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July 1, 2000

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Vortal:

By Khali Henderson

Posted: 07/2000

Vortal:
New Online Trading Communities Transform Telecom Business
By Khali Henderson and James R. Dukart

As if borrowed from the lexicon of popular science fiction, the word
"vortal" conjures up a space-age doorway into another time, dimension or reality. In fact, it is jargon for the online
vertical trading communities, or e-marketplaces, emerging to serve many industries, including telecommunications. The stolen image is not far off the mark, however, as analysts predict these portals will transport industries irretrievably toward a new way of doing business.

Vortals are websites that act as industry-specific comprehensive sources of information, interaction and electronic commerce, according to VerticalNet Inc.
(www.verticalnet.com), an owner and operator of 56
vortals, including three in the communications sector.

For their report, “Net Marketplaces Grow Up,” analysts at Forrester Research
(www.forrester.com) interviewed executives from 50 vertical business-to-business exchanges. They found that these
e-marketplaces transacted a minimum of $250,000 over the last 12 months and are expecting their transaction volumes to mushroom by more than 75-fold in two years. Forty-one percent of vortal operators expect their annual transaction volumes to reach $500 million or more by 2001.

Forrester analyst Jeanne Schaaf calls the pure rate exchange model common among early telecom business-to-business exchanges a “flash in the pan.” She predicts that in the longer term, buyers and sellers will abandon them for e-marketplaces that feature online auctions and a wider array of functions.

Vortals combine product information, industry news, vendor directories, classifieds, job listings, discussion forums, online professional education courses and virtual trade shows as well as various online commerce options for buyers and sellers. They are designed to attract technical and purchasing professionals with highly specialized product and specification requirements and purchasing authority or influence.

A telecom
vortal, specifically, might provide a bandwidth bid-offer trading floor or a reverse auction system for procuring equipment or components. Telecom vortals are sometimes confined to industry traders as in the case of TeliSmart.com Inc.
(www.telismart.com), a new e-marketplace for service providers buying and selling new and used infrastructure equipment. In other cases, such as Telephone.com
(www.telephone.com), they also include end users–commercial and residential consumers of telecommunications products and services.

Zookeeper

Vortal telezoo.com
(www.telezoo.com) is a relative “old-timer” in the infant industry of telecom e-marketplaces. Founded in 1997 by what Founder and President Elias Shams describes as “a bunch of telecom geeks,” telezoo.com is an answer to his own frustration as a network engineer trying to procure telecom products and services from large carriers.

“We got frustrated when we tried to buy something from a telecom provider,” Shams says. “It was a nightmare. The question was what is the difference between one product and another.”

As a telecom engineer at the Pentagon, Shams was entrusted with building a network to support servicemen in Bosnia, he says, and quickly narrowed down his search for vendors for a particular product to three large companies. Once he got their bids, Shams says, he selected vendor “C” because it priced its products $5,000 cheaper than the other two.

“The moment the products were implemented, they started crashing,” he says. “They could not support a certain layer of ATM, but I did not know that because there was no way to compare on anything other than price. I almost lost my job on that one.”

In order to help other engineers keep their jobs, Shams says, he opened telezoo.com as an online exchange site in March 1999.

The site, Shams says, helps buyers become intelligent, informed consumers. Buyers enter the type of service or product they are seeking, he says, and the system asks increasingly focused technical questions to narrow the list of appropriate suppliers to a few. Buyers can then get an “apples-to-apples” comparison of what is being offered that is focused primarily on the technical features and capabilities of a product rather than price.

“Our system educates you as a buyer,” Shams says. “We concentrate on the technical features of a product. You are not in e-Toys or Amazon.com, you are trying to buy a $300,000 OC-48 circuit. Each company that might supply this has different pricing, and we believe if we can help you do the homework on what something does, you can understand the pricing better. So we don’t feature a lot of pricing on our site.”

