BUSINESSWEEK ONLINE : JULY 31, 2000 ISSUE
NEWS: ANALYSIS & COMMENTARY It's Happy Time Again for B2B Ariba's revenue jump renews investor confidence in the sector When the stock market cratered this spring, companies in the business-to-business (B2B) e-commerce market got whacked harder than a welterweight hit by a Mike Tyson uppercut. Stocks such as Ariba (ARBA), WebMethods (WEBM), and Ventro (VNTR) sank over 70% from their highs as investors questioned the potential of B2B marketplaces and infrastructure-software makers. Even after shares of many B2B leaders picked up in June, many investors stayed away. Boy, are they sorry now. The faithful who held on have been richly rewarded since July 12, when procurement-software maker Ariba turned in impressive results. For the quarter ended June 30, Ariba reported revenues of $80.7 million, up 101% from the previous quarter and 578% from the same quarter last year. Losses were $11.3 million, about half of analysts' consensus estimates. Besides sending its own shares rocketing up 27%, to 131, Ariba's results singlehandedly gave the market newfound confidence. Then, on July 18, Ariba's arch-nemesis Commerce One Inc. reported strong revenues of $62.7 million, up 79% from the previous quarter. Since Ariba's report, the U.S. Bancorp Piper Jaffray B2B e-commerce index has jumped over 27%. WIDER BASE. Investors seem to think the strong results signal a turning point in the industry. Such soaring sales figures demonstrate that the demand for B2B e-commerce software is starting to make inroads into the heart of Corporate America. Indeed, with such new customers as Bank of America and Bethlehem Steel, it's not just the Cisco Systems (CSCO) and Dell Computers (DELL) of the world that are buying into B2B. ''Companies are more willing to get this stuff rolling,'' says Brian Salerno, a manager at Munder Capital Management who owns Ariba. Yet even as it takes off, the B2B marketplace is quickly bifurcating into leaders and laggards. Just as investors see that there is growing demand in B2B software, they are also noticing the less-than-stellar results of other B2B niches. ''I would not go out and buy every B2B stock just because Ariba had a great quarter,'' says Charles E. Phillips, a managing director at Morgan Stanley Dean Witter. So far, Ariba is viewed as the top dog. Its products help corporations automate their internal purchasing--items such as computers and office supplies. By switching from paper catalogs and faxed orders to Web transactions, users of Ariba's procurement software, such as IBM (IBM) and Cisco Systems Inc., say they are shaving 20% or more off their purchasing costs. Other leaders include Commerce One, which makes software that connects buyers and sellers into online marketplaces for clients such as Covisint, the auto-industry exchange formed by General Motors (GM), Ford Motor (F), and DaimlerChrysler (DCX); i2 Technologies (ITWO), whose software automatically notifies suppliers when parts are needed; and database-maker Oracle (ORCL), which sells online-procurement and supply-chain programs as well as a host of other software applications. SHAKEOUT? Meanwhile, so-called vertical marketplaces, such as Ventro Corp. and Purchasepro.com Inc. (PPRO), have not rebounded as much since the Nasdaq correction. Investors still seem wary of such exchanges because their business models hinge on generating access and transaction fees. ''There are too many marketplaces,'' says Munder's Salerno. Thanks to their almost-restored market capitalizations, B2B software makers are likely to continue to consolidate. Ariba, which has already swallowed business-portal provider Tradex, is sure to gobble up smaller companies whose operations bolster weaknesses in its product lines. The next major consolidation trend is likely to lead to the convergence of software programs that let companies both buy and sell goods or services online. ''Until you can do that, you can't provide a full service to the participants in a network,'' says Jeremy Davis, CEO of e-commerce software maker InterWorld Corp. B2B may be back, but it still has a long way to go before its promise is fully realized. By Spencer E. Ante in New York with Jim Kerstetter in San Mateo, Calif. _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ BACK TO TOP					RELATED ITEMS It's Happy Time Again for B2B TABLE: Business-to-Business Big Shots INTERACT E-Mail to Business Week Online

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