INTERNET-BASED AG COMPANIES REVEAL WHAT IT TAKES TO SUCCEED IN CYBERSPACE
Debbie Coakley, Contributing Editor
by Debbie Coakley, Contributing Editor
Editorís Note:Agribusiness is continuing to race into cyberspace. Consider that Internet-based dot-coms and traditional bricks-and mortar companies are investing hundreds of millions of dollars in the online segment of the agricultural marketplace. This observation comes from Gary Kruse, president/CEO of ECI/OnlinEquity.com, a Glenwood, Iowa-based technology firm that specializes in Web-based financial and production analysis in agriculture and small business.
But rather than speeding ahead, companies need to put the brakes on and review their business model. "Do your research before you jump out there," Kruse says. "Companies must offer online products and services that fulfill a customer need."
Kruse predicts that the shakeout in the dot-com industry as a whole will continue during the next year or two. "Very few are profitable today," he says. "The ones that survive will be those which have a real business need or niche that the Web is solving."
Below, marketers from a dozen agriculture-focused dot-com companies reveal the keys for staying on course, as well as how agri-marketers can prosper in cyberspace. They are:
*Candice Bowman, marketing director, AgriClick, Kansas City, Mo.
* Joe Dales, senior vice president, Farms.com, Memphis, Tenn.
* Scott Deeter, president/chief executive officer, CyberCrop.com, Fort Collins, Colo.
* Scott Dyer, director of farm to market, VantagePoint Network, Fort Collins, Colo.
* Jim McGough, director, @griculture Online, Des Moines, Iowa
* Tad Mozena, vice president of marketing, Powerfarm.com, Cedar Falls, Iowa
* Bill Pool, director of brand marketing, Rooster.com, Bloomington, Minn.
* Mayo Ryan, vice president of business development, Verdisys Inc., Fresno, Calif.
* Darren Siekman, president, DTN Ag Companies, Omaha, Neb.
* Arvind Subramanian, executive vice president of marketing and e-business, eMerge Interactive Inc., Sebastian, Fla.
* George Thornton, chief executive officer, AgWeb.com Inc., King of Prussia, Pa.
* Robert Vincent, marketing manager, E-Markets Inc., Ames, Iowa
AM: Pretend itís halftime, with many dot-coms rethinking their direction. How do you see the industry playing field going forward?
Bowman: Companies will be more focused on the bottom line. They will hone in more tightly on what they can do to increase profitability, both for their customers and for themselves. They will look for more ways to differentiate themselves from the competition rather than trying to reinvent the wheel and duplicate existing efforts. In some cases dot-coms may find strategic ways to work together for the good of both companies and see potential business partners where they once saw competition.
Dales: Farmers will continue to learn how to use the Internet and become more comfortable with the new opportunities for buying, selling and managing. The big factor will be how quickly traditional agribusinesses will participate in e-business - most are developing and launching e-business plans. Remember only three years ago, there were very few ag Web sites and no farmers online. The next three years are going to be very exciting.
Deeter: In the first half, there was significant activity with the development of advertising-oriented information portals and agricultural input Web sites. And a lot of press releases about the plans of various industry participants. The reality is that many of these plans did not meet their stated objectives, were not customer-focused and were redirected or mothballed. In the second half it will become very clear that certain companies have met their plans and are delivering real value for their customers. Several surveys have concluded that growers access the Internet for information and services related to markets and weather. The businesses that are focused and can deliver on these customer needs will thrive.
Dyer: I see the dot-coms as having to rethink their priorities along the line of who will be paying the bills. It is readily apparent that information display adds value to the offering and that just facilitating a transaction is not enough to make a business successful. Information management is of value, and increasing the ability to manage relationships is critical to success.
McGough: Pure economics will dictate consolidation and closure among dot-coms during the next couple years. Business models must support operations that show profit or have a strong propensity to show profit in the not-so-distant future. There will be fewer but more competitive players.
Mozena: Those organizations that are based on strong and sound business plans should continue to survive and thrive. Existing expertise, partnerships, and a focus on core competencies and value will be instrumental to success.
Pool: There definitely will be fewer ag dot-coms. Some will fade away as their funding dries up. Others will be purchased, and some will merge to try and remain viable. Overall adoption of e-business and especially e-commerce has been perhaps slower than originally expected. The result is that agribusinesses need to consider the staying power of the companies they will be partnering with to help execute their e-business strategies. You certainly donít want to invest scarce human and financial resources with a company that may not be around a few months down the road.
Subramanian:Perhaps 12 companies will survive to revolutionize the business of agriculture. They will be organizations with real processes and products to unlock value in customersí supply chains - organizations that combine Fortune 500 management experience and industry expertise with "old economy" principles of value creation and "new economy" tools.
Thornton: The next 12 months will see a dramatic shakeout in the ag e-commerce and service sector. The defining issue is which service companies have appropriate business models. Financing is critical but secondary to the enterprise business model.
