go through an e-marketplace - and that's in the US, traditionally ahead of New Zealand in terms of trends.

E-marketplaces have already changed a lot since their inception. Like B2C before it, this segment of B2B -commerce will contract, because the number of players is larger than the amount of business they can generate (see "The great internet shakeout part 2", Unlimited, -November 2000).

Another change is the rapid decline in "exclusive" ----e-marketplaces. Robert Barnes, the Kiwi founder of --US-based --e---exchange specialist firm Metion, says e-marketplaces started out as exclusive buyers clubs. Apart from -potentially acting as illegal cartels, they are also impractical from a users' point of view. "Never ever join a -market that locks you in," says Barnes. Metion is developing an exchange for small to medium-sized companies. They aim to reach a substantial chunk of WestpacTrust's 60,000 New Zealand business customers.

So how do you, a potential user of an e-marketplace, know whether your company is one of those that should be hurrying to sign up? Not surprisingly, most people running portals will tell you that everyone should be. Unlimited isn't so sure.

Forget the excitement of being at the leading edge of techno-logy. Forget what -persuasive sales people will tell you about huge cost savings from cutting out the middleman, and how you will get -access --to a large number of new -contacts. Although eventually--

e-marketplaces will need to -offer a whole lot of bells and whistles services to their members, the biggest value these exchanges will provide in the next year or so is the -potential to do business more -efficiently, says Matt Kenealy, boss of Quality Direct. This is the other New Zealand e-commerce marketplace you probably hadn't heard of, but it has been doing good business - and making money - for some time. "Portals are about -using common sense and good business practice to help -people to trade effectively."

What Kenealy and Warren are saying - and -remember they are almost the only people that actually have more than six months' experience of running a ---e---marketplace in this country - is that e-marketplace -technology suits some, but certainly not all, potential users. With their help, and that of a couple of other experts, Unlimited has put together an eligibility list for anyone thinking about whether an e-marketplace is -suitable for their company or not. It's not remotely -exhaustive, and only some of the criteria will apply to your company, but the more points you score from the list, the more likely that your company should at least be investi-gating e-marketplaces.

An idiots guide

Are e-marketplaces for you?

Do I buy regularly? (Points: every day = 10; twice a year = 1)

If you buy the same thing every day, or at least pretty often, e-marketplaces might help. Particularly if the buying process is a very routine operation - call the supplier, ask for today's price, place an order, wait for the goods to arrive, pay. Having your computer do the boring bits would be great.

But how about something like office stationery? It's one of the stock examples used by purveyors of e-marketplaces trying to sell you on their merits. Everyone buys stationery, they say, and it's so much easier online. Maybe, says Toby Warren, founder of the Southfresh portal. If you are a largish corporate you probably order stationery almost every day, and probably have someone dedicated to doing it. Go the e-marketplace route by all means. But take Joe Blow Enterprises. He might only have a decent stationery order every couple of months. Unless the marketplace is incredibly easy to use, Blow will probably have forgotten his password and how the system works from one order to the next. Why not just call the rep and order from the catalogue like he's always done?

"There has to be a compelling reason why you use an e-marketplace," says Warren, who did buy stationery online - once. "If you do the same thing every day, and it's embedded in the way you do business, that's compelling."

Is there a lot of manual transcription involved in my transactions? Are there lots of different people involved in different stages? (Points: yes, it drives me mad = 10; no, we're pretty efficient = 1)

Here's a compelling reason. Maybe you are buying travel. First, the person travelling asks their assistant to book a flight. They write down the details and ring the travel agent. The agent writes down the details and makes the booking. When it's confirmed, the company accountant is sent the booking slip for approval. When the trip is over, the credit card company sends the bill, the traveller fills out an expenses form and it is again approved before money is released. At its best, a marketplace can be an intermediary between the business person, the travel agent, the person approving the travel and the credit card company, taking a lot of the paperwork out of the process. "Streamlining processes is one of the key positives for e-marketplaces, not necessarily price," says Brent Ellison, -e-business architect for marketplace software company SAP.

