1. © 2000 Giga Information Group, Inc. All rights reserved. Reproduction or redistribution in any form without the prior written permission of Giga Information Group is expressly prohibited. YOUR e-BUSINESS ADVISOR Giga Information Group ® Andy Bartels Vice President and Research Director November 16, 2000 Call in at ??:?? EDT (1) (973) 321-1020 Password: ???? E-Marketplace Status Update

2. Giga Information Group ® YOUR e-BUSINESS ADVISOR © 2000 Giga Information Group, Inc. Agenda l Segmenting the e-marketplace space: –extranets and private e-markets vs. EDI and ETN networks vs. public e-markets l The dynamics driving e-markets l What will win? l Recommendations for navigating an uncertain landscape

3. Giga Information Group ® YOUR e-BUSINESS ADVISOR © 2000 Giga Information Group, Inc. The Internet B2B E-Commerce Space Figure 4 $0 $500 $1,000 $1,500 $2,000 $2,500 $3,000 $3,500 $4,000 1998199920002001200220032004 Internet E-Markets Extranets $611 $1020 $1,636 $2,471 $3,158 $3,697 EDI Direct Over Web EDI via Internet ETNs $295 Web EDI US Business-to-Business (B2B) Internet E-Commerce (Billions)

4. Giga Information Group ® YOUR e-BUSINESS ADVISOR © 2000 Giga Information Group, Inc. The EDI B2B E-Commerce Space Figure 5 $0 $500 $1,000 $1,500 $2,000 $2,500 $3,000 $3,500 $4,000 1998199920002001200220032004 EDI via VANs $2,984 $3,030 $3,137 $3,255 $3,352 $3,412 $2,908 EDI Direct Over Web EDI via Internet ETNs Web EDI US Business-to-Business (B2B) EDI E-Commerce (Billions)

5. Giga Information Group ® YOUR e-BUSINESS ADVISOR © 2000 Giga Information Group, Inc. EDI and Internet Increasingly Overlap EDI Internet Extranets* ($0.5 Tril.) EDI with VANs ($1.4 Tril.) EDI ETNs ($1.2 Tril.) EDIDirect ($0.3 Tril.) InternetPublicE-Marketplaces ($1.3 Tril.) Figure 3 WebEDI ($0.4 Tril.) * Includes Private E-Marketplaces B2B E-Commerce in 2004

6. Giga Information Group ® YOUR e-BUSINESS ADVISOR © 2000 Giga Information Group, Inc. What Are Internet E-Markets? Business Buyers Business Sellers E-Market Internet ExtranetE-Market No. 1 E-Market No. 2 E-Market No. 3 E-Market No. 4 Net as Market One/Some -to-Many: One/Some Buyer (Seller) to Many Sellers (Buyers) Aggregator Hub Many Sellers to One Content Aggregator to Many Buyers Broker Hub Many Buyers to One Broker to Many Sellers Collaboration Hub Many Buyers to One Source of Collab. Tools to Many Sellers Translator Hub Many Buyers to One Translator to Many Sellers Marketplace Many Buyers to Many Sellers

7. Giga Information Group ® YOUR e-BUSINESS ADVISOR © 2000 Giga Information Group, Inc. One-to-Many Extranets Become Some-to-Many Private E-Marketplaces l Companies with successful extranets are adding non-competing complementary suppliers to create a private e-marketplace –Example: Dell’s order system with customers l However, some-to-many (like one-to-many) solutions are only sustainable when the one buyer or the one supplier is the 800-pound gorilla that can force counterparties to do things its way. Primary Business Seller Private E-Market Secondary Business Seller Business Buyers Internet

8. Giga Information Group ® YOUR e-BUSINESS ADVISOR © 2000 Giga Information Group, Inc. True Many-to-Many Marketplaces l Lack of standards limits current availability l May emerge if buyers, sellers and vendors can get together to write the common rules for trading in an industry, e.g., RosettaNet Internet Standardized Order-and- Response Formats Business Buyers Business Sellers

9. Giga Information Group ® YOUR e-BUSINESS ADVISOR © 2000 Giga Information Group, Inc. Two Dominant Models for Hub E-Markets Hub e-market ownership is taking two forms in public e-marketplaces. Option No. 1 New Company Option No. 2 Shared Ownership by Incumbents Pros Cons No baggage Nimble Entrepreneurial Potential Monopoly Profits to New Entrant Slow to Reach Scale Profits to Incumbents Control to Incumbents Quick to Scale Anti-Trust Issues Distrust by Other Incumbents Committee delays

10. Giga Information Group ® YOUR e-BUSINESS ADVISOR © 2000 Giga Information Group, Inc. Half of Industry-Incumbent Hub E-Markets Will Fail Industry-incumbent consortia can bring scale and liquidity, but can fail because of: –Anti-trust issues –Sub-scale buyer participation –Competitor conflicts l Hub site objectives — profit vs. efficiency? l Hub site scope — preserving or leveling competitive advantages? l Hub site assets — who owns IP, physical assets, management? l Hub site technology — whose favorite vendors get chosen? –Resistance from suppliers –Premature commitment to wrong technologies