AM:Assuming you have financing, what will it take to succeed?
Dales: The barriers to entry are becoming very significant as larger players commit resources to e-business. Strategic alliances where companies can leverage knowledge and resources will be important - it is difficult and risky to try and do everything yourself. Technological expertise and having people who can anticipate the e-business possibilities are other key success factors.
Dyer: Whoever is able to provide tools that facilitate the relationships of producers with their suppliers will be successful. Supporting a clicks-and-mortar strategy with tools that meet their clientsí requirements. This applies to a large universe of business entities and where VantagePoint is concerned it is using field-level data management services to create custom private networks for clients.
Mozena: Successful companies will be providing solutions and value to producers. Determining what value an individual organization can bring and how worthwhile it is to producers will contribute to success. For example, at Powerfarm we focus on enhancing the sale of inputs by adding our flexible credit packages and access to our agronomic staff.
Pool: The dot-com businesses that succeed will be those that have successfully incorporated the local bricks-and-mortar companies which serve the ag community and provide most of the pre-sale and post-sale support for the ag supply chain into the online equation. Ag producers will not spend considerable dollars online if it means elimination of local services and support. Dot-com businesses that successfully connect and link the entire supply chain will allow all involved parties to benefit and subsequently participate in ag e-business and e-commerce.
Ryan: Farmers and ranchers, the center of food production, have basic problems and needs. They are a remote, fragmented and mobile work force. They need an abundance of information - and they need it without incurring any more expenses - from a timely and reliable source, through adaptive media to remote locations. A technology company that can provide this knowledge to growers either through trusted private exchanges or through a public exchange - and package it in any medium necessary - will succeed.
Siekman:As a company with an existing, strong customer base and conventional means of credit, I am glad we donít have to address your assumption. It may be larger than you realize. Success always revolves around providing services and applications which are useful and help your customersí business. That means realizing where they are at in their technology adoption and, more importantly, where the farmer is at with his technology adoption. The ability to provide all customers with technology they already have embraced is key. Hopefully we are past the telegraph, but in a lot of cases a fax may be the most advanced technology a customer has. At the same time we need to provide services that the most Web-savvy individual with broadband access requires.
Subramanian: Improving cattle producersí profitability and productivity, while meeting the growing demand for safer beef and enhanced branding opportunities. Weíve taken a clicks-and-mortar approach - amassing marketing capacity for 4 million cattle to enable cost-efficient online and onsite procurement and providing Web-based productivity, e-commerce and process-verification solutions, to help ensure our long-term success.
Thornton: The successful business model is an effective blend of content, community, connectivity and commerce. Our role is to provide a neutral exchange for information, goods Hnd services which facilitates agribusiness. Our business model is based on marketing excellence. Use of the Internet is a convenient tool for us.
Vincent: It takes developing applications that embed directly into the business processes of bricks-and-mortars. For example, a major seed company, integrating our seed ordering application into its business processes, manages more than 95 percent of its orders online. Helping customers increase internal efficiencies and customer satisfaction - thatís success.
AM: What role do you see e-business playing in the ag industry during the next two to three years?
Bowman: E-business is changing business in all industries, but of all the industries, agriculture is one that stands to benefit the most. With its wide variety of interests and businesses scattered geographically throughout the United States and the world, agriculture is just the type of industry the Internet can best serve. E-business will enable agriculture to attain new efficiencies, better communication and information flow, and a greater sense of global community. It is an exciting tool that will be used to enhance profitability, market share, reach and productivity.
Dales: The difficult part was getting the farmer online - Internet adoption on the farm has been very rapid. Going forward, the Internet will touch just about every function on the farm. For the first time ever, farmers have access to the information and opportunities of the world. With all of the new Web-enabled software being launched, e-business is going to create a lot of strategic change. Some of the biggest changes will be in business management and marketing.
Deeter: We have just begun to unlock the power of an e-commerce network that lowers transaction costs, improves decision making and optimizes the supply chain. As this evolves and gains significant market penetration, one major development will be the connection of end users of crops with the grower in a collaborative and electronic relationship. The result will be the production of better quality crops that are differentiated for the specific needs of end users. We call this the "de-commoditization" of the food and feed supply chain, and e-commerce is an enabler of this evolution. Biotechnology is a key driving force for this de-commoditization. However, biotechnology has had a difficult time penetrating the commodity nature of the grain and oilseed business. With e-commerce, we can reduce the cost of handling smaller volume crops for specific end users. The value created by this de-commoditization will significantly improve supply chain profitability.
Dyer: The bulk of business will be conducted in the ag sector in the next two to three years. Rapid advancements in communication are occurring, and transparency in business practices will become the norm rather than the exception. Significant movement to contracted acreages will occur as a result of the development of information systems to manage the data generated.
