First, I am gratified by the response to my first B2B column. Not too many investors, in my experience, are drawn to abstract industry discussions. It seems that most folks want to jump straight to the company level. Maybe this is a better approach. I don't claim to know. But I'm stubborn enough to start with the building blocks of the industry before I start talking about specific companies. I find this helps me make more objective business model evaluations before I get wrapped up in specific companies, and all the propaganda and relationship traps that are sprung for investors at this level.
B2B Response Thread 1, on the Rule Breaker discussion boards, was devoted to just this kind of industry level analysis. As I worked my way through it, then, I was thrilled to see that many responses took strong exception to my idiosyncratic industry breakdown. Sifting through these Thread 1 posts -- plus associated e-mails and suggested references -- was one of my most Foolish experiences to date. I gained a useful insight from almost every one of them, some from players in the B2B field (who, of course, don't all agree with each other) and some from more typical Fools, like me, without a strong background in B2B.
What!? You're not a B2B expert, Buster? You dog. Quit wasting my time, would ya! Get back to me when you are an expert or, at least, when you have a stock tip. Geez�
Is this what you're thinking?
If so, I'm afraid that my ongoing B2B quest will disappoint you. Because, in this effort, I will be displaying some core Foolish values:
- I don't intend to end this conversation; I'm just starting it and attempting to add some structure.
- I'm no top-flight B2B analyst, just an individual investor, writing for other investors.
- The learning process goes nowhere without some expert input.
For the record, this particular Fool has never hated Wall Street Research. I use all I can get my hands on. I just skip all the inane short-term earnings estimates, price targets, upgrades and downgrades, and all the other useless crap designed to boost broker commission revenues at the investor's expense. You and I can guess just as well. But the industry and business model discussions are often excellent (just like our stuff!).
By putting my learning process on display, fraught with basic topics and even mistakes, I hope to provide a useful guide for Fools who, like me, can't comfortably start at the advanced level. In educational pursuits, I've always found that once you finally "get" something, it becomes harder to teach. I admit that I don't get this yet, hopefully to your benefit. At the same time, though, I have to add some value by saving you research time and also by making the effort accessible to the average Fool. This is what I'm aiming for.
Sorry for the Fool stump speech, but some of the feedback I received caused me to question whether I was misleading some readers. This isn't about me making the next Rule Breaker pick. That would be a nice outcome, of course, but not really central to the exercise. Either way, I have to form a good enough argument to convince David and you'll be free to make your own decision.
Now that we're all on the same page, I hope you'll stick with me. Here we go�
First off, the poll results from last time surprised me. Internet Payment Systems and Security (subindustries 5 and 6 combined) was the big winner. Based on other feedback, I'm guessing that this victory was driven by strong interest in Internet Security Systems, number 5. I think we can safely drop number 6, Internet Payment Systems from this winning entry and focus on the security component. Like the need for security, payment systems will be ubiquitous, but there doesn't appear to be much opportunity, in this area, for sustainable competitive advantage of the rule-breaking kind. All of today's dominant payment systems are sure to be duking it out, racing to re-shuffle market share as the whole industry -- as it exists today -- moves online. Interesting, but not Rule Breaking.
I have to admit that I was shocked by the last place finish for Selection 3, Auction Marketplace Builders. To the na�ve me, this appeared to be the most ground-breaking and emergent piece of the B2B puzzle. I haven't given up this opinion, but like any good investment club, you folks have caused me to think more before jumping to this conclusion!
Some other takeaways from our discussion:
1) I didn't understand the commonly accepted distinction between front and back-end enterprise applications when I wrote the article and created the poll. I was held accountable many times, but perhaps BillyBobJimRay put it most simply:
"Back-Office applications involve non-customer facing operations such as accounting, human resources, manufacturing, and distribution. These applications help companies cut costs by operating more efficiently. Front-office applications help them increase revenue by finding new customers and keeping their existing customers happy."
2) A lot of the hype surrounding B2B focuses on the back-end, most notably supply chain management. And for good reason, in my opinion, since this should be the easiest place to deliver bottom-line savings in short order. Machines and logistics planning are just a lot easier to understand -- and improve upon -- than is meeting the needs of people.
On the other hand, though, the slickest supply chain on the planet does nothing for you if you can't build a Web interface that grows demand (attracts and satisfies customers), supplies decent forecasts to the supply chain (based on meaningful inputs from customers) and generates product development ideas (probes to understand the customer's unmet or even unexpressed needs). For this reason, leaving "Front-end" applications out of my breakdown was a gross oversight.
Well, I'm out of space for tonight. I promise to take this up in more detail next time. Until then, here's another angle I'll be considering:
Are Application Service Providers (ASPs) the true Rule Breakers to be in B2B?
Isn't outsourcing the whole IT department -- from machines to data storage to applications to applications support -- the natural next step in the drive towards "light" business models where everyone focuses on only the piece they do best? Don't all businesses crave software standards (think Microsoft) and couldn't a popular ASP provide a standard suite of both front and back-office applications, already integrated, secured and linked to market places behind the scenes?
If such an ASP were to gather sufficient momentum, could it do for B2B what Microsoft did for operating systems, if not across-the-board, at least within particular industries? Wouldn't this be the ultimate B2B software company with consistent revenues (companies subscribe to ASPs rather than buying software and a maintenance contracts) with a sustainable competitive advantage?
Or did Buster just get drawn in by hype? Let me know what you think on our Rule Breaker Strategies discussion board.
