www.nasdaq.com
The Technology Stocks Market
NASDAQ (which is an acronym for National Association of Securities Dealers Automated Quotations) is the world’s largest electronic stock market, and is also the most sophisticated.
Unlike its traditional trading-fl oor-based rivals, it is not dependent on one physical location or even one computer system. From the beginning NASDAQ was designed as a ‘virtual’ global marketplace – a trading system built around a sophisticated computer and telecommunications network that transmits real-time price quotes and transaction data to more than 1.3 million users in 83 countries.
It is this system that defi nes NASDAQ, ensures its reliability and provides it with its key competitive advantage – the ability to build the world’s fi rst truly global securities market unhampered by size limitations or geographic boundaries. NASDAQ’s ‘open architecture’
market structure allows a virtually unlimited number of participants to trade in a company’s stock.
Key to NASDAQ’s market structure are a core group of fi nancial fi rms called market makers.
More than 500 market making fi rms trade on NASDAQ, acting as distributors for NASDAQ- listed securities. Also known as dealers, market makers are unique in that they commit their own capital to NASDAQ-listed securities, then turn around and re-distribute the stock as needed.
They are required at all times to post their bid and ask prices in the NASDAQ network where they can be viewed and accessed by all participants. By being willing to buy or sell stock using their own funds, market makers add liquidity to NASDAQ’s market, ensure that there are always buyers and sellers for NASDAQ-listed securities, and enable trades to be fi lled quickly and effi ciently.
NASDAQ.com is one of the most popular fi nancial sites on the internet. Averaging more than seven million page views per day, NASDAQ.com offers excellent visibility to listed companies.
Investors can log on to NASDAQ.com and not only scan the latest news and fund commentary and get quotes for stocks, mutual funds and options on major US markets but can also, via links on the NASDAQ site, see how the Dow Jones and the S&P 500 are performing, along with a wealth of other investor services.
NASDAQ is a publicly listed company operated by the Nasdaq Stock Market, Inc. under NDAQ and was listed on its own stock exchange in 2002.
Information sourced from NASDAQ website
Key Reasons for the Crash
In the early days of the New Economy, entrepreneurs argued that everything then known about business would be obsolete as the information age facilitated by the growth of web- based businesses gained momentum. Further, it was thought that profi tability and revenues were irrelevant as compared with building ‘traffi c’ through the website of the dot.com and growing user numbers. After the NASDAQ meltdown in early 2000, this approach was at last recognized as deeply fl awed, and suddenly dot.com survival required dot.com profi tability!
But why were traditional business valuation tools abandoned by analysts and why were traditional cash fl ow or earnings-related valuations seemingly unable to deal with the dot.com phenomenon? There were many reasons attributed to the crash, but in reality it was greed for quick and substantial returns. One analyst in the now defunct internet analysis company Webmergers.com wrote:
‘The speed of ascent was both real and imagined. It was real – the Internet achieved 30% penetration in four years. It was also imagined – or at least enhanced – by an unprecedented frenzy of media attention and market research fantasia. The media infected stock market investors; investors infected markets;
markets infected IPO debuts; IPO blowouts infected private equity investors who infected entrepreneurs in an ever-accelerating vicious circle of exuberance.’
It was also recognized that there is no business on the internet that is nota service business and that as a service-based industry, customers are a dot.com’s most important resource and thus the customer experience – the shopping and buying process and the fulfi llment of products – is the key to a dot.com’s survival. Service businesses survive if they remember that revenues and profi tability are based on optimizing three dimensions of customer relationship management:
1. Companies must select customers with whom to do business profi tably. As obvious as this sounds, a large number of businesses do business with customers who result in a negative gross margin for the company by developing bad debt situations, or never repeating business with the company.
2. Companies must fi nd customers who value the services offered enough not to just browse but to purchase as well – and to return frequently to the site.
3. Companies must fi nd customers who will maintain a relationship with the business over a long time. Studies show that loyal customers become less price sensitive over time, will refer friends and spread positive word-of-mouth references, and also incur lower costs of relationship management for the company.
Lessons Learned from the Dot.com Crash
The crash affected a great number of people and businesses and there have been signifi cant lessons learned from it for the business world. These include:
• The decline of dot.coms was mostly a failure of business plans, not technology. The winning companies were those who sifted through the technologies and picked products and services that gave them the best bottom line.
