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|Home : Kansas City : Archive : 2000 : April : Week of April 3, 2000 : Exclusive Reports|
eScout gains clout in B2B marketJim Davis Staff Writer
Kansas City-based eScout.com this week bulked up for what promises to be a bruising global battle for online business-to-business customer loyalty by aligning with e-commerce heavyweight Commerce One Inc.
Sandy Kemper, who last week resigned as CEO and president of UMB Financial Corp. (Nasdaq: UMBF) to lead eScout, the Kansas City bank owner's Internet unit, said the partnership with Commerce One (Nasdaq: CMRC) will empower his new company's clients by building on UMB's historic ties with small businesses.
"There are going to be a lot of companies that are going to try to differentiate on technology," Kemper said. "We think it's far better to build technology on the foundation of trust. That's what the community banks in this network provide."
This distinction resonates with Mark Cannice, an e-commerce professor at the University of San Francisco School of Business, because it plays to ingrained loyalties.
"The notion of trying to put a local face on the `B2B' marketplace is appealing to communities that don't want to see their businesses lose out," Cannice said. "This seems like a very forward-looking gamble that they (eScout) are making. Especially in the Midwest, but all over, people would like to see their own local community businesses thrive."
In the year since its founding, eScout has evolved into a network that lets participating companies buy goods and services from such vendors as Peripheral Vision InfoSystems Inc., an Overland Park-based computer consultant. Buyers and sellers also can use online auctions to strike deals.
Cannice said he's impressed by eScout's connection with Commerce One, the nation's largest facilitator of Internet procurement. The Walnut Creek, Calif., company not only will include eScout on its Web portal site linking buyers and sellers, but also will become a minority shareholder in the venture. This investment follows a $25 million venture capital infusion eScout received last month from other sources.
"The money that's funding them is fairly smart money," Cannice said. "Commerce One is already proven to be very successful. That association will give them (eScout) that much more credibility because their likelihood of success will be determined not only by what they do but who they're aligned with."
Jay Tenenbaum, who formulates Commerce One's strategy as a senior vice president, said eScout targets a constituency his company hasn't served.
"We know how to sell to big guys like GM, but we don't know how to address small- to medium-sized players," Tenenbaum said.
But competition in the B2B procurement market is fierce and growing. Forrester Research forecasts that in the United States alone it will soar at a compound annual rate of 86 percent to $1.3 trillion by 2003.
Bank owners leaping into the fray include First Union Corp. (NYSE: FTU) of Charlotte, N.C., which last week introduced a new division that will build an online marketplace for small to medium-sized companies. This week, Wachovia Corp. (NYSE: WB), another big bank holding company based in the Southeast, announced a $5 million investment in an electronic procurement system that it will use to develop a bank-branded marketplace for its small and mid-sized business customers.
Kemper said he's unfazed by these entrants because he said they don't provide service that engenders the kind of trust that eScout hopes to claim as its legacy through UMB, which the Kemper family has run for five generations.
Since its rollout in March 1999, eScout has enlisted more than 3,500 independent businesses and 1,050 community banks to its e-commerce network. Penetration has been concentrated in the Midwest, building on UMB's correspondent banking relationships.
The task now will be to expand eScout's geographic footprint. Kemper said he expects to spend the next several months traveling the country making personal pitches for these accounts. He views community banks as the conduit for persuading customers to use eScout to regain transactional leverage they've ceded to big business.
"It's all about helping the little guy," Kemper said. "This is the way for community banks, for regional banks, to re-intermediate themselves into their customers' commerce."
This strategy makes sense to Arthur Sculley, co-author of "B2B Exchanges: The Killer Application in the Business-to-Business Internet Revolution," because eScout fosters intra-regional commerce whose shipping costs are lower than more geographically dispersed transactions.
The challenge, Sculley said, will be getting member companies to use the service. He suggested offering discounts and other incentives to promote traffic and predicted that eScout will need to establish a critical mass within 18 months to ensure its survival.
What Commerce One provides, Kemper said, is visibility. Other companies offering products via its portal include General Motors, British Telecom and Royal Dutch/Shell Group.
"The problem with just creating a Web site is it may not be discovered," Kemper said. "You want to be tied into a very robust Web site."
Breaking through the noise
Kemper wants to capitalize on eScout's momentum to generate a tenfold increase in revenues by the end of the year, but he said profitability is at least a year away.
Gaining recognition won't be easy, said Dorothy Langer, a Boston-based business consultant.
"The biggest issue in Internet dot-coms is breaking through the noise," Langer said. "How are you going to find the customers?"
Technology and capital are essential, she said, but they don't assure success. For eScout to take off, it must embrace the new economy by hiring people who understand the Internet and, more important, can operate in its compressed time horizons.
Kemper, 34, already had adapted to this culture before he moved to eScout's temporary headquarters at 921 Walnut St. and traded in his tailored banker's suits for the more casual garb favored by denizens of the Web.
The energy level at eScout is incandescent, Kemper said this week, while surrounded by co-workers as the sun set. And the company's ranks are swelling. Plans call for the staff, which has grown from 15 to 64 in the past three months, to nearly double again by September and reach 200 by the middle of next year.
To accommodate this growth, eScout will roughly quadruple its space around the end of June, when it moves to three floors that are being remodeled at 906 Grand Blvd.
"It may not be the most luxurious office," Kemper said about his current spot, which he shares with an assistant and is cluttered with computers, books and other printed and digital paraphernalia, "but I can promise you one thing: There's no bureaucracy."
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