New Order: Business-to-Business on the World Wide Web
Interview With Jack Waller of Tomato Springs Software
and Frank Marchese of Mark V
Copyright © 1999 R. Net Fisher. All rights reserved.
It is equally challenging for both large and small firms to have their sites recognized on the Web. However, deploying an electronic business-to-business catalog with an efficient ordering capability is proving especially challenging for small and medium-sized firms. It turns out that there is much more to it than simply putting a "For Sale" sign on your home page, and adding some product pictures and a shopping cart. In fact, maybe a shopping cart doesn't belong in the picture at all!
In the following article, WWWiz's R. Net Fisher explores the key drivers and problems facing these businesses, through interviews with Jack Waller III of Tomato Springs Software, who claims that their ActiveCommerceTM Suite is answering the mail on this subject, and with Frank Marchese of Mark V Products, a small business that appears to have successfully made a full transition to electronic commerce using the ActiveCommerceTM product. R. Net Fisher is our Procurement IT and E-Commerce expert. He has over 26 years of experience designing and implementing purchasing systems, and currently is senior program manager for a Fortune 100 corporation with over 50 divisions worldwide.
Over the last several years we've heard a lot about the boom in retail sales online and now we appear to be on the cusp of a tremendous surge in business-to-business electronic commerce (EC). In fact, we're finally beginning to understand that rather than listening to all the hype about the Internet consumer market, we should instead be looking to business-to-business commerce for the real action.
In this business environment, the volume of electronic commerce is simply exploding. In a report released recently, Forrester Research Inc., of Cambridge, Massachusetts, conservatively estimates that American e-business trade -- that is, business-to-business sales on the Internet -- will grow from $43 billion in 1998 to $1.3 trillion in 2003, a sure sign that businesses have awakened to the notion that they can both make and save money by using the Internet and EC.
The rush has already begun and those intent on jumping onboard quickly to take advantage of both the benefits and the buzz associated with this phenomenon are using a very broad brush and quick strokes to paint themselves into what promises to be a very rosy picture.
Business analysts following this development seem to be thunderstruck by the speed of its arrival. Business owners, meanwhile, are scrambling to sort out what it all means and which EC model they should embrace in order to join in the fun, not to mention just managing to stay in business! It is this last sobering thought about staying in business that has produced a general wake-up call. Many business owners are realizing that business-to-business e-commerce is far different than retail and calls for a substantially different tool set. (See figure entitled "Retail vs. B2B Commerce Comparison.")
Are the software tools really out there to support business-to-business EC? Do the prominent Web-based tools, with their shopping cart metaphors and HTML page-oriented interfaces, fall short when it comes to the complex features and functionality necessary to do business-to-business commerce? What exactly does it take to meet the tremendous expectations being set out there? Let's try to get some solid answers.
Interview With Jack Waller, Vice President of Product Development for Tomato Springs Software Corporation
WWWiz: What attracted the founders of Tomato Springs Software to the business-to-business segment of the electronic commerce market, and what do you see as your specific value-add in the marketplace?
Waller: Early on we saw the business-to-business segment, particularly for small to medium-sized enterprises (SMEs), as the early adopters of EC solutions. We felt that their generally competitive business situation would provide the necessary motivation to make the paradigm shift earlier, rather than later, in the game.
We also sensed a great opportunity based on the numbers of businesses in this category, and the fact that they have unique needs and seem to be underserved today. So we set out to become the leader in providing electronic commerce systems focused on this market segment. This analysis is now proving out and we're finding ourselves well prepared for this very significant opportunity.
Retail vs. B2B Commerce Comparison
WWWiz: Why do you say this segment of the market has been underserved?
Waller: We feel this is a question of money and vision. In the realm of electronic commerce, the efforts of the big software firms have been largely targeted at either retail sales or the large business end of the business-to-business market. Large businesses have attracted the attention of the development community by offering the financial incentives necessary to concentrate resources on their specific needs, such as the evolution of electronic data interchange (EDI) to take advantage of the Internet; Web-based retail-oriented catalogs; and other Web-centric solutions to legacy large-business problems. SMEs didn't even show up on the radar screen.
We chose to look beyond the highly competitive, yet very limited, opportunity offered by large businesses, and focus on a market that has historically been much larger -- that of SMEs. This segment of the market has both technical and financial restraints not felt by large companies, yet has traditionally been one of America's most important and powerful business engines. It is remarkable that until just recently this sector hasn't received its due notice by either software developers or the business press.
WWWiz: Before we go any further, give me the bottom line on why a company would need this type of solution.
