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Special Report: 'BtoB' looks back on a roller coaster year full of thrills and spills

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Few business cycles have lifted off with as much excitement and hurtled back to the earth so rapidly as that of b-to-b in 2000.
2000 Year in Review
Plum dot-coms plummet
Top 10 trends for 2001 rooted in b-to-b reality
E-marketplaces come full circle

Now, at the start of a new year, the daily news is that yet another exchange, e-consultancy or start-up is announcing an agonizing round of layoffs, is severely cash-strapped, or is going belly up.

But behind the recent doom-and-gloom headlines lies a remarkable year, one in which enough innovation and investment happened to ensure that 2001 will be well worth watching. Many industry analysts expect to see that today’s b-to-b anxiety will be as overblown as was yesterday’s talk of revolution.



WINNERS AND LOSERS OF 2000

By Philip B. Clark

Picking the conquerors and the vanquished in the nascent b-to-b e-commerce space was as difficult as predicting where the Nasdaq would close at the end of last year. Uncertainty reigns and today’s heroes could well become goats in no time at all. But by looking at 2000 in that proverbial vacuum, BtoB was able to name some very obvious winners and losers.

Winners

Accel-KKR Internet Co.: Accel-KKR is to b-to-b corporate venturing what Reggie Jackson was to the 1977 New York Yankees: the straw that stirs the drink. Though it’s less than a year old, its executives have used their unrivaled Rolodexes to pull the likes of McDonald’s Corp. and Cargill Inc. into e-markets.
Ariba Inc.: Ariba’s deal with Pfizer Inc. to develop the drugmaker’s e-procurement plat-forms winds up a terrific year for the company, which is slowly pulling away from arch rivals Commerce One Inc. and i2 Technologies Inc.
General Electric Co.: The house that Jack Welch built has trans-formed itself yet again—this time into a b-to-b exchange power-house. GE Global eXchange Services’100,000-partner strong network has aided several Fortune 500s in building b-to-b projects.
Covisint L.L.C.: The Big 3 auto-makers’ massive e-marketplace suffered a slow start and FTC scrutiny. But in December, it formally incorporated, signed final deals with tech vendors and revealed it had con-ducted some $1.5 billion worth of transactions by the fall.
E-marketplace sellers: Sellers worried that Internet commerce would commoditize and disintermediate them. But instead it became increasingly clear that sellers had a lot to gain from the Web and b-to-b exchanges.

Losers

Viant Corp., Scient Corp. and MarchFirst Inc.: The pure-play Internet consultancies lost lots of money, laid off consultants and experienced stock price nose dives. Their leaders say they’re keen on serving Fortune 500s, but standing in their way are the Big 5, which intend to keep their big clients to themselves.
CMGI Inc. and Internet Capital Group Inc.: The highest-profile
b-to-b incubators entered 2000 like gladiators and exited like butchered tigers. Now some brokerage analysts are doubting the viability of their portfolio start-ups and the incubators themselves.
Oracle Corp.: The database company started 2000 with a string of glitzy announcements, but its firepower has been noticeably absent in the second half. Could be that IT buyers are tired of hearing about the riches Internet software will bring them in the future, rather than how it can profit them today.
Primedia Inc.: The company built a Web presence with its $690 million purchase of About.com Inc. and travel-related marketing pact with Away.com Inc. But Wall Street isn’t buying. And others, namely VNU NV and Bertelsmann AG, have moved in on the territory.
Those who listened (too hard) to their VCs: Many dot-coms blamed their problems on VCs—most of whom know money and strategy a whole lot better than they do marketing and technology—for advising them to do too much too fast.
Sean Callahan, John Evan Frook, Richard Karpinski and Matthew Schwartz contributed to this story.

That fact is b-to-b e-commerce is here to stay. But what we’ve learned in the past 12 months is that weaving it into the fabric of everyday business and marketing will be a good deal messier and more time-consuming than some thought. In this special report, BtoB looks back on some of the most important events and themes of 2000 and speculates on how they might affect the coming year, for better or worse.

Advertising drops the ball

Many b-to-b companies made themselves known to most of the world on the high holiday of the TV season, the Super Bowl, which last year seemingly ushered in a new era.

Dot-com advertisements dominated Super Sunday, including b-to-b Internet spots for MicroStrategy Inc., Kforce.com Inc., and Dow Jones & Co. Inc.’s Wall Street Journal Interactive.

At a cost of about $2.2 million per spot, the dot-com ads helped seize the national stage for the Internet and electronic commerce. In their ads, these newcomers presented themselves as a collective gatecrasher ready to catch bloated brick-and-mortars off guard.

But the b-to-b Internet advertisers didn’t stop with the Super Bowl. The business press fattened up on dot-com advertising, too, with companies buying up hundreds of pages in the likes of The Wall Street Journal, BusinessWeek and The Industry Standard, as well as in the thousands of vertical titles.

While the traditional business press thrived early on, pundits predicted its sharp decline as an advertising medium. Marketing messages, it was said, would migrate to Net markets, whether independent operations like VerticalNet Inc. or industry coalition creations like Covisint L.L.C., the Big 3 automakers’ exchange.

But that prognostication appeared premature at best and absolutely wrong at worst, as most e-marketplaces struggled to conduct their first transaction, and those that had conducted transactions struggled with profitability. Giving their suppliers the chance to pass along marketing messages was deemed about as important a priority as, say, preparing a Sanskrit version of their exchange’s online trading floor.

