B2B Winners in 2000 Won't Have Repeat Performances in 2001 - TheStreet

B2B Winners in 2000 Won't Have Repeat Performances in 2001

Software companies like Ariba and Commerce One are out. Supply-chain management software is in.
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Here's a prediction for business-to-business stocks: The leaders for 2001 won't be the same old names.

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Time was, the first and last names in B2B stocks were

Ariba

(ARBA)

and

Commerce One

(CMRC)

.

Ventro

(VNTR) - Get Report

or

VerticalNet

(VERT)

were B2B's middle name. There was big demand for the products Ariba and Commerce One make, software that lets companies buy supplies over the Internet. The same was true for stuff from companies like Ventro and VerticalNet, which set up online marketplaces where businesses can meet other buyers and sellers on the Internet.

Fast-forward to today. Ariba and Commerce One have fallen, as companies begin to understand that there's a lot more to B2B than buying and selling toiletries, office supplies and PCs over the Internet. And companies like Ventro and VerticalNet, known as independent Net market makers, have fallen even further as big corporations discovered they could use software from the likes of Ariba and Commerce One to set up their own online exchanges.

A Tough Year for B2B's Leaders
Ariba and Commerce One stocks stumbled in 2000.

Thus, in 2000, software companies were the big B2B winners. And software is likely to be the story again in 2001, but it will be a different kind. Suddenly, supply-chain management software has become the candy everybody wants in B2B. Supply-chain software helps companies do things like manage their inventory better, project their needs for suppliers, and collaborate with partners on multicompany projects.

Pulling the Chain

"Supply chain is B2B," says Kevin O'Marah, an analyst at

AMR Research

. "By the end of 2001, when people say B2B, the first thing that will come to their mind is

i2 Technologies

(ITWO)

." (i2 is an AMR client.)

i2 Technologies, of course, is a leader in supply-chain management software. Hardly an undiscovered gem, it competes with companies like

Manugistics

(MANU) - Get Report

,

Oracle

(ORCL) - Get Report

and

SAP

(SAP) - Get Report

. Other companies like

Agile Software

(AGIL)

and

Matrix One

(MONE)

make collaboration software, which allows companies to work together on common jobs.

So just as the Net market makers fell victim to moves by old-line industry players, B2B software makers like Ariba and Commerce One will face increasing competition from established software makers.

Some of this already is happening. In December, for example, Oracle said sales of its e-business application software grew 66% during its fiscal second quarter from the year before. Oracle is concentrating on building a suite of e-business software. It wants to code everything from the electronic buying, or procurement -- the software that Ariba and Commerce One build -- to the supply chain stuff that i2 makes to the collaboration programs that Agile hawks.

Survival

It's an approach that

Lehman Brothers

analyst Patrick Walravens sees as a necessity in 2001.

"Companies will need to develop a broad footprint to survive," Walravens writes in an email. "This is true for the perceived leaders like Ariba, too. Vision and marketing are no longer sufficient. Companies will be judged on base on how big the market opportunity is for which they have a compelling solution." (His firm hasn't done underwriting for Ariba.)

Others agree.

"Just doing the transaction in terms of procurement is just one piece of the puzzle," says Jon Ekoniak, B2B analyst at

U.S. Bancorp Piper Jaffray

. "You also need the collaboration, the better information flow and the more advanced products. Even in terms of procurement, you need the ability to not just do simple auctions, but to do a multipartner transaction."

Companies will take notice of this kind of software when their competitors start besting them by using this technology, he says.

"If you want to buy a product, it's best if you can link to your inventory system first to see if you need it, and if you do, to send your suppliers a message," Ekoniak says. "That's the way it's going. A lot of the processes that are out there, this software addresses. And the way companies differentiate themselves will be, in the near term, who can establish the advantage through the use of technology."

The Examples

He points to companies like

Wal-Mart

(WMT) - Get Report

and

Dell

(DELL) - Get Report

, which have aggressively used technology as a means of controlling and cutting their inventory.

"Wal-Mart has nearly wiped

Sears

(S) - Get Report

out," Ekoniak says.

Ekoniak's reasoning also speaks to one premise about B2B that won't seem to go away. Because this software helps companies wring efficiency out of their supply chains, and thus become more profitable, many industry experts think it will continue to sell, even if the economy moors its barge next to the

Tidee Bowl Man's

skiff.

But for that to work, companies are going to have to start using it on a broad scale, which is another thing that analysts are talking about in B2B for 2001.

"B2B and e-business are about making things work," says Lehman's Walravens. "2000 was a year of building marketplaces and making investments. In 2001, people need to start using the marketplaces in droves. Keep a close eye on the number of purchase orders traveling over commerce networks like

Commerce One's

Global Trading Web

, the Ariba

Commerce Services Network

and

PurchasePro.com

(PPRO)

."

And by this time next year, of course, you can be sure that all this will change anew.