McGough: It all depends on the speed of adoption by the "customer" - whether the customer is farmers and ranchers or other agribusiness. If customers see a value for their business in using Web-enabled technology to more profitably run their business, then e-business will flourish. The key issue is how fast that adoption will occur for each market segment.
Ryan:The complete ag supply chain has six to seven points where products change hands. The promise of e-commerce has always been to streamline many of these horizontal processes and tightly integrate them into the existing supply chain infrastructure to reduce costs for suppliers, as well as provide value to their farmer/rancher customers. Itís been happening perhaps more slowly than originally anticipated, but itís now taking hold. In short, the role of e-commerce hasnít changed; itís just been stretched out, and will be performed by fewer but stronger players with appropriate marketing strategies.
Subramanian: E-business will help improve the quality, safety and consistency of agricultural products - and therefore enable branding of todayís commodities. It also will "virtually integrate" fragmented supply chains into powerful networks, protecting small-business independence while promoting successful alliances.
Thornton: Agribusiness is rife with supply chain inefficiencies and structural barriers. The appropriate e-business tools to improve agribusiness profitability are available and affordable. The trick is to not overengineer solutions in order to ensure that value creation is captured in production activities and not entirely in the service providers. Appropriate, targeted e-solutions to supply chain and data management will rapidly become the norm with successful agribusiness service and product providers.
Vincent: E-business will not only be about capturing new customers, but it also will mainly be about doing business better with the ones you have. In two to three years many agribusinesses will have integrated online applications in their business processes and will be wondering how they operated without them.
AM: How can traditional bricks-and-mortar agri-marketers utilize dot-com companies to gain profitable market share?
Bowman: In the not-too-distant future, the terms used in this question - "bricks-and-mortar" and "dot-com" - will become obsolete and only a memory of terms used in early Internet business history. A business is a business, regardless of where that business is conducted, and lines will continue to blur and eventually will be relatively meaningless. The profitability gains that a more traditional business stands to realize from the Internet depend a great deal on the situation of the individual company and the relevance for the business that company is in. For many in agriculture, I see the Internet as helping in a push toward greater price and information transparency, communication and operation efficiency, and extending market reach.
McGough: The Web is an added channel to deliver information and facilitate transactions. The medium holds promise to be one of the most efficient ways to foster and maintain one-to-one relations between supplier and end user. The technology is still in its infancy. As Internet technology improves, bricks-and-mortar agri-marketers who embrace the technology will improve their ability to meet customersí needs. That hopefully will result in more profit and increased market share.
Mozena: Farmers are overwhelmingly adopting the Internet as part of their lives and as a tool for managing their business 24 hours a day. As they increase their activity on the Net, it only makes sense that this should become another medium to cost effectively reach them. The Internet also provides incredible opportunities to target specific customer groups and segments. For example, we can release product specials or introductions to specific geographic regions or even individual users to help manufacturers more effectively deliver their messages and product specials.
Pool: Traditional bricks-and-mortar companies are being asked, even required, by their customers to provide more information, better information, more timely information and faster responses. In addition, customers are asking bricks-and-mortar companies to move some of their services online. To allow customers to look up account balances, to view order status, to place product orders online. Dot-com businesses can help bricks-and-mortar companies extend their business online - not to just address the requirements of their customers, but to become even more invaluable to their customers and prospects.
Ryan: Manufacturers of products such as chemicals, seed, feed and capital equipment do not have as their core competencies the building of a technology infrastructure. Like their farmer/rancher customers, they need a system to communicate with their suppliers and customers, and they need it to do so in a manner that provides them a competitive advantage. Rather than wait until the technology comes to them, they need to seek out the providers of that technology and champion the use of it in their new Web-enabled supply chain. Farmers and ranchers, as perhaps the least profitable segment of the supply chain, cannot afford to promote these systems alone. Manufacturers need to embrace the technologies available to them, or theyíll fall behind in the competitive marketplace.
Siekman: The key word is profitable. Everyone, dot-com or otherwise, has strived to maintain and establish a relationship with the farmer. The bricks-and-mortar agri-marketers still provide the highest level of value-added services. Hence, the agribusinesses which provide the "e" services and applications that help their customers will win. They need to establish what their farmers really want and are really ready for. At that point they can purchase or license the appropriate goods and services from the various dot-com providers. Agribusinesses need to make sure and not "give up" their place in cyberspace. They wouldnít dream of placing a competitorís billboard on the side of their facility so why do it on the Internet. Agri-marketers need to be sure and choose "e" relationships that allow them to control their own destiny.
Vincent: Bricks-and-mortars need to utilize online applications that allow them to improve the bottom line by effectively managing the value of the information generated from their business processes or that allow them to offer new services to their customers. Trying to develop online applications in-house will only cost them money and put them further behind their competition. AM
Debbie Coakley is a freelance writer based in Warrenville, Ill.