The B2B Analyst - U.S. Bancorp Piper Jaffray's Weekly B2B Newsletter, Volume 2, Number 3 -.

Business Editors & Analysts

MINNEAPOLIS--(BUSINESS WIRE)--Jan. 19, 2001

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Jon M. Ekoniak, 650-233-2278, [e-mail]

Timothy M. Klein, 612-303-5544, [e-mail]

January 19, 2001

I. INDEX - U.S. Bancorp Piper Jaffray B2BEC Index II. What Does e-Government Mean For e-Business Solutions Providers? - The government's demand for more efficient software applications to replace notoriously inefficient bureaucratic systems is presenting a huge opportunity for companies to sell their e-business solutions. III. Retailers Look To Leverage Software Solutions - Technology was the theme of this week's National Retail Federation meeting, as companies are stepping up to meet the growing demand for software applications in the retail industry. IV. Weekly News

      I. Index - U.S. Bancorp Piper Jaffray B2BEC Index

Close:                     64.50           Past Week: -1.21    (-1.8%)
Year To Date:              -3.83  (-5.6%)  Past Month:-7.41   (-10.3%)
Since Inception (7/1/99): -35.50 (-35.5%)  Past Year: -263.19 (-80.3%)

II. What Does e-Government Mean For e-Business Solutions Providers?

Even the government has an "e" in front of its name these days. Speculation that e-government is going to be the next big opportunity for technology companies is slowly but surely coming to fruition. Outdated, and in some cases dysfunctional, hardware (best recent example is vote counting machines) and software to manage everything from processing to procurement are anything but efficient in the majority of government branches. Inefficient bureaucracies present a huge opportunity for companies to sell solutions in the government, which as citizens, we hope will drive substantial ROTP (Return On Taxes Paid). Gartner estimates that the market for e-government-related hardware, software, and internal/external services will grow from $1.5 billion in 2000 to $6.2 billion by 2005.

Are your tax dollars being best spent by paying top professional services firms hundreds of millions to improve processes and systems by building solutions from scratch? We don't think so. Large professional services firms have historically dominated government businesses as a lot of political maneuvering and experience in government bidding/allocation processes are required. We believe that the government, like the private sector, will look for solutions that enhance ROTP when considering Web-based solutions for process and system enhancement. That being the goal, the leading e-business software companies are in hunt as they can drive more value, with less dollars, as years of supply-chain management or direct goods procurement experience weigh into the time-to-payback equation.

We expect the military will be the fastest adopter of solutions particularly related to procurement and supply-chain management. This transition is evident in the Defense Logistics Agency's decision to undergo a 5-year $390 million Business Systems Modernization (BSM) program in which Accenture has been selected to be the lead program. The goal is to re-engineer its logistics processes to reflect the best commercial standards. We believe that these types of programs will benefit many of the leading software providers in e-business increasing their growth potential. Companies such as Manugistics have taken advantage of this opportunity to capture e-government market share first by being listed on the GSA and then signing a multimillion-dollar deal (its largest ever) with Accenture to support the BSM project.

In what we would refer to as the civilian/state sector, the United States Post Office has been an early adopter along with the Commonwealth of Pennsylvania, and the Florida Technology office as they have all run reverse auctions with FreeMarkets (a) and experienced significant savings.

We believe the move toward e-government will not only contribute to the e-business solution providers growth potential but dramatically improve visibility and sustainability even in a slowing economy as the government has been a slow, but steady, adapter of technology. Vast opportunity exists in both military and nonmilitary segments of the government and we will likely see a flurry of e-business solutions providers try to capture share and industry analysts expand their estimates in respect to the total size of the market in the coming year.

III. Retailers Look To Leverage Software Solutions

This week's NRF (National Retail Federation) meeting in New York was dominated by one theme--technology. From the exhibition booths, to the presentation halls, and even the cocktail parties, the buzz was centered around the types of technology available to retailers, and the ways in which it could be used to improve operations. While belief in the ability of marketplaces to create substantial value may have faded substantially during the past year, it is clear that software investments are increasingly viewed as one of a retailer's most strategic moves.

