One month and multiple false starts later, this Rule Breaker B2B quest is finally picking up momentum towards a conclusion. Tonight we'll end up with a list of just three candidates. If we don't agree, don't sweat it. Who am I? Instead, get out on the boards and lay out a solid argument for your top dog that leaves mine begging for mercy!
Last time, we used Rule Breaker criterion number one to pare our list down to seven candidates. Tonight we get down to business with the key breaker criterion, number two, a sustainable competitive advantage. When looking at the field through this lens, three favorites take clear shape.
B2B is an Infant
One thing is clear. The emergence of online business-to-business marketplaces has just begun. The first functioning markets are still gaining control of their basic functions and, sometimes, look more like infants hitting themselves in the head than toddlers touching their noses (to say nothing of rubbing their bellies).
Like a ward full of newly birthed babies, the broad field of marketplace service providers -- including systems for payment, security, shipping, logistics, and supply-chain planning -- are just starting to figure out what they can and cannot do. But like early trips to the doctor, early marketplace results are already giving some clues as to which competitive advantages will be held by which babies, among all the wee ones that will make up THE baby, B2B.
Supply Chain: i2 Technologies
In my humble opinion, the brains of this new baby will be supply chain guru i2 Technologies (Nasdaq: ITWO). It provides not only the software, but the ideas that make made-to-order manufacturing possible.
i2's recently completed blockbuster acquisition of Aspect Development strengthens its position on the brainy product development end of supply chains. Made-to-order loses a lot of its power to please if companies can't tailor product designs to accommodate custom orders. And in high-speed, high-dollar manufacturing, where changing something as simple as package size can be a challenge, this will be no small accomplishment.
i2 derives its sustainable competitive advantage from hard-to-duplicate software intelligence in functions key to the B2B vision.
Ultimately, B2B (indeed, business itself) comes down to marketplaces and Ariba (Nasdaq: ARBA) has built more marketplaces than anybody else. More importantly, though, they provide the software and the expertise that ties participating buyers and sellers into these marketplaces.
The key to recognizing Ariba's competitive advantage is understanding what it means to be "tied in" to a marketplace. To achieve the much-promised B2B cost savings, businesses must link information from external marketplaces with internal company software systems that control budgeting, human resources (buyer privileges), and other back-office functions. In other words, Ariba's buyer software becomes, in essence, the heart of the company's buy side.
Once these market-centered, Ariba-specific connections are built, then, it's hard to imagine anything more damaging to corporate IT system than yanking them out. Pull out a software system on one end of the business, and you need only build back a few links while the business continues to operate -- tough, but doable. Pull out one in the middle -- in the heart of the business -- though, and get ready for some serious challenges and the potential for not just system down time but, perhaps, business down time.
Ariba also enjoys a competitive advantage via network effects. Some industry experts argue that Ariba's lead in live market building stems from its focus on the lower-hanging fruit -- fragmented, horizontal markets for indirect goods, with fewer powerful buyers and sellers and fewer well-entrenched middlemen. On the flip side, they point out that CommerceOne (Nasdaq: CMRC) may be building more subtle advantages by tackling the tougher problems found in integrating the complex supply chains for large buyers, where both technical and political challenges abound.
This may in fact be true, and if it is, Ariba may fail to realize its Breaker potential. But watching Microsoft has taught us one thing: in software, brawn usually beats brains. And Rule Breakers are made, to some extent, via early momentum. If Ariba gains enough brawn early, all the brains in the world may not be able to unseat it.
Application Service Provider: USinternetworking
The nervous system for this developing baby might be application service provider (ASP) USinternetworking (Nasdaq: USIX). Many powerful forces are leading companies to complete the circle -- from dumb terminals, sending and receiving simple commands, with the brains on the mainframe, to distributed client/server networks, with brains on the desktop, back to dumb browsers and wireless devices, sending and receiving commands, with the brains on the Internet.
Broadband technologies offer the speed to make centralized processing possible again (and you thought it was just for dirty pictures!). Broadband arrives just in time. The business computing world is suddenly getting a lot more complicated, especially for the small to mid-tier supplier who now has to connect his business to e-commerce networks, in order to survive. This guy will no longer be able to rely on a PC and the kids at Circuit City for his IT support. Can you imagine how quickly this guy will jump if offered, for a nominal monthly fee, a full suite of best-in-class office applications, already integrated with each other and into trading networks?
Even for larger corporations -- who will surely be the last to jump on any ASP train -- outsourced IT is starting to make some sense. For one thing, everybody wants a light business model these days, focused on customers, knowledge and brand. If manufacturing can be spun off, why not computing systems? Moreover, given the shortage of quality people in the technical arena, it makes sense to consolidate these resources in the same way that an ASP can successfully consolidate the computing challenges.
USinternetworking is far from establishing a sustainable competitive advantage, so far. However, if all three of these companies realize their vision on a grand scale, USinternetworking will have the least trouble finding new avenues for growth. In fact, the day could come when all businesses see the world of IT through a Net browser powered by a few dominant ASPs, probably aligned along industry lines. If this indeed comes to pass, and server operating systems become transparent to businesses, these ASPs could wield the ultimate software advantage, taking over Microsoft's role as the one bridge everyone has to cross if they want to sell software.
Big dream? Hey, that's what Breaking rules is all about!
OK, now it's down to three. Please help me take the next step by registering your opinion on the Rule Breaker Companies board. Until next time...
Does ASP Mean Awesome Stock Prospects?, Fool on the Hill, 7/18/00
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