VerticalNet

1
VerticalNet

• A B2B Company
• S.Ali Hosseini.D
• Alireza Khoshkbar forushha
• May 2008, Tarbiat Modares University

2

• Outline
• VerticalNet
• VerticalNet Business Model
• VerticalNet Competitors
• VerticalNet Costs
• VerticalNet Revenue Model
• Analyse

3
VerticalNet

• Mike McNulty and Mike Hagan established
  VerticalNet in Horsham, Pennsylvania, in August
  1995.
• VerticalNets first online vertical trade
  community, WaterOnline, was introduced shortly
  thereafter.
• In August 1997 the company found the leadership
  it was seeking when Mark L. Walsh signed on as
  CEO.
• On February 11, 1999 , public markets traded over
  4 million shares during the IPO and drove up the
  price some 184 percent.

4
Business Model

• VerticalNet created a scalable platform that made
  it the industry leader in the development and
  launch of verticals.
• These industry-centric portals served the
  business-to-business sector of the Internet.
• As the number of verticals was projected to grow
  from 29 to 150 by 2005, VerticalNet expected to
  benefit from its ability to launch new sites
  efficiently, spreading costs across the sites.

5
B2B vs. B2C
20048 Trillion
Business-to-Consumer
Business-to-Business
2002843B
2001499B
1999109B
199843B
2000251B
6
Business Model

• Digital marketplaces evolved into three different
  business models
• e-Communities
• e-Distributors
• e-Exchanges

7
Content

• Each vertical served as a comprehensive resource
  for new product information and had a dedicated
  editor who managed the mix of news and commentary
  and ensured that the content was current and
  relevant.
• The sites also provided recent press releases and
  news stories pertinent to the industry.
• Additionally, industry professionals could access
  product case studies or industry white papers
  to stay informed of recent innovations and could
  utilize an archived information service for
  research.
• e-mail newsletters containing news updates,
  highlights, and special features were sent weekly
  to help generate repeat visits.

8
Community

• Verticals leveraged the power of the Internet to
  bring together industry professionals
• VerticalNet planned eventually to offer its
  registered users free e-mail accounts as a way to
  both increase potential site usage and form a
  common community identity.
• The proposed addresses would indicate the users
  community by including the industry vertical
  name (e.g. fredrickpoweronline.com).
• Another community-building endeavor was the
  anticipated addition of a career center to
  provide employment services such as resume
  distribution and employment listings.

9
Commerce

• To ensure efficient and effective marketing, the
  sites provided products and services targeted at
  a narrow audience of users.
• The VerticalNet marketplace invited users to
  purchase a predetermined selection of books,
  videos, and software, and provided a library of
  demo-software and software sales service.
• Some verticals offered selections for continuing
  education and training services
• while third-party providers offered online
  courses with focused contentand research to
  VerticalNet users.

10
Developing a Vertical (1/2)

• VerticalNet had a refined process for developing
  a new vertical through a series of steps.
• First, the company used various criteria to
  identify an industry sector that might benefit
  from a vertical portal.
• Next, VerticalNet recruited well-respected
  industry editorial talent who acted both as a
  content producer and a credibility builder for
  the site.
• Finally, the company hired sales professionals to
  develop an industry buyer guide and a potential
• list of advertisers.

11
Developing a Vertical(2/2)

• The editor worked full-time to write original
  content and identify relevant news, and usually
  worked from home.
• The industrymanager was responsible for
  establishing relationships with key industry
  players and trade association representatives and
  for attending trade shows.
• The sales manager targeted organizations whose
  products and services were typically purchased by
  vertical visitors.

12
VerticalNet Expanses(1/2)

• Personnel Expenses
• The primary expenses related to operating a
  vertical were salaries and marketing costs.
• Editors, sales staff, and engineers received
  salaries while compensation
• for industry and sales managers was
  commission-based.
• Each vertical had one dedicated editor and
  shared a pool of nine technical writers who
  provided editorial support.
• The telesales group, made up of 15 individuals,
  performed customer prospecting, lead generation,
  and lead follow-up activities.
• A staff of 43 engineers supported the day-to-day
  operation of the websites.
• In-house product development was carried out by
  a staff of programmers that was expected to grow
  at the rate of two per quarter.
• Approximately 1.2 million was spent to develop
  proprietary technology in 1998.

13
VerticalNet Expanses(2/2)

• Advertising Expenses
• Marketing expenses were divided into two major
  categories off-line advertising
• and online advertising.
• Off-line advertising for the verticals was placed
  in trade magazines and exhibited at trade shows.
• Because some companies produced multiple
  magazines or shows, VerticalNet negotiated
  up-front, multiple ad placements for several
  verticals at a time. However, future advertising
  in trade magazines could be limited because of
  VerticalNets position as a direct competitor of
  traditional industry publications.
• For online advertising, VerticalNet negotiated
  agreements with two major Internet portals
  Excite and AltaVista. A three-year sponsorship
  agreement with Excite allowed VerticalNet to
  build and operate up to 30 industrial channels.
• The channels provided a preview of a verticals
  front page, content, and features.

14
Competitors(1/5)

• Online B2B Intermediaries
• FreeMarkets
• FreeMarkets, Inc., manages and hosts
  business-to-business auctions for buyers
• of industrial parts, raw materials, and
  commodities. In 1998 online auctions
• covering approximately 1 billion worth of
  purchase orders were completed,
• with an estimated 30 buyers and 1,800 suppliers
  having participated
• in auctions through the end of 1998.20 General
  Motors and United Technologies
• Corporation accounted for 77 percent of
  FreeMarkets 1998 revenue of
• 7.7 million (see Exhibit 4.3). FreeMarkets
  primary customers are large
• companies that purchase custom solutions. Buyers
  exchange confidential
• specifications with suppliers, and FreeMarkets
  designs an auction customized
• to the buyers purchasing processes.