• Profi tability is important. Companies that don’t make money are not only questionable investments, they may not be around that long.
• Source and certainty of revenues is important. Statistics like hits, page views and eyeballs don’t necessarily relate to revenue or profi tability. Some of the most popular websites visited are notoriously unprofi table.
• Knowing what consumers want is essential, but clever advertising does not guarantee profi ts or revenues. The novelty of doing something on the web just because you can do it on the web wears off almost immediately. People will use the web for something only if it makes sense, such as for savings or convenience.
The B2B Environment
The online B2B environment essentially involves electronic exchanges or eMarketplaces where businesses register as sellers or buyers with the main aim of communicating and conducting business over the internet. For example, businesses representing each section in a supply chain could join an eMarketplace to transfer information and purchase products.
There are many types of eMarketplaces based on a range of business models. They may operate on a cost-recovery basis by an independent third party (such as an industry association) or be set up as a business offering, with a middle-person providing a value-added function such as transaction services (e.g. www.emarketservices.com).
The B2B buying process is predictably quite different from that in consumer marketplaces since these tend to be either marketplaces revolving around a specifi c industry sector (a vertical marketplace), or marketplaces based on products that form around a supply market cutting across several industries (a horizontal marketplace), or marketplaces focusing on functions such as management of a particular business function (e.g. recruitment) (Sculley and Woods, 2001).
B2B procurement phases include: requisitioning, request for quote, purchase order generation, payment processing. Figure 2.6 illustrates these phases.
Fig. 2.6. The B2B purchasing process
The B2B procurement purchasing process translates into applications that are more complex and tightly integrated with corporate systems than B2C initiatives.
• Purchase requisitioning. This consists of an online form containing product information, quantity and cost fi lled out by the buyer and submitted over the internet for requisition approval. A workfl ow component in the form of an email message, fax or pager message is then sent to the appropriate manager. When approval is received the requisition is routed to the purchasing department and the appropriate purchasing agent begins the process of requesting quotes.
• Request for quote. This begins when the purchasing agent notifi es potential suppliers that the enterprise is interested in making a purchase of specifi c goods in specifi c quantities.
This request for quote is typically posted at a message board.
• Purchase order generation. A purchase order is generated through appropriate online channels. This may involve integration with the business’s intranet.
• Payment processing. In this phase the data transformation component transmits payment information in the form of a corporate card, smart card information or an EDI transaction to the supplier in a format customized to integrate with internal supplier accounting systems. As more of these processes begin to be automated and integrated across enterprise boundaries in real time, corporations will begin to do business entirely in the virtual world.
B2B Business Models
There are different business priorities at play in the B2B arena compared to the B2C arena.
Business professionals spending their company’s money want to know how a purchase will add to their bottom line. B2B commerce is dominated by long-term, symbiotic, bio-supplier business partner relationships where stakeholders collectively work for common interests such as lower costs and improved product and service offerings. Successful B2B trading partners will be those who are prepared to collaborate electronically to maximize the new opportunities provided by the internet. Like any strategic business decision, it requires planning and careful return on investment (ROI) analysis.
B2B Application Models
As with B2C, the applications that ensure that the business model will work are important.
Successful B2B trading requires a sound understanding of the three application models which are: virtual marketplaces, procurement resource management, and extended value chains. Customer Relationship Management (CRM) which is also an important part of B2B business is discussed in Chapter 4.
1. Virtual or eMarketplaces. Applications that enable enterprises to sell goods and services on the internet are referred to as virtual marketplaces. They must have one of the following trading means: auction, reverse auction, bulletin board, catalogue, exchange, or commodity exchange (e.g. www.emarketservices.com). Such markets provide new distribution channels for access to customers worldwide. Some good agribusiness examples are FarmNet (www.farmnet.com.au/html/services.asp), the Chicago Board of Trade which is a global commodity trading company (www.cbot.com), or E-Markets
– see Byte Idea this chapter. The virtual marketplace must have four key processes to be successful. These are:
• Catalogue aggregation and creation. An extension of the B2C model, enterprises populate an online catalogue with goods and services that interest and add value for the customer. Once the complete product offerings are in the catalogue, developers can focus on providing an interface to buyers that is consistent with the B2B buying process.
• Support for complex buying processes. Although the same see-buy-get cycle of B2C purchases is involved in B2B environments, developing and deploying a virtual marketplace is a continually evolving process of monitoring and responding to marketplace conditions. This inherent variability in the B2B selling process means that a fl exible workfl ow and application design are necessary.
