Ask the Expert

BOSTON (06/15/2000) - Thomas Koulopoulos, president and founder of Delphi Group Inc., a Boston-based e-business consultancy, answered readers' questions on CIO.com about his area of expertise, business-to-business portals.

Q: B2B portals seem to be springing up from many sources. What types have the best chance of long-term success?

A: At The Delphi Group, we have identified 200 of these portals. It is clear that the value migration in the equities markets will beat a path directly to their doorstep. This momentum will obscure the long-term value plays. But when the dust settles, it is clear that the greatest value will be found in those vertical portals (vortals) that do the best job at three tasks:

1. Trade crossover: the ability to create new markets by aligning supply chains with demand chains.

2. Trade support: providing services that make a market more efficient, not just more complex (for example, legal, financial, administration and so on).

3. Trade syndication: creating a market where the business value of experience can be syndicated to form new communities the same way content is today syndicated to form webpages.

Q: I have a couple of questions: We are a traditional media outlet that is struggling to create a dotcom division. Where do you start? That is, what are the basic steps that need to be covered before the RFP stage? Also, the company principal has decided to "lead" the new dotcom division, despite a rudimentary understanding of the Internet and no understanding of back-end issues or how to deal with consultants and higher-level technology issues. Should I try to stop this guy, treat this as his educational opportunity or quietly manage the project from the shadows?

A: Actually, you are asking only one question. Your second question answers the first. The challenge for traditional companies in traditional industries is usually a cultural one--often starting at the top. However, your perception of this as an educational opportunity is spot on. Sponsorship is the hardest thing to come by when deploying new technology. If you have it, use it. As for the mechanics of an education, find a way to get him involved in an intensive education with a team representing IT, business and users. With a common vocabulary and a foundation of shared knowledge, he can create a safety net of advisers to guide your transition.

Q: In my opinion, vortals are one of the most important opportunities for small and medium enterprises (SMEs) to achieve an e-commerce advantage. But how important is big-business sponsorship for B2B vortals? In other words, is it possible for a group of SMEs to create a vortal without having an important enterprise (General Electric, for example) guarantee the traffic for them?

A: Great question. In short, yes it is possible, as long as the SMEs have a sufficiently cohesive community. It's the community that provides the momentum and value for a vortal. Historically, large companies have locked in large communities of suppliers in the formation of their supply chains, but in an e-market, this dynamic can quickly be eroded as time to community compresses, allowing new value chains to form in far shorter periods of time.

Q: Do you think XML will overtake EDI as the preferred data exchange medium for B2B transactions?

A: Absolutely. XML will become the platform for e-markets. In addition to its wide acceptance and support by e-market players, XML differs from EDI in one fundamental aspect--it is inclusive rather than exclusive. In other words, EDI provides narrow channels of transaction exchange between highly regimented standards in closed communities. XML allows for a much more open environment that leverages the ability to syndicate transactions throughout partners across industries.

Q: How do the portal business models make revenue? They must sell a lot of advertising.

A: Actually, the billboard model is the lowest form of business model and one that is likely to be the least attractive to the creation of a long-term value proposition for a vortal. A model that charges either a fee for subscription to the service and then a per-transaction fee (usually percentage-based) is much more likely and attractive.

Q: As a business leader for a financing company, I'm interested in developing a B2B portal for my customers and their suppliers. What are the most important things for me to keep in mind as I develop this site?

A: You've hit on one of the most underplayed aspects of vortals--that is, the formation of a community that provides the business services needed to support B2B transactions. As the velocity of a market increases, the efficiency with which key services, such as financing, are delivered must also increase.

Unfortunately, much of this discussion to date has focused on the commoditization of financial services through online banks that promise to dissintermediate the financial process. That's a shortsighted solution. The greatest value play for a financing organization would be to offer a reintermediated approach to financing. You see this in the business-to-consumer segment through services such as LendingTree.com. The key is to offer a mechanism that matches the right lender with the right transaction. In this sort of market, the financing institution may actually create markets by identifying transactions and lenders that never knew each other existed!

Q: What kind of B2B is "actually" happening in the industrial construction arena?

A: Construction is one of the key industries for the formation of vortals (www.thevortals.com). Ironically, the most literal example of brick-and-mortar may end up being one of the best examples of overcoming the challenge of transforming to click-and-mortar. I recently met with a company that purports to be one of the largest manufacturers of brick in the world, and their biggest concern was not Will we transform? but rather, Do we create a vortal or participate in one? Few industries are as fragmented regionally as the construction industry, where localized business and distribution channels are a standard part of the culture and business model. This results in enormous market competition driven by equally enormous market inefficiencies. You have to ask, If these inefficiencies are mitigated, how will the competitive nature of this industry change? Initially, most of the B2B will be subject to the localized nature of this business, and as a result I see myriad minivortals springing up, which are in turn consolidated through industry megavortals, such as Cephren. But unlike the General Motors-Ford-DaimlerChrysler purchasing alliance announced recently, global consolidation will probably be much slower in this space.

If you would like to recommend an expert for this column or suggest a topic, please e-mail CIO Senior Writer Daintry Duffy at dduffy@cio.com.

ASK THE EXPERT

Have a question about online retailing? Gordon Jones, CIO of Santa Clara, California-based software retailer Beyond.com will be available to offer insight on online retailing, including infrastructure, logistics, security, locality and integration issues. Post your questions for him now until June 30 at www2.cio.com/CIO/expert or e-mail questions to asktheexpert@cio.com.

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