He says the site already has more than 6,000 registered users, with visitors from more than 110 countries around the world. The site currently lists products and services from more than 350 suppliers and, Shams says, there is a backlog of an additional 400 suppliers waiting to join.

“We are very careful in selecting our suppliers,” he says. “We want to make sure we get the best technical products and service offerings.”

Shams says buyers benefit from visiting telezoo.com in a number of ways. One is that they become better educated on what products and services are available for their particular needs. Another is that they can compare products in a neutral environment, free from pressure to buy on the part of a vendors’ sales force. When a buyer finds a product or service to his liking, Shams says, he can electronically send a request for quote directly to a supplier. For buyers, the service is absolutely free and designed to be as low-profile as possible.

“Buyers can come and search our site without even registering,” Shams says. “As an IT buyer myself, I was so frustrated by going to sites and them asking me how many dogs I have or what is my social security number. We want to make this as easy and useful for buyers as we can.”

telezoo.com suppliers, Shams says, pay an annual subscription fee as well as a percentage of sales made through the site. Raymond Luk, manager of business development at Hutchinson Whampoa Ltd. of Hong Kong, a supplier that was recently added to the site, says telezoo.com lets his company efficiently reach under-served markets on a global scale.

“It is impossible for us to reach every potential customer or partner individually, especially outside our market,” says Luk. “telezoo.com helps to expand our market reach, identify possible leads and provide a channel from individuals directly to Hutchison.”

The End of
‘Telechaos’

Another player in the telecom e-marketplaces space is
Telephone.com, an online trading site headed by Hensley E. “Buddy” West, recently retired president and COO of World Access
(www.waxs.com). West says the Atlanta-based startup, a division of e-marketplace developer Marketvision Direct Inc.
(www.mktv.com), will feature at least 60 content providers, with another 60 to 70 preparing to join by the second half of this year. West promotes the site by saying, “The end of telechaos is near.”


Graph: E-Marketplace Relationships

“We are focusing on consolidating and simplifying this industry and this marketplace,” West says. “This will not just be a B2B exchange, but a B2B2C [business-to-business-to-consumer] exchange. We have a lot of service providers and distributors, and our approach is to come in as any exchange and make it simple and easy for buyers and sellers to come together. We are bringing a large portion of the telecom industry together, including wholesale bandwidth, local services, long distance, equipment and many other things.”

Telephone.com, West says, will offer virtual trade shows, equipment auctions, wholesale bandwidth exchange, a telecommunications career center, a telecom services store, wireless services store and product store. The company had more than $300 million in new and used equipment listed on its site even before it launched, he says, and products and services will be offered by leading carriers such as AT&T Corp.
(www.att.com), WorldCom Inc. (www.wcom.com), Sprint Corp.
(www.sprint.com) and Cable & Wireless (www.cwusa.com). Initially, he says, the site will focus on domestic trade, but adds that he sees “an enormous international market” for electronic trading in worldwide telecom products and services.

West says he expects the hottest initial markets to be for new and used equipment and for voice and data services, including T1 lines, DSL equipment and bundled services.

Smart Thinking

As broad as Telephone.com is, TeliSmart.com is narrow. The new e-marketplace focuses on the exchange of new and used equipment and integrated services. It also provides an online gathering place for industry members, featuring discussion groups and technical, trade and marketing materials.

TeliSmart’s equipment exchange lets sellers post items online, specifying the asking price and minimum bid. Items are open for bid throughout a 20-day trading session, during which prospective buyers can either buy the item immediately by bidding the asking price or place a counter-bid that cannot be below the minimum price. During the trading session, the price of an item steadily decreases from the initial asking price to the minimum price. If the price decreases to an amount bid, the item is awarded to that bidder. In the event that a listed item has not been sold at the end of 20 days, TeliSmart says it can automatically be re-listed.

TeliSmart estimates that the global market for communications infrastructure and equipment will top $300 billion by the year 2003, and offers a number of additional services to help telecom buyers and sellers move their wares.