Waller: A few reasons that come to mind are: customer convenience with access 24 hours a day, seven days a week; less time spent ordering; accuracy of orders; latest information always available; and richness of information such as pictures and sounds; and the supplier is free to do catalog updates as frequently as desired. In addition, printed catalogs used in business-to-business marketing costs companies approximately $2.5 billion per year and, according to the Direct Marketing Association of America, a significant portion of this expense is saved when electronic means are used for the distribution and update of catalogs.
WWWiz: Many of our readers are small business owners. Do you have any statistics handy? How big is this market?
Waller: It is huge. The SBA estimates that there are over 22 million small businesses in the U.S. representing over 99% of all businesses and contributing over 50% of the GDP. More to the point, our initial high-level analysis of the 13 million small businesses in the D&B (Dun & Bradstreet) database reveals that over two million of these firms are actively involved in business-to-business commerce, and are potential users of a product like ActiveCommerce.
WWWiz: Why don't we see more of these firms actively involved with EC already?
Waller: According to a recent survey by E-valuations Research, cost, confusion and complexity are the barriers keeping small businesses from selling over the Internet. In addition, there has been a natural gestation process underway. Change of this magnitude, even in a hyper-evolution society, still takes time.
That same E-valuations Research survey shows that 75% of small business owners and managers now indicate that they are somewhat likely to be affected by future developments on the Internet and 44% believe it is highly likely. Another much more motivating report found that small business owners and managers believe that while today only 28% of their competitors are selling online, over 62% will have online transaction capability within five years.
WWWiz: How does the product actually work?
Waller: In a nutshell, our ActiveCommerce Suite is comprised of three components: Catalog Maker, Order Maker and Order Taker. Catalog Maker lets a supplier create, maintain and publish ActiveCommerce catalogs of the goods they sell. Order Maker lets the supplier's customers browse the catalog, as well as build and submit orders. Order Taker, the eCommerce Server component, accepts orders from customers and updates their catalogs when needed over asynchronous dial-up or TCP/IP Internet connections.
Central to each of these ActiveCommerce applications is the ActiveCommerce Catalog. In ActiveCommerce Catalogs, items are organized by a user-defined table of contents. Items can appear in multiple table-of-contents sections, facilitating the creation of sections organized by manufacturer and product category. Each item can include virtually a limitless number of descriptive characteristics and multimedia objects like pictures, .wav files and more.
Furthermore, since ActiveCommerce Catalogs were designed specifically for business-to-business commerce, they support item discount schedules, order discounts and contract pricing capabilities. In addition to the table of contents, catalogs include various searching tools to make finding and ordering items easy, fast and natural. ActiveCommerce Catalogs also support the familiar Microsoft Explorer interface, displaying the table of contents in the left pane and the items related to the current table of contents section in the right.
WWWiz: How did you decide what to include in the software?
Waller: We developed a basic feature set with the procurement specialist who is part of our team. As we moved into beta testing, we learned more and fine-tuned the system's capabilities. Just as Intuit and Peachtree gave smaller firms the financial accounting capability to compete with the efficiencies of their larger competitors, we believe we've developed a compelling software solution that empowers SMEs with the ability to implement electronic commerce both easily and affordably. That is the promise of Tomato Springs' ActiveCommerce suite of products.
WWWiz: "Affordably" sounds nice but it's a very relative term. I like to think it has something to do with ROI [return on investment] and my sources say that many of the financial statistics emerging for EC Web sites indicate that they're anything but affordable! How is the ActiveCommerce Suite priced, and what will I get for my money?
Waller: Your ROI observation is an excellent segue for me to make a major differentiating point about the ActiveCommerce system and the reason that it is a lower-cost solution. We'll come back to the question of affordability. We feel it is important to use the right tool for the job. Our solution lets our customers take the best advantage of both the Web and desktop PC capabilities. Let me explain. ActiveCommerce catalogs are not Web applications per se. Instead, ActiveCommerce publishes a specially formatted distribution catalog. This catalog is portable and designed to be downloaded from a Web site, and subsequently maintained and updated electronically. Just as an example, one ActiveCommerce user has a 400-item catalog which is 43K in its published form, about the size of an average Web page. Extremely efficient!
WWWiz: Will your product work with many types of documents?
Waller: Absolutely! That's the whole idea. In fact, an important part of our strategy and capability is that a customer can have many catalogs loaded and at their fingertips. All can be totally unique and from many suppliers of widely divergent types of products. Our goal is to become the lingua franca of business-to-business EC for the SME market.
WWWiz: What types of businesses can use your software?
Waller: Actually, anyone with a structured product line that sells to other businesses will find the ActiveCommerce Suite ideal.