How integrated is the internet throughout my organisation? (Points: everyone's online on the same network = 10; it's pretty random = 1)

The more fully e-enabled your company is, the more chance you have to get benefits from streamlining your business processes. If, as a supplier, everyone - from the sales assistant who takes the order to the storeman that packs it - is able to use the system, you are likely to get more internal savings and provide better information for customers.

Do I have variable supply? (Points: definitely = 10; not at all = 1)

If you buy something that is available some days, but not others, or where one supplier might not always have what you want every day, or where the product might vary in price according to season (timber, IT equipment, fresh fruit, fish or flowers, for example) an e-marketplace may be for you. It allows you to see all the suppliers that have the product you want on the day you want, and what price each is offering.

Do my price negotiations require lots of human imput? (Points: yes = 1, no = 10)

As anyone who has tried to organise a meeting through email or tried to buy something from an online auction will know, negotiation (for time, price or anything else) is usually easier done -face-to-face, or by phone. Available software can probably do commodity-style negotiations, and there's a lot of work being done on pricing robots, but if your company negotiates its deals, check out how efficient available market software is for your purposes compared to a discussion over lunch, or simply telephoning in order to haggle. "Many exchanges try to do too much. -You shouldn't imagine that computers do it all. They only do the repetitive stuff," Warren says. "Let's not ask them to negotiate business; let's ask them to do things they can do. Don't call it e-business. Call it computer-assisted people business."

Am I expecting an e-marketplace to bring me new customers? (Points: definitely = 1, no way = 10)

Unless you are selling the most bog-standard commodity, most people buy from people they know and trust, or people who sell products whose brand they know and trust. So while an e-marketplace has the potential to provide buyers with a long list of new suppliers, these buyers won't necessarily use their new contacts. As Warren puts it: "People think exchanges will sell for them. I don't believe they will. We say to people, this will not increase your sales. You still have to find your customers." Once buyer and seller have developed a good relationship, they might do business through an e-marketplace. However, if your main rationale for considering an e-marketplace to access new buyers, think again. Or look out for marketplaces enforcing independent product or company certification as a condition of joining.

Do I have buy-in from the top? (Points: the chief executive is leading the charge = 10; senior management doesn't understand the benefits = 1)

IDC's Wellington-based senior internet analyst Patrick Pilcher says one of the essentials for successful e-commerce (and it applies to e-marketplaces as well) is getting management support. "If only a small part of the organisation is pushing for it, the initiative will be stunted, and you will lose the benefits," he says.

Would I like more information about what's going on when I'm buying? (Points: definitely = 10; not really = 1)

New Zealand-based computer and IT equipment marketplace Qualitydirect.co.nz emerged from - and still runs alongside - a traditional IT wholesaling operation, Axon Computertime. Axon boss Matt Kenealy's rationale for developing the marketplace in 1997 was that there would be more information available to customers and suppliers if it were combined into one database. Kenealy's system can do some cunning things, like providing real-time product pricing, stock availability information and an automated back-order tracking service for buyers.

But there is one additional value-added service making the

e-marketplace compelling: Quality Direct's system benchmarks suppliers against each other in terms of whether they deliver the product they said they would at the time they promised. If you've ever bought a computer you'll know the frustration when a -two-day delivery time stretches out to two weeks, and no one can -tell you where the problem lies or when the damn thing will arrive. By benchmarking suppliers, Quality Direct can tell buyers from the start that company X has an 80% record of delivering on time, against 50% for company Y. Not only can the customer make an informed choice but (surprise, surprise) once this information was being circulated, the accuracy of suppliers' information and their delivery reliability improved dramatically, Kenealy says. "In the worst times of information and delivery we had difficulty being accurate more than 20% of the time. Now we are tracking at 95% accuracy. That translates into customer satisfaction, up from 20% to 80%.

"Simply being a clever portal and clipping the ticket [Quality Direct takes approximately 5-10% on transactions] is a nice idea," Kenealy adds, "but [to make money] you have to be adding value to both the customer and the supplier. Remember, people aren't used to paying for information online. Either you have to have access to unique information or you have to use that information in a unique way to make it valuable."

Your score?

50-80 points: You're ready to sign up, but are the New Zealand e-marketplaces ready for you? (see table for details)

20-50: You should be checking out your options and brushing up on the technology (see main article for ideas)

0-20: Go get a beer and relax, this isn't for you yet

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