The company’s TeliValue service, for instance, offers advice to sellers on the current market value of pre-owned telecom gear. TeliWatch monitors site listings and automatically informs prospective buyers when an item matching their specification is posted on TeliSmart.com. The site also offers shipping and financing options as well as insurance, installation, maintenance and warranty services.

Michael T. Anderson, president and CEO of TeliSmart, was formerly executive vice president of Big Planet, a Utah-based Internet provider. TeliSmart materials point out that in addition to providing an active trading exchange for telecom equipment, the company intends to create a global, virtual community for telecom industry professionals.

“This will be an online gathering place for communications professionals … a collaborative, interactive and insightful forum,” a TeliSmart.com document states. “Within this community one person–facing a business problem–will be able to get answers from colleagues who have tackled a similar situation in the past regardless of where they work, from Indianapolis to Indonesia.”

Industry Giant

Admittedly, the up-and-running telecom vortals are the products of entrepreneurs–some with respectable pedigrees, but entrepreneurs nonetheless. This will soon change. In late February, industry giant BellSouth Corp.
(www.bellsouth.com) and e-commerce leader Commerce One Inc.
(www.commerceone.com) announced a joint venture to create a business-to-business trading community for global
telcos.

The BellSouth exchange is part of an overall strategy aimed at transforming its $16 billion global supply chain, something it would like to wring $1 billion in savings out of over the next two to four years. An additional initiative, the carrier says, is the development of an Internet trading site for telecom products and services targeted to small businesses throughout its nine-state area.

As of early May, the joint venture did not have a formal name, but Pat Shannon, vice president of exchange services and supply chain management for BellSouth, says preliminary trading was taking place under the name TELCOexchange.net
(www.telcoexchange.net). The venture hopes to sign up as many as six or seven anchor tenants, Shannon says, and is expected to be open for business by the second half of the year.

Shannon says the key focus of the exchange’s anchor partners will be large industry trading partners such as switchmakers Lucent Technologies Inc.
(www.lucent.com) or Cisco Systems Inc. (www.cisco.com). Smaller carriers and
CLECs, he added, should be eager to join at least as buyers, taking advantage of the opportunity to set up electronic trading arrangements with larger companies.

Shannon says the nature of the telecom business lends itself well to electronic marketplaces. “There is a pretty strong concentration of trading partners in our industry, so it makes a lot of sense to have a specialized trading exchange that we can use for collaborative planning and to add efficiencies to our supply chain,” he says. “We have tens of thousands of suppliers but about 100 of them account for 80 percent of what we spend. So if we can communicate directly with most of them, we can do a better job of forecasting and planning through time.”

Shannon says he expects each site to offer a variety of products and services of interest to carriers of all shapes and sizes. Early uses, he predicts, will include auctions and reverse auctions, citing as an example BellSouth itself auctioning off excess cellular towers it had taken offline earlier in the year.

Beyond transaction-based commerce, he says, an industry exchange can also lend itself to stronger collaboration and network planning. “Lucent, for instance, could come into our exchange and use our forecasting systems to do next month’s forecast of switch demand,” Shannon says.

BellSouth’s larger goal of supply chain management is shared by a consortium of marquee players in the computer, electronics and telecommunications industries. Those players announced in June that they have banded together to form e2open.com.

Expected to be launched July 1, the new e-marketplace was founded by Hitachi Ltd.
(www.hitachi.co.jp), IBM Corp. (www.ibm.com), LG Electronics
(www.lge.com), Matsushita Electric Industrial Corp.
(www.panasonic.co.jp), Nortel Networks Corp.
(www.nortelnetworks.com), Seagate Technology Inc.
(www.seagate.com), Solectron Corp. (www.solectron.com) and Toshiba Corporation
(www.toshiba.co.jp) to plan, manage and execute supply chain transactions over the Internet.

Today these companies account for approximately $700 billion in goods and service bought and sold in the worldwide electronics industry’s supply chain.

