BUSINESSWEEK ONLINE : JUNE 19, 2000 ISSUE
COVER STORY The Second Coming of Software Corporations are moving their entire operations online, creating e-business opportunities galore Most of the time, when networking giant Cisco Systems Inc. (CSCO) wants to launch an important new computing proj-ect, the e-business pioneer does the dirty work itself. Cisco's Web site, for instance, which processes roughly 80% of Cisco's sales, was built by its own engineers. But when it came time to devise a way to move all of its own purchasing online, Cisco turned to Ariba Inc. (ARBA), the Mountain View (Calif.) maker of procurement software. Turns out that was a smart move. Since installing Ariba's software in December, 1998, Cisco has hooked up 20,000 of its employees to 3,000 suppliers of everything from desktop computers to office supplies and business cards. Ariba's software is a vast improvement over Cisco's old purchasing approach, a mostly manual system that required employees to make phone calls, send faxes, and fill out lots of paperwork. So far, Cisco has processed more than 70,000 transactions worth $1.5 billion, shaving 10% to 20% off its purchasing costs. ''We're getting to a stage where people don't want to do their purchasing in any other way,'' says Sangeeta Grewal, Cisco's manager for the Ariba project. BRAINPOWER. A new era in software has arrived. Software programs like Ariba's are all the rage with corporate stalwarts such as Cisco as well as the dot-com set. If data networking gear and Web servers are the brawn of the Digital Age, muscling billions of bits around the globe, then Web software is the Internet's brainpower, fashioning e-businesses out of all those bits. It's the next wave of corporate computing--linking companies with customers and suppliers. ''The whole organization is coming online, and corporations are turning inside out,'' says Forrester Research Inc. analyst Eric Schmitt. Software companies that target these emerging markets are booming. In Business Week's third annual ranking of the top 100 best-performing information-technology companies, six Internet software specialists made the grade, as well as a number of old-guard software companies that are migrating to the Net. E-commerce software maker Broadvision Inc. (BVSN) ranks No. 34. Supply-chain optimizer i2 Technologies Inc. (ITWO) hit No. 44. E-mail marketing pioneer NetCreations Inc. (NTCR) is No. 74. And Web site content manager Vignette Corp. (VIGN) comes in at No. 89. Meanwhile, sales-automation-software goliath Siebel Systems Inc. (SEBL) ranks No. 2, with database kingpin Oracle Corp. (ORCL) right behind it at No. 3--two old-wavers making strong moves to the Net. ''The demand for Internet software is tremendous,'' says Banc of America Securities LLC analyst Greg Vogel. The bonanza is just getting started. Last year, corporations plunked down $6.2 billion for Net software, according to Banc of America estimates. It figures customers will fork over $10.2 billion this year and $21.3 billion by 2002. Forrester Research predicts tech execs this year will spend an average of 17% of their budgets on Web software, up from 10% last year. Investors who spotted the trend early smacked a financial grand slam. When it comes to stock market returns, four of the top five best-performing players on the Info Tech 100 are Internet software companies. BEA Systems Inc. (BEAS), which makes a so-called application server that helps manage e-commerce sites and transactions, ranked No. 1 with an 885% shareholder return. BroadVision finished No. 2 with an 810% return. Art Technology Group, Inc. (ARTG), which also makes e-commerce software, ranked No. 4, earning 660% for its investors. And i2 placed No. 5, with a 570% return. Other Net software upstarts have seen their stock prices get hammered some 60% to 75% this year, but analysts don't expect their fortunes to fade like those of Net retailers. That's because most Web site operators have finished setting up basic virtual storefronts, and now they're looking for ways to improve them--all in a quest for profitability. The top three most important software purchases that technology execs will make in 2000 are customer service, software for managing Web pages, and programs that improve personalization, according to a recent Forrester Research survey. There are still plenty of operational efficiencies to be squeezed out, too. While many corporations have begun to move their purchasing online, the next wave of work will focus on linking a company's suppliers and partners via the Net. Nearly every company in the world can potentially benefit. i2, for instance, says IBM (IBM) is designing products twice as fast because of its software that helps Big Blue engineers maintain a universal design database and collaborate with its contract manufacturers. START MAKING SENSE. So how does someone who is trying to build an e-business make sense out of this incredibly complex set of software offerings? After shelling out all this cash, what are companies getting in return? One way to get a handle: Imagine you're an entrepreneur or manager charged with setting up an electronic business. We'll call this fictional company Caddyshack.com. It's a Web portal for golf addicts that provides news, chat, and tips for Tiger Woods wannabes--and sells them clubs, knickers, hip flasks, and other golfing equipment. You've got to start by securing some virtual real estate. The first thing to do is register a domain name to protect your precious brand. For many companies that means doing business with Network Solutions Inc. (NSOL), ranked No. 65 on our list. The Herndon (Va.) company sold 5 million new Web site addresses during the company's first fiscal quarter ended Mar. 31. Before launching the full-on version of Caddyshack.com, you