B2B: 2B or Not 2B?Jamie FriedmanVice President, Sr. Equity AnalystMenlo Park, California1-650 234-3341jamie.friedman@gs.com

NetMarketMakersSan Francisco Hilton June 27th, ‘00

Investors Go For Big Bucks

B2B = Big Bucks!

1998 1999 2000E 2001E 2002E 2003E

$294

$522

$782

$1,114

$115

$39

$327

$1,221

$858

$574

$133$47

B2B

Worldwide e-CommerceWorldwide e-Commerce

$107$76$52$33$18$8

B2C

($ in billions)

This Is What Wins Investor’s Attention:B2C Is Huge

…but B2B Is Gigantic!

Total Commerce In the Global Economy (USD B)

0

10,000

20,000

30,000

40,000

50,000

60,000

70,000

1999 2000 2001 2002 2003 2004 2005

Source: Goldman Sachs

Asia Less Japan

East Europe

Mid East/Africa

Latin America

Japan

Europe Union

NA Less USA

USA

B2B Goes At The Crown Jewels of the Economy

Macro View of B2B Market Opportunity.

B2B On-Line Commerce Gross Revenue (USD B)

$0

$1,000

$2,000

$3,000

$4,000

$5,000

1999 2000 2001 2002 2003 2004 2005

Source: Goldman Sachs

Asia Less Japan

East Europe

Mid East/Africa

Latin America

Japan

Europe Union

NA Less USA

USA

That’s Thousands of Billions, Baby!

The tidal wave of Internet venture capitalcontinued thru 1Q ‘00 (20% LTM Is B2B)

$639 $914 $1,026 $1,304 $1,234$1,679 $1,787

$2,260

$3,087

$5,470$6,224

$11,813

$14,972

144 161181 197

175

251 249288

327

498520

827

698

$0

$2,000

$4,000

$6,000

$8,000

$10,000

$12,000

$14,000

$16,000

1Q97 2Q97 3Q97 4Q97 1Q98 2Q98 3Q98 4Q98 1Q99 2Q99 3Q99 4Q99 1Q000

100

200

300

400

500

600

700

800

900

1000

Valu

e o

f In

tern

et

ventu

re d

eals

Num

ber o

f Inte

rnet v

entu

re d

eals

Up 385%vs. a year

ago

Up 385%vs. a year

ago

Consortium Industry Participants1 Aerospace Consortium Boeing, Lockheed Martin, BAE Systems, Raytheon

2 Airlines Consortium Air France, American Airlines, British Airways, Continental, Delta, United Airlines

3 AutoExchange GM, Ford, DaimlerChrylser

4 CattleinfoNet Eastern Livestock, Jordan Cattle Auction

5 CoNext Ariba, EDS

6 Consumer Products Consortium (GMA) General Mills, Heinz, Kelloggs, Nestle, P&G, Sara Lee

7 Cotton Consortium Dunavant Enterprises, Allenberg Cotton Co, Cargill's Hohenberg division, Plains Cotton Cooperative

8 Energy Consortium Royal/Dutch Shell, BP Amoco, Conoco, Dow Chemical, Equilon, Mitsubishi, Occidental Pete, Phillips Petroleum, Repsol, Statoil, Tosco, TotalFinaElf, Unocal

9 e2open.com IBM, Toshiba, Nortel Networks, Solectron, Matsushita Electric Industrial, Hitachi Electronics, Seagate Technology, LG Electronics

10 Global Transport eXchange Hutchinson Port

11 GlobalNetXchange Sears, Carrefour

12 Health Care Distributors Consortium AmeriSource Health, Cardinal Health, Fisher Scientific International, McKesson, HBOC, Owens Minor

13 Health Care Suppliers Consortium Johnson & Johnson, GE Medical Systems, Baxter International, Abbott Laboratories, Medtronic

14 Health Care Insurance Aetna, Pacific Health Care

15 High-Technology Exchange Compaq, Gateway, AMD, Hewlett Packard, Hitachi, NEC, Infineon, Quantum, Samsung, SEI Systems, Western Digital, and Solectron

16 Hospitality Consortium Hyatt, Marriott

17 Hospitality Exchange Hilton (Hilton, Doubletree, Embassy Suites, and 7 other brands)

The Empire Strikes Back Through Consortias

Consortium Industry Participants18 Hospitality Exchange Starwood Hotels & Resorts

19 iStar Exchange Toyota

20 Intellectual Property Consortium IBM, ICGE

21 MetalSpectrum Alcoa, Allegheny,North American Stainless, Olin, Reynolds, Thyssen, Vincent Metal, Atlas Ideal Metals

22 Meat and Poultry Processors IBM, Cargill, Smithfield Foods, Tyson Foods, Gold Kist, and Farmland Industries23 MyAircraft.com United Technologies, Honeywell

24 Paper Consortium International Paper, Georgia-Pacific, Wayerhauser

25 Pantellos Entergy, American Electric Poswer, Cinergy, Cosolidated Edison, Duke Energy, Edison International, FirstEnergy, FPL Group, PG&E , Public Service Enterprise Group, Reliant Energy, Sempra Energy, Southern Company, TXU, Unicom, Carolina Pwer & Light, DTE Ene