Business Case

Analysts and observers say it may be too early to tell exactly who will survive, who will perish and who will flourish in the telecom e-marketplaces of the future. Warren Williams, vice president and chief quality officer for telecom consultancy
The Eastern Management Group Inc. (www.easternmanagement.com), calls business-to-business exchanges in telecom “a tremendous idea with tremendous potential for growth.”

Key challenges, he says, will include providing buyer protections and delivering a solid economic model for buyers, sellers and exchange owners.

“The concept is a good one,” Williams says. “But there are not as many players as I had expected by now. An awful lot of players want to stay a bit at arms’ length because there is a fear that there may be a rising expense issue. It is the financial case of exchanges more than the technical case that may be holding this back.”

Shawn Willett, senior analyst at Current Analysis Inc.
(www.currentanalysis.com), agrees. He says, as with other industries, telecom players in the business-to-business exchange market have to figure out appropriate pricing and transaction models in order to succeed.

Per-transaction fees, commissions, subscription fees, service fees and posting charges are among the revenue models. At this point, the model is fluid, causing exchange operators to figure it out as they go.

Telephone.com, for example, will generate revenue in various ways based on the product or services being bought or sold. In its virtual trade show, for instance, the company will collect a fee from exhibitors who post their products. The site’s career center will be free to job seekers but charge employers a job listing fee. Bandwidth exchange partners will pay commissions, and for equipment auctions the site will collect posting fees as well as a percentage-of-sale fee from sellers when a transaction is completed.

The business model for BellSouth’s planned exchange is yet to be fully determined. “It will be taken wherever the market goes,” Shannon says. “We may have basic transaction fees to buyers, but when you get into collaboration, you have to have more of a service fee. It could also be subscription based too; we will see what the market does.”

To survive and prosper, they say, e-marketplaces will be forced to diversify revenue streams beyond transaction fees, and they will create alliances aggressively with other sites while
tailoring product and service bundles to unique buyer segments.

“Today’s vertical e-marketplaces are mere infants on the business maturity scale,” says Varda
Lief, senior analyst for Forrester’s eBusiness Trade Research. “Forrester believes that the
changing business rules will push these young e-marketplaes from isolated niche offerings to highly connected one-stop shops.”

Specifically, Forrester researchers say that vortals will begin to integrate more closely with other product and service providers. They will fulfill
customers’ expectations of one-stop shopping by connecting the process of product research information all the way through to trade settlement and clearing. They will tie together services such as risk management, financing and logistics into a single, integrated purchasing flow orchestrated with
other sites.

While it is generally agreed that the revenue model is in question, some doubt is being cast on the vortal model itself. Forrester analysts predict that many vertical industry e-marketplaces will be forced to sell out or close up shop. This, they say, will be due to the disappearance of virgin markets, the increasing demand for features and functionality, and the participation of channel masters.

In some cases, large telcos are already placing themselves at the center of more broadly focused e-marketplaces. Telcos Swisscom
(www.swisscom.com), Cable & Wireless, Deutsche Telekom
(www.dtag.de), NTT (www.ntt.com) and British
Telecom-munications plc (www.bt.com), for example, are among members of Commerce One’s Global Trading Web
(GTW), which is based on Commerce One’s MarketSite Portal Solution.

The 19 members have regular meetings to define the policies and processes that will make international Internet commerce effective. GTW plans to establish guidelines for trade agreements, including SLAs, interoperability agreements, revenue sharing agreements and content syndication agreements, and e-commerce services such as directories, trading partner profiles and master catalogs.

“We believe that the Commerce One Global Trading Web represents a ‘first of its kind’ plan to truly develop guidelines and processes for seamless global e-commerce,” said GTW Senior Vice President Carl Falk, following the group’s May meeting in Switzerland. “This meeting was
another step toward achieving our goal to be the world’s most open, dynamic and efficient global trading network.”


Chart: Vortals

Khali Henderson is editor-in-chief of PHONE+ magazine. James R. Dukart is a freelance writer based in Minneapolis. He can be reached at
[email protected].

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