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9/04/00 - Old Economy Ways Still Rule for San Jose, Calif., Business-to-Business Company
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Sep. 4 (San Jose Mercury News/KRTBN)--When Bob Zollars left a top job at one of the nation`s largest wholesalers of medical supplies to join an online marketplace, it looked like the Internet was going to transform the way the business world buys and sells products.

In place of inefficient, back-and-forth negotiations across the table or over the phone, online marketplaces were going to bring buyers and sellers together in seamless digital transactions that would be both open and more economical.

But a year after Zollars became head of Neoforma.com, the company that once described itself as "the global marketplace for health care" is scaling back its original mission. Instead of serving as a broad marketplace where any hospital or medical supplier could conduct transactions over the Internet and competing buyers could join forces to drive down prices, Neoforma.com is merely improving rather than revolutionizing the way health care purchasing has always been done.

"We built it, and they just didn`t come in any great number," Zollars said. "There was a lot of inertia to keep doing things the way they`d always been done."

The roller-coaster start has taken its toll at Neoforma.


At the company`s San Jose headquarters, brightly colored plastic golf

clubs and other children`s toys lie unused in a corner. Worried employees buttonhole Zollars in the hallway to ask how much cash the company has left.

The vision of a public Internet marketplace that captivated Zollars and others was that everyone in a single industry would buy and sell the goods and services they needed through one Web site. Public marketplaces like Neoforma were once granted market valuations of several billion dollars even though their transaction volumes were tiny.

Instead, traditional buying practices proved more enduring than Zollars imagined. As a result, Neoforma has ended up building a private marketplace open to select groups of hospitals who adhere to pre-negotiated contracts.

Similar to private clubs where business is conducted over dinner and golf, custom-built e-marketplaces encourage traditional deal-making by providing technology and transaction data. Though much of the hype around so-called business-to-business e-commerce has focused on the hundreds of newly launched public exchanges, private marketplaces have been quietly connecting buyers and sellers in industries as diverse as telecommunications and food distribution.

According to the New York-based Internet research firm eMarketer, more than 93 percent of business-to-business e-commerce is transacted through private, or proprietary, exchanges. Analyst Randy Covill of AMR Research believes private marketplaces stand a better chance of surviving an inevitable shakeout in e-marketplaces than their public peers.

As the automated exchange of information between manufacturers, wholesalers and distributors moves from corporate computer networks to the less expensive Internet, "private exchanges will be very healthy," Covill said.

A veteran of the medical-supply industry, Zollars, 43, began to realize the advantages of a private marketplace over a public one shortly after becoming chairman, president and CEO of Neoforma.com in July 1999. What had seemed like a fantastic business opportunity to create the first public marketplace for medical supplies to trade on the Nasdaq had a fatal flaw. (The company went public in January 2000.)

Though Zollars had commitments from heavyweight suppliers like GE Medical Systems and Owens & Minor to participate, hospital buyers stayed away.

Neoforma.com`s revenues for 1999 were a scant $1 million.


Hospitals, it seemed, preferred to stick with buying supplies like

beds, syringes, and gloves the way they always had. Purchases were aggregated together and negotiated by powerful alliances of hospitals, known as group purchasing organizations. Once a GPO had negotiated a contract, an individual hospital could use that contract to purchase from a supplier. Thus, if Neoforma.com was to stay in business, it had to bring GPOs into its marketplace, too.

Last spring, Zollars signed on Novation, the nation`s largest GPO. In a clear sign of the strength of old-style business, Novation received a 45 percent stake in Neoforma.com. Only hospitals that are members of Novation can participate in the private marketplace, unlike some competing online medical exchanges.

Zollars acknowledged that selling a stake to Novation was painful. "It is a steep price," he said. "But it assures us a place at the finish line."

Novation wasn`t interested in a public marketplace. By aggregating demand for medical supplies, it had already slashed hundreds of millions of dollars in costs for its member hospitals.

In the private marketplace arrangement, Novation will still negotiate contracts with suppliers, but hospitals will be able to purchase online once a price has been set under a contract.

Novation wanted a private marketplace that would allow it to tap into Internet efficiencies without jeopardizing hundreds of carefully crafted contracts with suppliers or sharing hard-won discounts with competitors.

The purpose of the marketplace is "to give an advantage to our members, " explained Brad Mohler, a senior director of business development at Novation, "not to all the hospitals in the United States."

Over the next seven years, Neoforma.com will hook up 1,700 Novation-member hospitals and their suppliers to a private marketplace it is calling marketplace@novation. The timetable calls for each hospital to be online in 13 weeks, meaning that the Neoforma.com implementation team will standardize all the data, figure out how to link antiquated computer systems, and train hospital employees in less than four months.

The scope of the Novation agreement forced Zollars to refocus his company. He cut back on marketing Neoforma.com`s public exchange and laid off 80 employees, or almost 30 percent of his staff in May. Though Neoforma.com`s own public marketplace will continue to exist, Zollars has reshaped the company into an e-commerce enabler.

"What we believe is a business-to-business marketplace like ourselves is not in the business to dictate the terms of business relationships," said Denny Brennan, senior vice president of services delivery at Neoforma.com. "We are not there to create them. We are there to model them in this new environment."

In addition to the Novation agreement, Neoforma.com is building two other private marketplaces.

Zollars said he has already seen an impact from private marketplaces on the bottom line. Second quarter net revenue was $2.1 million, while the company`s net loss was $59.6 million.

Neoforma expects to earn $8.4 million in net revenue for all of 2000, an increase of more than 700 percent from last year. And for the year 2001, net revenues is forecast at a whopping $46 million.

For the moment, Wall Street remains dubious. Neoforma.com`s stock is trading in the low single digits, closing Friday up 9.38 cents to $3.03, from a high of $78 in February.

"If they can deploy and implement hospitals in a cookie cutter process in 13 weeks or faster, they`ll be fine," observed Josh Fisher, an analyst at WR Hambrecht & Co. "But if it slips and takes longer...they`ll be in trouble.

Inside Neoforma.com, employees have a sense of do or die. At a pizza lunch last week, Zollars told his staff that at the current "burn rate" of about $18 million a year, cash would run out in about a year, roughly six months before the company is expected to turn profitable. But Zollars assured workers that more funding would be found.

"The bottom line is getting the best deal you can for the cash," he said.

Zollars` message of practicality is underscored by Brennan, the executive in charge of implementing private marketplaces. In an interview in his office, he threw cold water on one of the Net`s most famous rallying cries: "The Internet changes everything."

"It is going to change the speed and quality with which better business decisions can be made," Brennan conceded. "But people are still going to sit down across the table and figure out how they want to work together. That`s not going to change."

Still, too many reminders of Old-Economy staying power can be a downer.


In an effort to boost morale, Zollars has taken to calling his

employees "neo-revolutionaries." The term is meant to convey a sense of higher mission.

The neoforma neo-revolutionaries may be working within the system for now, but times are changing, and eventually, they hope, so will big business.

By Elise Ackerman



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To see more of the San Jose Mercury News, or to subscribe to the newspaper, go to http://www.sjmercury.com

(c) 2000, San Jose Mercury News, Calif. Distributed by Knight Ridder/Tribune Business News.

[draschkom]

was macht denn neoforma?
Hast Du mir kurz infos?!
danke

[draschkom]

was machen die?

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Hier findest Du mehr Infos:

www.neoforma.com