15
Competitors(2/5)

• Online B2B Intermediaries
• PurchasePro
• PurchasePro.com, Inc. (NASDAQ PPRO), is a
  leading provider of Internet B2B e-commerce
  services. The company offers proprietary software
  that enables businesses to buy and sell products
  over the Internet. The Las Vegasbased company
  got its start by signing up Mirage Resorts, Inc.,
  which in turn recommended the software to its
  vendors. Originally designed as a bidding tool
  for large hospitality companies to communicate
  with suppliers, the company has since expanded
  into a range of other industries such as the food
  and beverage, furniture, fixtures, and equipment
  industries where productivity of purchasing
  departments is a constant challenge.

16
Competitors(3/5)

• Industry-Specific Online Sites
• Chemdex
• Chemdex Corporation (NASDAQ CMDX) is a provider
  of e-commerce solutions
• for the life sciences industry. Chemdex is part
  of a new breed of groundbreaking
• B2B e-commerce companies that leverage the
  Internet to unite buyers
• and sellers in a single, efficient virtual
  marketplace.
• E-Steel
• In the past, manufacturing technology companies
  have focused on production
• in an attempt to squeeze time and cost out of the
  process and then rely on a
• network of distributors, brokers, and
  representatives to sell their goods, resulting
• in an inefficient imbalance between supply and
  demand. E-Steel, an ambitious
• online steel industry marketplace, was launched
  in March 1999 and
• plans to combat those inefficiencies by
  leveraging the Internet.

17
Competitors(4/5)

• Traditional Trade Magazines and Publications
• Penton Media
• Penton provides its customers with a portfolio of
  advertising options including
• trade magazines, trade shows, and websites.
  Pentons 50 trade magazines
• had a 1998 circulation of 3.2 million.
• Cahners
• Cahners Business Information has a rich history
  of business-to business publishing
• dating back to 1855 when Iron Age, the companys
  first magazine, premiered.
• The magazines essence is incorporated into
  Cahners modern-day publication
• New Steel.31 Through the years Cahners portfolio
  of publications grew
• into a variety of markets including Hotel
  Travel Index, a staple guide for travel
• agents worldwide, and Modern Materials Handling,
  an operations publication.

18
Competitors(5/5)

• Distributors
• W.W. Grainger
• E-Distributors that consolidate goods and
  services offered by multiple vendors
• stand as competition to the VerticalNet business
  model. These sites offer a simple
• search process for a buyer to select a specific
  product. In addition, traditional
• bricks-and-mortar distributors such as Grainger
  Industrial Supply have
• moved to the Internet as an alternative channel
  for its customers. Grainger built
• its business through catalog sales, but now
  offers the full range of its products
• through its website, www.grainger.com. Grainger
  expects that online sales will
• exceed 160 million, making it one of the
  largest-volume sites for Web sales.

19
Revenue Model

• VerticalNet Revenue Sources
• Advertising was expected to account for roughly
  97 percent and limited ecommerce
• for the remaining 3 percent of revenues in the
  first quarter of 1999.
• The primary sources of advertising revenue were
  storefronts, banners, and
• sponsorships. Historically, the company renewed
  90 percent of all advertising
• contracts and expected to maintain this rate
  going forward. VerticalNet hoped
• to grow its e-commerce revenues as a means of
  diversifying its revenue streams.
• Storefronts
• The storefront product provided a simple means
  for advertisers to display company
• information and product overviews.
• the company installed a leadgeneration system
  similar to lead scorecards, which traditionally
  were used by trade magazines.
• VerticalNet offered a service,called
  VirtualOffice, to its advertisers whereby all
  user inquiries were tracked on the vertical but
  monitored by the advertiser itself.

20
Revenue Model

• Banners and Sponsorships
• Banner and sponsorship-related revenue was
  expected to reach 47 percent of
• revenues in the first quarter of 1999, up from
  just 5 percent in the same period
• in 1998.
• Advertisers chose from two types of
  sponsorships
• (1) sponsorship of a specific area, or channel,
  of a vertical or (2) sponsorship
• of a verticals newsletter.
• Sponsorship of a specific area gave the
  advertiser prominent placement of a banner ad
  within a vertical. If a vendor sponsored the
  newsletter, the vendors name and a link to its
  storefront were included in the newsletter.
  Vendors were charged 0.10 if the user clicked on
  the storefront link and 0.20 if the user clicked
  through to the vendors external, companyrun
  homepage.

21
Revenue Model

• e-Commerce
• E-Commerce revenue was generated from the sale of
  an industry verticals products and services,
  such as books and software, and accounted for
  roughly 3 percent of total revenue at the time of
  the IPO.
• VerticalNet also received a commission from the
  sale of books, computers, software, gifts,
  apparel, accessories, and entertainment purchased
  from external websites that were accessed through
  a VerticalNet vertical.

22
Porters Model
New entry power is High

• There is no preeption

• Its supplier are shareholder too.

• Online ofline trade magazine
• Online B2B intermediaries FreeMarkets,
  PurchasrPro
• Industry- specific online sites Chemdex, E-Steel

Supplier powers is moderate
Customer power is moderate
Rival power is high

• Switching cost is high

Substantial threat is High
23

• Competitive Asymmetry
• First mover
• Competitive Scope
• Segment

• Lead Time
• Easy to replicate

• Preemption Potential
• There is no preemption

24

• Thank You