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"Free" Extends into the B2B Space

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The newest wave of free services targets businesses, and it includes e-commerce, messaging services, organizing applications, networking and storage services, and much more, explains e-commerce management expert Mitchell Levy.

This article is adapted from and used by permission of ECMgt.com, Mitchell Levy, Executive Producer. Levy is also the author of E-Volve-or-Die.com: Thriving in the Internet Age Through E-Commerce Management (New Riders Publishing, 2000, ISBN 0-7357-1028-7).

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Copyright © 2000, ECnow.com, All rights reserved.

Just three short years after the introduction of free email and free Web hosting, the latest wave of free applications has been extended from the B2C market to the lucrative B2B market. The newest wave of free services targets businesses, and it includes e-commerce, messaging services, organizing applications, networking and storage services, and even vertical business portals supporting B2B auctions and providing complete portal management services.

While the "free" model in the B2C space is based on building membership and accumulating knowledge of user profiles that can be leveraged for advertising, the business model for free B2B is not as clear. We'll examine a dozen entrants in the free B2B space, propose a new model called "process share," and discuss up-selling business customers to premium services with recurring revenue as the free B2B driver. An even more interesting model is developing in which consumers and businesses both share benefits from portals that integrate community, content, and business processes.

Let's start with a quick tour of business productivity and infrastructure services, then move to B2B and market-to-market portal offerings, finishing with e-commerce and financial services.

In the messaging arena, businesses can benefit from free long distance, voice mail, faxing, and paging services. Given that the annual bill for faxes alone in the United States approaches $95 million annually, it's no surprise that use of free fax applications is growing nearly as fast as the Internet itself. The two most popular offerings, eFax.com and JFAX.COM, offer a free universal fax number for receiving, and reasonable rates for enhanced premium delivery services to private fax numbers. We see the opportunity for a merging of "LAN fax" with "free fax" or "fax over IP" as this business grows and most likely consolidates.

Free messaging services extend to voice, where firms PhoneFree.com and Dialpad offer unlimited free long-distance phone calls to anyone in the United States. Dialpad, which claims over 5 million users, has formed an alliance with eVoice to combine free voice mail with long distance calling. Onebox offers free voice mail, email, and fax, and has recently been acquired by Phone.com, indicating interest by service providers with global reach.

Related office productivity tools include WebEx, which offers a business exchange service to locate peers and a range of business service providers, as well as an online office forum in which to conduct online meetings. Following the premium up-sell model, they also offer a pay-per-use plan with enhanced office collaboration tools.

For businesses using press releases as marketing tools, WebWire offers PR professionals and corporate communicators a "free for a lifetime" tool to post press releases using the WebWire service. WebRelease makes press releases instantly available to conventional and emerging media.

Office supply procurement, a big expense for businesses of any size, has been made simpler by free Internet services from TradeOut and onsale.com (a former business exchange specializing in liquidation). Both firms serve businesses shopping for bargains, and provide a perfect solution for firms needing to liquidate stock or hard goods.

Two services that provide direct marketing over the Internet for small merchants include ELetter and Microsoft bCentral. ELetter, an integrated direct mail solution managed via the Web, allows users to build a targeted mailing list, create a mailing piece, and generate Internet postage in one transaction. Microsoft's bCentral is an all-in-one business portal with free and low-cost premium services for banner and email advertising. Microsoft does an excellent job of attracting users to the free services, and of promoting effective low-cost services following the premium up-sell model.

PayPal is an interesting entrant, claiming to be the Internet's largest instant payment network, offering wire services over the Internet. While not a pure B2B play, it does appear to be positioned to enter the Internet escrow field, which appeals to merchants and hobbyists unable to acquire a conventional merchant account for processing credit cards.

Network services, an expensive, time-consuming, and technically involved undertaking for any business, is the domain of Xdrive and Intranets.com. Xdrive provides 100MB of free network disk storage, valued at $50 per month. Intranets.com offers free secure network storage of business content, viewable by employee browsers. Access is controlled through passwords and IP addresses, ensuring security.

Vertical business portals focused on high-spending markets include plastics.com and WebMD. While plastics.com is a vertical business portal, WebMD merges the space of B2C and B2B, providing consumers access to medical content and physician information. The interesting approach of WebMD is the introduction of workflow; moving business documents among doctors, HMOs, and insurance firms—a complicated task involving high dollar volumes. The introduction of transactive business processes to a portal with market share provides immediate value to customers and valuation to investors.

