In the world of business-to-business e-commerce, it's becoming clear that there's more to running a business than just buying and selling.
E-commerce exchanges, which link buyers and sellers of everything from pencils to polymers over the Internet, have been stealing the market spotlight. Along with the software platforms that power them, these exchanges have been driving select B2B or business-to-business players to eye-popping gains. But observers say expect backstage players to get more attention in the months to come.
These companies aren't B2B poster kids like
. But they have the potential to help businesses adopt the Internet to do things better, faster and cheaper. And as investors catch on to what they do, their shares may reap the rewards.
What They Do
These companies have names like
. Mostly, they design highly specialized software applications to make the "doing" in doing business just a little bit easier. That might mean making internal systems not only talk to each other, but goad each other along, as is the case with Vitria's products. Or it might mean allowing companies to work together in designing and building outsourced products over the Internet, as Agile's collaboration platform does.
While the easily understood function of buying and selling over an exchange may be all the rage now, analysts say that might not be the case in the future. Many companies, they say, look to exchanges only to fill their "spot" needs for procurement, or the 5% to 10% of materials they buy or sell outside of established contracts.
Instead, analysts and company executives say, it might be the even more nuts-and-bolts applications that can be laid on top of the exchanges -- or outside of them entirely -- that end up wooing businesses in the long run.
"To the extent that you bring buyers and sellers together, that's the easy part," says Michael R. Micciche, a
Donaldson Lufkin & Jenrette
analyst who rates Agile Software a buy, and whose firm hasn't done underwriting for the company. "It's being able to deliver on that promise you made in a nanosecond online that's difficult."
It's for that reason that companies like Dallas-based
, which makes supply-chain management software, have been rewarded with such spectacular share values. i2 rose 23 3/8, or 15%, to 182 1/8 Wednesday on news that it has developed a management platform to streamline the buying and selling of used auto parts. The stock was off 9 3/16, or 5%, at 172 15/16 Thursday, though i2 shares are still up 75% on the year and some 20-fold on their 52-week low.
i2 is a member of what's quickly becoming recognized as the Big Five of B2B, along with Ariba, Commerce One,
These Niches Rule
Those companies are already working to offer broad, far-reaching exchanges and applications that run software over the Internet in a race to offer the all-in-one B2B solution for any company. But others say that with the complex range of processes employed by different industries, the top-tier players will at least have to use some niche technology, if not buy it outright.
i2, for example, is already in the process of acquiring
, which makes supply chain software. Other companies that develop targeted applications include
To be sure, companies like Agile, Vitria and Tibco are not undiscovered gems. With anything remotely connected to B2B surging last fall and at the beginning of this year, their stocks, too, have seen tremendous gains. Tibco came public last July, and has risen 1,700% from its lows to a value of $21 billion. Vitria and Agile are smaller, but they too have seen steep run-ups since their IPOs in the second half of last year. Indeed, with the two stocks trading at 135 and 64 times sales, respectively, they're hardly bargains. Even so, they might be considered cheap next to Commerce One and Ariba, which trade at 265 and 280 times sales.
Oracle and SAP, being more established companies, trade at much lower sales multiples, but their earnings valuations are still in the triple digits.
In any case, with the brave new world of e-commerce changing the way companies do business, analysts are certain that the only sure thing is the change itself -- whether that involves how companies do business or where the stock market focuses its attention.
"Once the hype dies down a little bit and we get beyond the press release phase, there will be a push beyond the exchanges," says Bala Srinivasa of
Pacific Growth Equities
. "Companies will look for real value to be created out of these exchanges, and I think there's a lot of work to be done. We're talking about essentially trying to change 50 years worth of the way you've done business."
Good God. We'd better get to work.