WWWiz: What is your marketing strategy? I know you have a Web site, but as we've discussed, that's only a starting point. Where are you in the game plan?
Waller: Our research shows that SMEs depend heavily upon their Value Added Resellers (VARs) or channel partners to provide them with recommendations and counsel. Therefore, building a solid network of VARs to represent ActiveCommerce is critical in the overall marketing of our products.
However, concentrating on this distribution channel alone, especially in the early stages of the company's growth, isn't a viable solution. Creating awareness and demand for ActiveCommerce among end-users will help to drive product sales. Building product demand and, in turn, sales leads, will allow us to feed the channel and push product into the pipeline.
ActiveCommerce is available for sale today. In fact, we began an active sales effort early in November and launched the product with one of our partners, Platinum Software.
WWWiz: I noticed that your Web site indicates you are "Platinum Ready." What does that mean to a potential customer?
Waller: It means that if that customer uses Platinum for Windows as their financial system, they can also use a "gateway" application we've prepared to integrate ActiveCommerce with Platinum for Windows in two areas. The first allows the supplier to build and maintain a large portion of their catalog directly from their inventory master. The second allows the supplier to pump received orders directly into the Platinum for Windows order entry system.
WWWiz: So are all of the leading SME Accounting Packages potential sales avenues for your product?
Waller: Absolutely. Platinum and the other accounting software providers, along with their VARs, will help enable our fast penetration of the market. This is, of course, a mutually beneficial plan. These types of firms view the ActiveCommerce integration as a major sales tool for attracting new customers and retaining the old -- in other words, staying competitive and full-featured as business moves rapidly into the world of EC.
WWWiz: What are some of the other accounting packages in the queue?
Waller: Well, Peachtree, SAGE, AccPac, Macola and SBT have all indicated they're anxious to work with us in integrating their products with ours. We're also talking with suppliers of other complimentary SME-focused products about product integration and joint marketing alliances.
WWWiz: Where are you in your overall roll-out plan?
Waller: The ActiveCommerce system is now complete and has been through beta testing with excellent results. We've begun sales, and are currently working on ancillary product features and the commercial launch of the product.
Interview With Frank Marchese, Vice President of Sales and Marketing for Mark V
Time in Business: 30 years
Location: Anaheim, California
Type of Business: Family-owned manufacturer/distributor
Industry Segment: Professional detailing products for car
washes, dealerships and body shops
Products: Polishes, waxes, compounds, dressings,
industrial chemicals, and various accessories
Product Breadth: 90 products manufactured in-house; 390 total
Number of Employees: 18
Gross Sales: $3 million plus
Growth Curve: 15-20% per year
Sales Model: 45 independent distributors located nationwide
and in eight foreign countries. For example, in
California 17 trucks crisscross the state every
day carrying Mark V products exclusively.
ISP Service:Computer Effects Plus
WWWiz: How long has your electronic catalog been up and running?
Marchese: Well, it's been up and running for about two and a half years now. In fact, we were one of the first beta sites for the ActiveCommerce Suite.
WWWiz: From my experience, volunteering to be a beta site has a fairly high potential for being a frustrating and very time-consuming activity. Was it really worth jumping in early on the bleeding edge?
Marchese: I would be kidding you if I said we haven't had a few "challenges" along the way. However, we went in with our eyes wide open, knowing that it could, by definition, be a bumpy road. However, we were highly motivated and saw it as an offensive step that we needed to make to control our own destiny. We also had a bit of an advantage that helped minimized the risk. [However,] we were anxious to do something in the e-commerce arena and decided it was better to take the plunge earlier in the game, rather than later. I had also been reading a lot about electronic catalogs, and watching the progress of the emerging page-oriented HTML and mall-oriented offerings. These were coming up short in functionality and long in cost. I realized earlier on that a full-featured Web application, if I could find one, wasn't going to be within our financial reach and most likely not the right model for our customer base.
WWWiz: I think this strikes at the heart of what our small business readers may be interested in. Please elaborate on that.
Marchese: Sure. There are a couple of major points. The first one is that my customers are very busy folks. While product replenishment is obviously an important operational necessity, it isn't where they want to expend a lot of effort. They want it be as efficient as possible. They know our product line and know what they want to accomplish. In and out and they're gone! They want to fire and forget about it until it hits their dock. They have no time to browse a big Web site full of pictures of cans, chemicals and boxes, tossing items into a "shopping basket" as they go. Besides that, as I heard Jack point out earlier, when you get down to the basics, the Web applications we've looked at just don't offer most of the essential everyday business-to-business necessities the ActiveCommerce Suite supports.