• Integration with existing enterprise systems. Virtual marketplaces connect multiple enterprises, each having distinct business architectures and buying processes.
To operate seamlessly with these processes, virtual marketplaces must include a component capable of sharing information with internal company systems such as ERP applications, corporate databases and custom developed legacy systems.
• Support for multiple types of payment. Payment for purchases made in a B2B environment is typically made with a corporate cheque, corporate payment card, stored value card or smart card.
2. Procurement resource management. Traditionally most procurement applications have focused on maintenance, repair and operations (MRO) goods and services because these are often standardized and are thus well suited to automated high volume purchasing (e.g. offi ce equipment such as ball point pens). The procurement resource management applications associated with B2B streamline the buying of both production and non- production goods and services. They facilitate the following processes:
• Requisitioning. During requisitioning, employers or purchasing agents identify which products they would like to buy, in what quantity, and at what price. In order to make these decisions buyers must be able to search integrated catalogues of supplier offerings with pre-negotiated prices.
• Request for quote (RFQ). Once the requisition has been approved the process moves onto the request for quote phase. By automating this process, buying organizations can reduce human error, shorten the purchasing cycle time, and incorporate suppliers around the globe who otherwise would be unable to participate in the sourcing process.
• Purchase order generation. Advanced procurement resource management applications customize electronic purchase orders to automatically integrate with individual supplier order entry and accounting software as well as internal processes.
• Payment processing. The receiving process represents the actual hand-off of goods from the supplier to the buying agent. Payment is typically in one of the same common methods as in a virtual marketplace – either corporate cheque or corporate smart card.
In procurement, since application-cost savings go directly to the bottom line, the benefi ts of these B2B applications include that they:
• Allow long-term relationships with suppliers to be managed and leveraged to create an enterprise-wide most favourable buying environment
• Lower requisitioning costs by automating the internal requisitioning process, reducing buyer personnel costs and time ineffi ciencies normally associated with requisition approval and order processing
• Reduce supplier costs by integrating with internal supplier inventory management and accounting systems, reducing supply costs and allowing savings to be passed down to the buying organization
• Ensure that appropriate approval is secure before any purchase can be made, thus increasing accountability and control
• Reduce the cycle time of purchases, decrease stocking requirements and lower inventory management costs for buyers with automation and workfl ow facilities
• Allow purchasing managers to monitor and analyse purchasing data so as to optimize order quantities and to ensure that business goes to selected suppliers.
3. Extending the value chain.The notion of the value chain is deliberately vague in order to accommodate and apply to very broad markets. Businesses buy something, add value to it, and sell it for a higher price. Extending the value chain simply means integrating isolated enterprise value chain environments to create a superior collaborative commerce infrastructure. In essence the members of the value chain of the e-enterprise become virtual companies that think and react as one entity and communicate around the clock in real time (Hoque, 2000).
The result is the deconstruction of the linear value chain into dynamic value groups or nets (Bovet and Martha, 2000) that provide the latest, up-to-date information to all participants, and optimize the transaction of goods and services between partners from suppliers of raw materials to end customers.
While the most obvious extended value chain platforms often aim to simply extend the functionality of the conventional supply chain management (SCM) systems, the ultimate aim of extended value chain applications is to share enterprise information with suppliers, buyers and business partners so as to enable supply planning, demand planning, production planning, and logistics to occur in real time (Thompson et al., 2000; Boehlje et al., 2000; Porter, 2001; Bryceson and Kandampully, 2004).
Eventually the traditional isolated value chain model breaks down and new value grids are created where enterprises of all kinds share information to provide each of them with important strategic advantages over their competitors (Chapter 4).
Critical Success Factors of a B2B Environment
As indicated above, eMarketplaces are becoming a web of supply demand relationships with collaborative commerce blurring the line between competition and cooperation (i.e.
coopetition – or in other words, it may not be the swiftest or strongest who wins out, but the one with the best partners).
A true eMarketplace should provide both market-makers and market participants with an open, fl exible, reliable, highly available and scalable environment. Its functionality should span an array of capabilities that cross business processes delivering the greatest value to the customer, industry, or groups of customers and industries (Hajibashi, 2001). Table 2.1 lists the fi ve critical factors for a successful eMarketplace.