11. Giga Information Group ® YOUR e-BUSINESS ADVISOR © 2000 Giga Information Group, Inc. Tensions in Internet Hub E-Markets Business Buyers Business Sellers Internet E-Market Internet Buyer Objectives 1.Lower prices 2.Standardize order flow 3.Find new suppliers 4.Collaborative planning & forecasting Market Feature Reverse auctions Aggregated catalogs PO and response conversion Aggregated catalogs RFP facilities SCM-based collaboration Seller Objectives 1.Standardize order flow, avoid commoditization 2.Collaborative planning & forecasting 3.Find new customers 4.Move excess inventory Market Feature Aggregated catalogs with punch-out to seller Web site CRM-based collaboration Supplier search w/ marketing info Auctions

12. Giga Information Group ® YOUR e-BUSINESS ADVISOR © 2000 Giga Information Group, Inc. Evolution of E-Marketplaces l E-marketplaces will move from supporting purchase transactions to more complex collaborative interactions Purchase Transactions Collaborative Planning Transactions 20002001200220032004 Industry Consorti a E- Markets Private Extranet E-Markets New Entrant E-Markets

13. Giga Information Group ® YOUR e-BUSINESS ADVISOR © 2000 Giga Information Group, Inc. E-Marketplace Revenues l E-marketplaces today are experimenting with a variety of revenue models l Increasingly, they will coalesce around a subscription model Today Monthly Subscription Fee (e.g., PurchasePro) AND/OR Sales Commission Paid by Seller (e.g., 1%-5% for MetalSite, ChemDex) AND/OR Transaction and Listing Fees by Seller (e.g., PurchasePro) AND/OR Percent of Savings Fee by Buyer (e.g., FreeMarket) 2001 Monthly Subscription Fee Tiered by Size Of Participant And Service OR Percent of Savings Fee by Buyer (for Reverse Auctions)

14. Giga Information Group ® YOUR e-BUSINESS ADVISOR © 2000 Giga Information Group, Inc. Growth in B2B Internet Commerce via Hub E-Markets Percentage of B2B Internet commerce transactions flowing through hub sites 19992000 5% 10% 15% 30% 25% 20% 40% 35% 0% Number of transactional hub sites 19992000 1,000 5,000 10,000 20012002 2,500 7,500 0

15. Giga Information Group ® YOUR e-BUSINESS ADVISOR © 2000 Giga Information Group, Inc. Large Companies Will Use Different B2B Electronic Channels l EDI/ETNs/Extranets/Direct Tightly coupled, secure, often proprietary network channels for large and medium company bilateral long-term partner relations l Internet E-Markets Loosely coupled, moderately secure Internet-based extranets, hub sites and marketplaces for more transitory partner relations for large, medium and small organizations Distributors Or Suppliers Sales Or Purchases 20% 80% Distributors Or Suppliers Sales Or Purchases 20% 80%

16. Giga Information Group ® YOUR e-BUSINESS ADVISOR © 2000 Giga Information Group, Inc. Caveat to the 80/20 Rule: Asymmetry of Strategic Relationships l Not all “strategic” relationships are strategic to both parties. Manufacturer > 1% of Purchases = Non-Strategic Supplier 10% of Sales = Strategic Customer Retailer l In these cases, retailer will try to push manufacturer onto an e-market;manufacturer needs to find ways to keep relationship of the e-market.

17. Giga Information Group ® YOUR e-BUSINESS ADVISOR © 2000 Giga Information Group, Inc. B2B Commerce Will Continue to Go Through Multiple Channels 0.3% Catalog 15.5% EDI with VAN s 23% Sales force & in store 5.8% Internet E-Markets 43% Sales force & in store influenced by Internet 1.4% Direct Marketing 3.2% Internet E-Markets 5.6% EDI with Internet ETNs 1.6% EDI Direct Via Web Source: Giga Information GroupFigure 2 3.1% Web EDI US B2B Sales By Channel, 2002 (Total = $12.6 Trillion)

18. Giga Information Group ® YOUR e-BUSINESS ADVISOR © 2000 Giga Information Group, Inc. Key Business Challenge: Managing Multiple E-Channels Figure 1 Store Sales Person Telephone Mail EDI-VAN Leased Line Traditional Proprietary Electronic Dial-Up Internet Electronic EDI-ETN Direct EDI Extranets E-Markets Orders2000 Orders2004 Web EDI

19. Giga Information Group ® YOUR e-BUSINESS ADVISOR © 2000 Giga Information Group, Inc. Conclusions and Recommendations l E-marketplaces will play an increasing role in B2B e-commerce. l Industry-consortia-owned e-marketplaces will tend to prevail over new-entrant e-markets or private extranet- based e-markets – but not always. –Will move from payment transactions to collaboration –Will be run as non-profit co-ops with subscription revenues l But e-marketplaces will be one of many channels used in B2B e-commerce. l Companies will need to have explicit e-channel management strategies — use right channel for right customer or supplier relationship. l Companies will have multiple e-channels to integrate.