WWWiz: Can you name a few of the "must-haves" critical to your business?
Marchese: I'll just tick off a few of them. It's amazing what it takes to be very efficient at this. I recommend that businesses take a very close look under the covers before they buy. If the functionality isn't there, you can certainly expect that the adoption rate by your customers will be less than expected.
WWWiz: Can you tell us a little about the adoption rate by your customers?
Marchese: First of all, I can tell you that we're currently doing over 80% of our wholesale business electronically via ActiveCommerce. However, it has been a gradually accelerating process. Typical of what you've mentioned several times in WWWiz, we had our immediate rush of early adopters and then it tapered off to a slower buildup. This wasn't totally unexpected. We knew it was going to take some time. We expected the normal amount of bugs and missing capabilities in the software to be worked out, and we knew only the hardy go-getters would be willing to stick through some of the more taxing moments. Besides that, some of our best customers didn't even have PCs when we first started. All the automation they felt they needed at that time was a fax machine.
WWWiz: So what aspects of your business have changed the most and where do you expect to go from here?
Marchese: First, I can tell you that Don Hamilton summarized the situation well in his recent [WWWiz] editorial, "The Winds of Change Are Beginning to Howl!" We're definitely in high gear now, and the whole effort has not only become more important to our success but the snowball in the coverage by the press on this subject has made my job much easier. As I indicated, the largest part of our wholesale business now comes in via the online catalog ordering capability. We have, of course, been encouraging the conversion by our customers in every way possible, and most of them are now electronically enabled. To win over the final diehards we're about to implement a "special charge" of $25 on every order coming in off-line. It isn't much, and of course we'll still be losing money on the processing costs of manual vs. online orders, but we hope it will push them over the brink. At this point they all have religion and just need to take the time to make the change.
WWWiz: What about the competition?
Marchese: The Order Maker module of ActiveCommerce is freeware. If they have a PC with a modem they can do business with us electronically. It's that easy. This is a very competitive industry and we're doing everything we can on our end to keep costs down for our customers. By implementing systems such as this to keep my costs down it allows me to push these savings down to my distributors and hence to their customers. Most of them appreciate the effort and are, of course, themselves looking for any opportunity to economize.
WWWiz: It seems like those who are keen about placing orders electronically would also want to be conducting business with their customers in a similar manner.
Marchese: Right. They face the same challenges that we talked about earlier and have heard me crowing about our increase in order accuracy of 35-40% and that our order processing time has dropped from between 10-15 minutes to 5-15 seconds from receipt to printout. Fortunately help is on the way. Tomato Springs has just announced a very useful feature in ActiveCommerce that will allow my Master Distributors to issue their own catalogs based on mine. Depending on the percentage of our products they in turn offer, most are exclusive, this can be an extremely efficient way for them to gain the same efficiencies for themselves and their customers. All they need to do is add or delete products to reflect their own offering, add their margin, logo and name. Bingo -- they're in business.
WWWiz: If you're making frequent changes to your catalog, couldn't the whole thing could get out of sync pretty quickly?
Marchese: We were concerned about that also, but apparently all of that has been worked out. Anytime we publish a new catalog we'll simply let these distributors know, and when it's convenient to their operation they'll just import the update. This is a dynamite development all around from their viewpoint, and several of my large distributors are champing at the bit to get their hands on it. One has already purchased the system.
WWWiz: I would guess that it will also act as a golden lasso between you and your large distributors. It couldn't get much easier, could it?
Marchese: You have that right! Of course, they'll own their own cataloging capability at that point, but anything we can do to save them money, increase their business, and make their lives easier is a total positive for everyone involved. We view this capability as a real competitive advantage, a strengthening of the partnership relationship. It's a dog-eat-dog world out there. This is a major get-ahead for us all around.
WWWiz: I noticed that on your Web site you have a button labeled "Catalog" which allows the download of your catalog. What's going on there? Is this to attract retail business?
Marchese: I'm glad you asked that. First, no, although it would work fine for retail, we aren't a retail operation, and don't compete with our distribution. Instead, this is an extremely handy tool for our new business development. It's the same up-to-date full-featured catalog we maintain for our existing customers but with retail pricing. Perspective new customers can always see our latest catalog without us having to spend a fortune keeping large amounts of product information current on our Web site. It's the best of both worlds. We use the Web for what it does best, that is, providing information, and do the heavy-duty business-to-business activities using ActiveCommerce. Later, if we decide to do business together, we make a couple of table entries here to identify them as valid customers, and we're ready to start accepting electronic orders. It's that easy.