may want to purchase a $68 Net starter kit from Network Solutions, which provides e-mail branded with your domain name, a one-page Web site, and a free listing in a dot-com Yellow Pages. Companies with bigger plans will outgrow the starter kit in about five minutes, of course. So it's wise to invest early in a software package for handling millions of Web pages. The leading company in this area is Vignette in Austin, Tex. Nearly 700 customers use its software, which enables businesses to create personalized Web pages on the fly or deliver digital content via wireless Net services. Caddyshack.com producers could beam up-to-the-minute golf scores from the Masters tournament to customers' pagers or handheld Palms. The next step is selling online. To create catalogs, handle the orders, process the transactions, and bill customers, you'll need to ring up an e-commerce outfit such as Broadvision, Art Technology Group, or Allaire Corp. (ALLR), three of the leading names. Using Art Technology Group's Dynamo application and commerce server, for instance, allows e-tailers to build an online storefront and deliver Web pages that draw information from back-office databases, inventory, and resource planning systems. That way, Caddyshack.com customers won't order something that's out of stock, and the e-tailer can track demand and make sure to have enough Calloway clubs on hand when loyal customers like Bill Gates place a big order. Once you've got the digital cash register in place, it's time to round up customers. That's where e-marketing comes in. After Caddyshack.com signs up Bill Murray as official spokesman, it's time to call E.piphany Inc. (EPNY) of San Mateo, Calif., the leader in online marketing software. With minimal training, Caddyshack.com marketers can use E.piphany's software to type database queries into a Web browser and receive answers to questions like, ''Which customers are likely to trade up to titanium drivers?'' Then they can pitch them special deals on the high-priced clubs. PROBLEM SOLVING. Direct-marketing pitches are a cinch on the Web. NetCreations of New York City, a pioneer of e-mail direct marketing, has a database of 9 million e-mail addresses--all from folks who have asked to receive special offers on products and services they like. Using the company's e-mail delivery service, Caddyshack.com could send customers promotional offers for the upcoming line of Big Bertha irons or those hot new Titleist balls. The company boasts e-mail response rates averaging 5% to 15%, compared with the 1% or 2% response rates of old-fashioned direct-mail campaigns. Just as valuable, e-mail is faster and cheaper than direct mailings. Even for the best-run Web outfits, complaints about products or service are inevitable, so a vital purchase is customer-service software. Kana Communications Inc. (KANA) sells a package that allows sites to answer queries about products via e-mail. Ask Jeeves Inc. (ASKJ), known for its easy-to-use search engine, is offering corporations its Jeeves Live customer-management service. Disgruntled customers can lob their questions at a Web-based customer-service rep who communicates with them through a private, real-time chat room. Result: Grievances are resolved quickly. Now comes the really hard part--coordinating with a host of suppliers. Say Caddyshack.com has decided to sell Wilson's new line of drivers and irons. Using supply-chain software from i2 Technologies, it not only gets the products it wants when it needs them but it also helps Wilson produce the clubs faster and more cheaply. How? The software connects Caddyshack.com to Wilson and potentially connects Wilson to all of its materials suppliers in an e-marketplace--speeding up the ordering process and putting downward pressure on prices. For a real-world example, look at what i2 did for IBM. The computer giant's old supply-chain system was relatively inefficient because planning was done manually, with workers breaking down bills of materials into individual orders. IBM had to buy a lot more parts to make sure it could fulfill these orders on time. ''Now, i2 allows IBM to automatically plan and notify suppliers when parts need to be delivered to IBM factories,'' says i2's Wadhwani. The result: IBM's inventory costs have been shaved by 25% to 35%. CLEARANCE SALES. While most of Caddyshack.com's sales will come directly from manufacturers, it might want to tap into an e-marketplace designed to unload excess inventories. Using software from companies like Commerce One Inc. (CMRC), such an e-market could hold auctions for hard-to-sell items such as paisley club covers or last year's rain hats. Having a host of potential buyers on hand gives manufacturers a chance to clear out goods at a fair price. For Caddyshack.com, it's a chance to buy at deep discounts--and pass the savings along to its customers. Thanks to the proliferation of this kind of sophisticated Internet software, corporations are for the first time able to run their entire business--from customers to suppliers--via the Net. So far, Net software upstarts have proved that they can help a business by specializing in one or two parts of this patchwork of interrelationships. Now the leading players are chasing after a new Holy Grail: trying to become all-in-one software shops. They're busy designing new products or buying up companies to add to their portfolios. The ones that manage this transition successfully are bound to rise through the ranks on next year's IT 100 list. By Spencer E. Ante in New York _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ BACK TO TOP					RELATED ITEMS The Second Coming of Software TABLE: The Exploding E-Business Software Market INTERACT E-Mail to Business Week Online

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