One need look no further than Wal-Mart (a) to find a retailer that has used internally developed software products to achieve sizable efficiency improvements throughout its business, as well as a meaningful Internet distribution channel. However, speed to market is more important than ever and even companies as big as Wal-Mart are now looking to buy packaged applications versus developing their own solutions in-house.

Software companies that are stepping up to meet this demand include those that focus exclusively on retail, such as Retek (a,c), Tomax, JDA Software (a), and MarketMAX, as well as large, horizontal software players such as i2 Technologies (a), Lawson, SAP, and others. And aside from these more well-known players, a quick walk around the exhibition hall made clear the fact that there are also a myriad of additional upstart competitors vying for this sizable market opportunity.

So, what exactly can these software companies offer to retailers? In short, a lot. Such software packages can allow companies to reduce costs, but also boost revenue, delivering results that directly hit the bottom line. More specifically, software packages can provide a retailer with strong capabilities and functionality across the entire value chain, including among other things the following:

-- Executive Dashboard - a complete view of the revenue contribution and
profitability from each channel, including in-store, Web, catalog, etc.

-- Automated And Improved Merchandising - the ability to automate
merchandising, by forecasting demand, running pricing algorithms, planning
promotions, and estimating material buying needs.

-- Supply-Chain Collaboration - the opportunity to collaborate with suppliers,
going so far as to jointly plan a product's optimal placement within a store,
down to the specific rack, aisle, shelf, etc.

-- Accurate Inventory Levels - advanced inventory planning tools, to help
reduce unnecessarily high levels of inventory, yet at the same time, reduce the
number of stock-outs--one of the most important factors in determining the
success of a retailer.

Moreover, given that retailing is a large space with various types of organizations, leading software companies have developed specific product offerings for particular retail verticals, including grocery, apparel, electronics, footwear, jewelry, and others.

Many are pontificating that a broad economic slowdown and/or slow retail sales growth in the near future will directly impact retail software spending. However, the overall mood at the NRF conference was that technology that can help retailers get the right products on the right shelf in the right amounts is a must-have proposition. Whether it is purchased this quarter or put off a couple of quarters is difficult to predict. However, it is clear that in order to remain competitive, companies will need to implement new software applications that make merchandising more of a science than an art.

IV. WEEKLY NEWS

-- Vignette (a,c) announced a 15% headcount reduction and a plan

to consolidate facilities in a move to counter weak earnings

forecasts and a slowdown in IT spending.

-- Ariba (a) announced agreements with two new partners, Hallmark

Cards, which chose Ariba Buyer 7.0 to streamline the

purchasing of products and services, and PNC Financial

Services Group, a bank holding company, which will use Ariba

Buyer to improve its management of goods and services

procurement for regional and corporate operations. PNC plans

to introduce Ariba Buyer, Ariba Marketplace Network Edition,

and Ariba Dynamic Trade applications over a staggered period.

-- PurchasePro completed its acquisition of Stratton Warren

Software, a leading inventory management and purchasing

solutions provider. PurchasePro paid $5.5 million cash and

$9.0 million in common stock to buy the firm.

-- i2 teamed up with United Parcel Service to resell its Roadnet

5000 and Territory Planner as part of i2's TradeMatrix suite.

Used together, the solutions are intended to make a science

out of delivery planning, saving costs and increasing customer

satisfaction. In separate news, i2 became the first e-business

solutions provider to top $1 billion in annual revenue.

Revenue for fiscal 2000 came in at $1.126 billion up 97% and

fourth quarter revenue was up 116% to $377.9 million.

-- MatrixOne, Inc. (a,c) announced that TranspoLink.com, will be

using eMatrixTM as its net market platform to achieve greater

project efficiencies and secure real-time collaboration

between DOTs, contractors, and suppliers specializing in

transportation construction.

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