One of the most exciting areas in the business arena is the introduction of free electronic commerce functions, including complete Web store building and hosting. In addition, complete e-commerce portal-building tools are available to vertical industry leaders, communities, and geographical portals. Market entrants here include Bigstep, eCongo, FreeMerchant, and more recently JustWebit. Each of these firms offers a WYSIWYG store builder, including searchable catalogs, product display functions, and integrated shopping carts and payment services. Of course, nothing is free, and they do so by offering credit card processing services at a nominal rate. As merchants become successful, additional marketing and financial services are offered as premium up-sells. Cardservice International, which offers credit card processing, and Smart Online and OneCore, providing financial services, are examples of business services that migrate "free" merchants into recurring revenue opportunities.

The free commerce business model is extended to large aggregators of merchants, where revenue splitting of premium services is shared between portal builders and Web store hosting services. Large firms building these portals include InfoUSA (consisting of over 150 ISPs with over 200,000 merchant members), and communities of interest such as The Black World Today.

The most lucrative field in the B2B space is financial services, which serves traditional brick-and-mortar business as well as Web-based business. One key entrant is Smart Online, an application service provider that provides a suite of services including legal and administrative, sales and marketing, finance and business, and human resources services. OneCore also offers a complete range of business services covering financial analytics, cash management, bill payment, payroll services, merchant services, leasing, and small business loans. As a business service provider (BSP), OneCore follows the free/premium service model. BigCharts is a free, professional level, interactive graphical-comparison tool that helps users create customized online financial content.

For B2C e-commerce sites, BizRate helps merchants understand how buyers rate their sites and online shopping experiences. BizRate provides access to 60% of all customers making online retail transactions. NetRatings offers a free weekly email newsletter called the Nielsen/NetRatings Reporter, which highlights headline news, top 25 weekly properties, top 10 advertisers, top 10 banners, and Web average use statistics.

So what is the business model for free B2B? Offering something for free is a technique for opening markets and driving the "hockey stick," the inflection point where services like email (Hotmail), Web hosting (GeoCities), and e-commerce suddenly explode. Many users of new free services would not have tried a business service if it weren't free, and a substantial proportion will graduate to premium services that generate monthly recurring revenue for the provider.

But how are the free B2B services to be valued, and what is their future? I believe that a new model called "process share"—the intersection of market share with business process transactions—is the new metric for valuation. Witness the valuation of Phone.com, which developed and licenses a Web browser operating system for wireless phones, which are expected to become the initiation point for over 50% of stock trades within three years.

Each of the free services mentioned above is a virtual market maker in a vertical market or a horizontal application, has a growing member base that is "transactive," and is pursuing an opportunity to garner a small fraction of a very large number of business transactions. Whether or not free is the motive and transactions are the reward, it is clear that "free" has entered the B2B space, with businesses of all sizes as the beneficiaries.

Related Web Sites

Company

URL

BigCharts

http://www.bigcharts.com/

Bigstep

http://www.bigstep.com

BizRate

http://www.bizrate.com

The Black World Today

http://www.tbwt.com/

Cardservice International

http://www.cardservice.com

Dialpad

http://www.dialpad.com

eCongo

http://www.econgo.com

eFax.com

http://www.efax.com/

ELetter

http://www.eletter.com

eVoice

http://www.evoice.com

FreeMerchant

http://www.freemerchant.com

GeoCities

http://www.geocities.com

Hotmail

http://www.hotmail.com

InfoUSA

http://www.infousa.com

Intranets.com

http://www.intranets.com/

JFAX.COM

http://www.jfax.com/

JustWebit

http://www.justwebit.com

Microsoft bCentral

http://www.bcentral.com

NetRatings

http://www.netratings.com/

Onebox

http://www.onebox.com

OneCore

http://www.onecore.com

PayPal

http://www.paypal.com

PhoneFree.com

http://www.phonefree.com/

plastics.com

http://www.plastics.com

Smart Online

http://www.smartonline.com

TradeOut

http://www.tradeout.com/

Xdrive

http://www.xdrive.com/

WebEx

http://www.webex.com

WebMD

http://www.webmd.com

WebWire

http://www.webwire.com

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