By William Fellows
Hewlett-Packard Co is dabbling with a variety of web portal business models, hoping it can set some ground rules for creating new sources of revenue opportunity. Its rule of thumb is to share in the risk and share the rewards. Sun Microsystems Inc claims to be the supplier of the com in .com systems, and HP is now staking a claim on its ability joining those dots through its e- services products. If it is successful, Sun’s Scott McNealy will have to find another favorite whipping boy.
In addition to the Ariba and ASP application service provider deals from which it takes a cut of every transaction fee rather than an upfront payment for equipment, software and services, HP is also building out subscription and more closely-held revenue models.
HP is creating a subscription-based trading community for electronics distributors that uses i2Technologies’ Rhythm Exchange supply-chain software for analysis and information sharing. No pricing details are available but general manager of HP’s E-services division Roberto Medrano said the subscription model is just one of a number of subscription-based revenue opportunities it will be pursuing with partners. We think it is likely to be in line with its other subscription and business portal services which will start at a couple of hundred dollars a month. We also think the reason for the uncertainty is that no one is sure which price point best represents the unique value point. Too high and price cutting becomes endemic; too low and the service is simply undervalued from the start. Raising prices from that point is not a commercially viable strategy in this market.
The site will pilot in October, beta in November with a name that has yet to be revealed. It will be generally accessible early next year. The service will be extended to other industries depending upon the success of this intitial foray.
We believe that HP is driving a new model for creating knowledge, and ultimately business partnerships through communities of practice, as opposed to interest. The majority of internet commentators believe that brokerage and community will be key drivers in the next generation of web services. Web-based communities of interest have spearheaded this trend in consumer and demographic spaces, while web sites offering premium financial information have established that the subscription- based models will prevail as the way to deliver information delivering competitive services.
Medrano, who is overseeing HP’s diverse efforts to harness what it belives is the second chapter of the internet – making the web work for you – agreed that a community of practice is a useful way of describing its plan for the electronics distribution industry information exchange. The i2 software will support strategic trading processes such as forecast collaboration and product phase-out planing, as well as spot-trading processes including supply procurement and bid/auctioning; access to forecasting applications; and comparative-shopping engines that can find best price and best availability as well as incorporating transport costs and total delivered costs.
The website uses HP’s E-speak electronic commerce middleware services, quality of service programs, internet usage management tools, change engine analysis and Praesidium security. HP estimates that there are 500 distributors, 4,500 retailers and thousands of suppliers. It believes business to business exchanges will account for $88bn of the proceeds generated by online exchanges in 2002. Online exchanges will account for 14% or $3.8bn on the internet economy this year and 29%, or $129bn of the $446bn internet economy in 2002, according to Gartner, although these also include numbers for consumer exchanges. The compelling number is that the gross margin on transaction managed by infomediaries is 85%. It said it didn’t know how its effort compares to the existing supply-chain portal services offered by the likes of Extricity Inc to the electronics industry.
Medrano’s four-month-old division has responsibility for the Ariba relationship and the application service provider relationships from which it earns a cut of every transaction, as well as the Chai embedded Java software. Medrano says its enterprise computing and internet chief Ann Livermore has driven HP’s internet vision. E-speak is HP’s opportunity to sell out-of- the-box communities or brokerage (transaction) solutions.
Meanwhile, HP is also building a site called E-Vis.com offering professional services products that it will host which is being designed by Engineering Automation Inc. It will use a paid-for subscription model to attract individual users at large companies – a couple of hundred dollars a month is the expected start price. The two will divide revenue according to a model that hasn’t been disclosed. Engineering Automation Inc supplies collaboration software to over 1,000 manufacturing companies.
HP says the portal will offer enterprise and supplier collaboration, visualization and analysis tools, integration and e-services. Users can be added by updating subscription information, project groups can share documents, the site will offer conference capabilities, webcasting, web training and access to news and information on the latest news affecting the sector. The premium kind of revenue opportunity these business critical services afford will ensure that HP maintains a forensic relationship with this product. No prices were available. HP will provide $150m of equipment and support and services and will take a cut of revenue generated. The big three auto makers are expected to be among the first subscribers. E-Vis.com is being driven out of the enterprise computing group as an opportunity to sell its products, not from Medrano’s E-services group.