Straight b-to-b advertising on the Web also suffered, especially after April’s Nasdaq crash. CMGI Inc. folding in Engage Business Media with Engage Inc. exemplified the slump.

And, so as the 2001 Super Bowl approaches, there are about as many b-to-b Internet companies advertising at halftime as there are venture capitalists hunting about for yet another seafood business exchange to invest in.

Indeed, 2000 ushered in an era when brick-and-mortars showed their staying power not only in

b-to-b advertising but also in venture capital. Tellingly, firms backed by old economy titans—Accel-KKR Internet Co. and eVolution Global Partners L.P., for example—have taken a lead. Among the Fortune 500s Accel-KKR has ushered into b-to-b e-commerce are McDonald’s Corp. and Tyson Foods Inc. Expect it and other corporate venturing groups to dominate 2001. "The eVolutions and Accel-KKRs will get more traction," said Michael Collins, a partner at Bain & Co. "A traditional venture capital firm would have a hard time dealing with giants."

Ad networks deflate

Rapid expansion followed by equally rapid contraction summed up 2000 for the major advertising networks. The year began with Engage Inc., 24/7 Media Inc. and DoubleClick Inc. all expanding rapidly, and ended with all three laying off employees and scaling back with equal gusto. Collectively, nil profits were the motivation for the cutbacks, as Wall Street no longer values growth for growth’s sake, but instead wanted a path to payback.

Engage Inc. had the biggest seismic shifts in the year, as it launched a Business Media division in March, only to fold the unit into its consumer business in September. Moreover, Engage replaced President-CEO Paul Schaut with President-CEO Anthony Nuzzo in November and made it clear the 1,175-person operation needed to reach a break-even point by fall 2000.

Business specialist B2BWorks weathered the storm better than most because it wasn’t dependent on banner advertising sales to make its business run. The company more than doubled its number of affiliates during the year, reaching over 500 sites signed aboard across 60 vertical industry segments.

The b-to-b direct marketing industry, meanwhile, had one of its most marked years to date. Globalization swept all manner of U.S. direct marketers, who move into Europe with Pattonesque force. Among the biggest deals were FloNetwork Inc. and Experian Inc. starting a joint European project.

Other key direct marketing themes included personalization, the widespread adoption of rich media and the wholesale move of big advertising agencies into the e-mail marketing space. Among the leading companies were Grey Direct, which launched Grey E.Mail, a stand-alone e-mail division. The impact that such entities, which can leverage their parent companies’ billions and global networks, is incalculable.

European publishers expand

U.S. business publishers, meanwhile, were much less aggressive than their competition across the pond. European-based publishers drove further consolidation in b-to-b publishing, specifically in the U.S. Dutch-Anglo publisher VNU NV and Anglo publisher Reed Elsevier plc—both of which already own a large chunk of the b-to-b publishing space in the U.S. via their VNU USA and Cahners Business Information subsidiaries, respectively—made huge acquisitions in 2000. In one of the most closely watched auctions of the year, VNU paid $650 million to land Miller Freeman USA, beating out Penton Media Inc., among others.

With ad spending in print on the wane in 2001, VNU now has tremendous trade show assets. Not to be outdone, Reed paid $4.5 billion for Harcourt General Inc. in October, enabling Reed to corner the market in scientific/medical publishing.

Government ready to step in

What’s happening not only on Capitol Hill but also at the statehouse level is quickly becoming central to b-to-b marketers. Among their chief concerns are privacy, self-regulation and antitrust issues.

In recent weeks, IBM Corp. CEO Lou Gerstner has begun calling on businesses to press the Feds to provide privacy guidelines. This is anathema to b-to-b direct marketers in particular, many of whom still favor a hands-off policy. Many corporations, however, want some guidance. "Many large companies are tired of figuring out what they have to do on privacy," said Ron Drebben, a partner-intellectual property at Morgan, Lewis & Bockius L.L.P.

What is certain is that some legislation will come out of Washington soon. "Some form of government regulation on privacy is almost certainly coming in 2001," Drebben said. "There are some 300 bills floating in Congress right now." Statehouse-level privacy legislation, meanwhile, is being introduced in nearly every state.

President-elect George W. Bush was backed by many direct marketers because his administration is viewed as being lenient on privacy. In the meantime, leaders such as Direct Marketing Association President-CEO H. Robert Wientzen are busy urging Fortune 500s to self-regulate on privacy issues before the government does so for them.

The U.S. Federal Trade Commission and its increased monitoring of the b-to-b exchange space is another topic critical to marketers. It is not clear how heavily it will regulate the space. Its recent decision to not take any action Covisint—yet—was telling. It decided that there wasn’t enough information available yet to make a decision on whether it violated, for example, antitrust laws. But that doesn’t stop it from taking action later on. "There’s nothing that lawyers could see that would stop the FTC from later opening an investigation to look at Covisint," said Robert Schlossberg, a partner-antitrust practice at Morgan, Lewis.

In October, the FTC issued additional b-to-b exchange guidelines, basically conveying that the industry is too new to warrant any stringent policy decisions. But that may all change in the new year.

Sean Callahan, John Evan Frook, Richard Karpinski and Matthew Schwartz contributed to this story.

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