26 Petrocosm Chevron, Texaco

27 Plastics Consortium DuPont, Dow Chemical, BASF, Bayer, Ticona

28 Real Estate/Project Constellation Chase, Equity Office, Hick Muse, Jones Lang Lasalle, Kaufman & Broad, Simon Properties, Spieker, Trammell Crow

29 RetailersMarketExchange Chevron, McLane

30 Rooster.com Cargill, Dupont, Cenex Harvest Cooperative

31 Rubbernetwork.com Goodyear Tire & Rubber, Continental AG, Cooper Tire & Rubber, Groupe Michelin, Pirelli SpA, Sumitomo Rubber Industries

32 Star Alliance Air Canada, Lufthansa, Singapore Airlines, SAS and others

33 TransPlace Carriers, Hunt, Swift, US Xpress, Werner

34 Xfera France Telecom, Vodafone Airtouch (Orange PLC), Mobilcom AG, Vivendi SA

List of Announced Consortia, continued

The GoldmanSachs B2B Windmill in the Age of Consortia

How do we know that B2B will be

adopted?

B2B Is Born in the Lineage ofSoftware and Networks

Pur

chas

ing

Rec

eivi

ng

Man

ufac

turin

gE

xecu

tion

War

ehou

seM

anag

eme

nt Customer Support

Sales

Order Fulfillment

Supply Chain Mgmt

Product Life-cycle

Mgmt

Field Services

Human Resources, Legal, Administration

Budgeting, Planning, General Ledger

Accounts PayableInvoicing & Accts

Receivable

Marketing

Organization

Commerce- eProcurement (ARBA, CMRC, FMKT, PPRO, PSDI)- eSelling (BVSN, VIGN, CLIC, OMKT, ALLR, ARTG)- eFinance (CKFR, HRBC, SE, SONE)- eMarketing/Advertising (DCLK, EPNY, BBSW, MSTR)

Community- Collaboration (AGIL,PMTC)- Communication (KANA)- Support (SILK,PKSI, ASKJ)

Content (ASDV, DNB, EPNY, MSTR, BBSW)

- Marketing Information- Customer Information- Supplier Information- Product Information- Industry Information

Enterprise Connectivity- ERP (SAP, ORCL, BAANF)- Supply Chain Planning (ITWO,PCOR)- Customer Management (SEBL,SLGX, PVTL)- Financial/Human Relations (PSFT, GPSI, HYSL)- Administrative (CNQR,PSDI)- Intelligence (ACTU, BOBJ, BRYO, INFA)

e-Market

ContentCommunityCommerce

B2B Enables Small bs to Play With Big Bs

SmallBusinesses

SmallBusinesses

SmallBusinesses

SmallBusinesses

LargeBusinesses

LargeBusinesses

LargeBusinesses

LargeBusinesses

Direct 1-to-1

Technology Is The Force…It Creates Competitive Advantage By...

• Viewing the Supply Chain Clearly- Optimizing Assets

- Especially true for manufacturing intensive industries- Reducing Cycle Times and Inventory

- Build to Order --> better demand forecasting- “Information Is a Substitute for Inventory”

- Streamlining Process Costs - No more phone, fax, mail; reduced search time; process

costs can exceed product costs in some industries- Lowering Input Costs

- Dynamic pricing forces competition (auctions, reverse auctions, bid/quote, etc...)

- Better sourcing decisions (increased information)

Internetworks Are DynamicPropellers for Sale:

Sample Results of a FreeMarkets Downward Price Auction

Industry Gross Margins

24%26%

29% 29%

34%34%

43%

47%51%

55%

0%

10%

20%

30%

40%

50%

60%

Gross Margin

Paper & Forest Products

Retail

Autos

Machinery

Chemicals

High Tech Manufacturing

Financial Services

Consumer Products

Telecom

Energy

Cisco Systems Case Study:Winning With the Force of Technology

CiscoCiscoCiscoCisco

Gross Margin - 1999

Why?

64.8%• 90% of orders booked over Web

• Enhanced supply forecasting - better component pricing and availability

• Enhanced demand forecasting - rapid shift to regional demand changes

• Outsourced manufacturing (build to order)

• “Virtual Close” - updates accounting on a daily basis

Industry PeersIndustry PeersIndustry PeersIndustry Peers

47.6%• Just starting to adopt Web sales

• Longer lead times due to component shortages

• Slow to react to demand shifts

• In-house manufacturing (beginning to sell off manufacturing operations)

• Accounting updated weekly or bi-weekly

Note: Industry peers comprised of COMS, JNPR, LU and NT

Spending Categories moving on-line

Types of SpendTypes of Spend DescriptionDescription CommentsComments Current EfficiencyCurrent

Efficiency

Raw materials

Direct inputs to production processes

– Pulp for paper

– Coke for steel

Direct

Maintenance, Repair, Operations

Indirect (MRO)

Tend to be recurring purchases

Often under long term contract

Typically, vertically focused

Direct sales force involvement

– requires “hand holding”

Horizontal in nature

“Everyone needs notepads and pencils”

Permiscuous Credit

Logistics

Quality assurance

Fulfillment Services

Horizontal in nature

Often higher margin

Leisure Reading at Your Bedside!