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internet
business models
text and cases
eBricks.com
Donatas Sumyla
© 2005 UMFK.
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Content
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Overview of the company;
Goals & strategies;
eBricks.com;
Construction industry;
Blueline Online Inc.;
GBF;
Success or Failure?
© 2005 UMFK.
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Overview of the Company
• Was started in November of 1998;
• 5 co-founders:
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Tawfik Hammoud;
Jorge Henriquez;
Nikitas Koutoupes;
Enrique Macotela;
Tim Perini;
• All second-year students in Harvard Business
School’s MBA program.
© 2005 UMFK.
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Overview of the Company
• eBricks.com was an online market maker facilitating the
procurement of construction materials;
• Company’s business plan had been honored as one of four
finalists among over 80 entrants in the HBS Business Plan
Competition;
• In July 1999, eBricks.com had secured its first round of
VC, raising $3M from Warburg Pincus Ventures,
StarMedia, Covad, and Intuit;
• By November 1999, eBricks.com had 25 employees;
• Planned launching the website during the first quarter of
2000, initially focusing on customers based in the
Northeast region and on the electrical and mechanical
segments of the construction industry.
© 2005 UMFK.
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Overview of the Company
• Management team had extensive construction and IT
industry experience:
– Tim Perini – Co-Founder, CEO, Perini Corporation, Kaiser, Harvard College,
HBS;
– Steve Fan – CTO, McGraw-Hill CIG, Sweets, Digital, Lockheed;
– James Chou – VP Engineering, Andersen Consulting, JP Morgan, Apple
Computers;
– Ali Mohamedi – VP Operations, Lehrer McGovern Bovis, JA Jones;
– Enrique Macotela – Co-Founder, VP Product Development , Liwerant,
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Macotela, Serrano Architects and Contractors, HBS;
George Henriquez – Co-Founder, VP Sales and Marketing, Groupo Acerero
del Norte, Autrey, Agromex, HBS;
Tawfik Hammoud - Co-Founder, VP Strategy, Bain & Company, Bain
Capital, HBS;
Nikitas Koutoupes – Co-Founder, CFO, McKinsey & Company, Princeton
University, HBS;
© 2005 UMFK.
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Advisory board
• Construction:
– Dan P.Armstrong – Director, Worldwide Procurement,
Raytheon Engineers and Constructors;
– Thomas E. Daily – frm. National President,
Association of General Contractors; Vice Chairman,
National Construction Employers Council;
– James Becker – President and CEO, Beacon-Skanska;
– Lorenzo Enaudi – Chairman, Techint Foundation;
– Tony Mon – Chairman, Maywood Investment
Company; Co-Founder, Vice Chairman, Pacific
Greystone;
– David Perini – Chairman Emeritus, Perini Corporation;
© 2005 UMFK.
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Advisory board
• Business:
– Kevin Clark – CEO, ScreamingMedia.net, frm
Chairman and CEO, Poppe Tyson, Chairman, KMC
Holdings;
– Tom Eisenmann – Professor, HBS, frm. Partner,
McKinsey & Company; (author of our book!!!)
– Ananth Raman – Professor, HBS, supply chain
management expert;
– Donald P. Madden – Senior Partner, White & Case,
LLP;
© 2005 UMFK.
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Investors
• Warburg Pincus Ventures:
– $12B assets under management;
– 300 investments across diverse industries since
1971;
– 66 professionals, 35 partners;
– Chemdex, StarMedia, BEA Systems, Cobalt
Group, Covad, Intuit, Radnet, TradeCard,
Veritas Software, Workspace;
– $500M in fees to Wall Street annually;
© 2005 UMFK.
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Goals & Strategies
• Goals:
– To be a B2B market maker that will leverage
the Internet to provide the construction supplies
industry with an outstanding and costcompetitive way to carry out procurement
transactions.
© 2005 UMFK.
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Goals & Strategies
• Strategies:
– Focus on product flow;
– Create extranets for subcontractors and their
exiting suppliers;
– Connect manufacturers to distributors and subs;
– Combine the two into seamless exchange;
– Construction portal end-vision through
partnerships;
© 2005 UMFK.
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Goals & Strategies
eBricks.com faced 2 major strategic issues:
1. Merger proposal from Blueline Online
Inc. (Internet company that provided
project management tools for architects
and contractors);
2. Faced a fundamental decision about where
in the construction industry value chain to
compete;
© 2005 UMFK.
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eBricks.com
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Procurement process:
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Pre-bid estimation/Buyout:
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Bidding:
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Reduce procurement cost, negotiation time; better prices; access to
more customers;
Delivery/Payment:
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Obtain prices for more products – more accurate bids and lead time
cut by 30% - 50%;
Post-bid Procureme Buyout:
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Reduce estimation cost by 20-25%; reduce estimation time from
average of 3 weeks to 1-2 days;
Control over information, money and product flow; guarantee
payments to suppliers;
Resale:
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Access to more buyers of resale materials and equipment;
© 2005 UMFK.
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eBricks.com
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Services – the ABC approach:
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Auctions:
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Bidding:
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One-stop shop for product information and ordering;
Content:
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Real-time dynamic pricing exchange;
Catalog:
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Promotions, liquidations; Resale;
News, events, directories, product information, product
specifications;
Community:
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Customizable space with secure e-mail and live chat technology for
information exchange;
© 2005 UMFK.
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eBricks.com
• Financial highlights:
– Projections:
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Financing needs of $15-$20M in second round;
Round to be closed by January 30, 2000;
Cash positive by 2001;
Profitable by 2001;
– Strategy:
• Invite investors bringing more than cash;
• Option for mezzanine 2nd round;
• Complete 2nd round concurrently with launch of bidding capabilities;
– Key Sensitivities:
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Pricing strategy;
Time-to-market;
Customer adoption pace;
Sales expenditures;
Technology investment;
© 2005 UMFK.
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Issues with Construction business
• Large construction projects - enormous volume of
blueprints, technical plans, non-stop flow of
messages about design and schedule changes
between architects, engineering firms, contractors,
etc.;
• Managing this information - time consuming and
error-prone task;
• Failure to accurately send or receive this kind of
info was expensive and time consuming;
• Online project management companies like
Blueline Online were there to help;
© 2005 UMFK.
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Blueline Online Inc.
• Founded in 1997, based in Palo Alto, was one of
several firms pursuing the market for web-based
construction project management solutions;
• Engineering giant Bechtel – equity investor and
largest customer;
• In late 1999 the company had 100 employees;
• $10M venture capital; was in midst of raising
another $30-40M, which would help them merge
with eBricks.com;
• Competitors: Bidcom and buzzsaw.com;
© 2005 UMFK.
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Some of the biggest questions
• Should it merge with Blueline Online?
– If it did, would it be more difficult to capture
procurement transactions from contractors that
used project management tools from Bidcom or
buzzsaw.com?
– If it didn’t, how would it fare in competition
against Bidcom, buzzsaw.com and Blueline?
– If it did, what share of the equity in the
combined entity should eBricks.com’s
shareholders receive?
© 2005 UMFK.
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Where to compete?
• Need for an online market maker positioned between
distributors and the manufacturers who supplied them with
materials;
• eBricks.com’s managers were intrigued:
– Should they pursue this market in addition to, or perhaps instead
of, the downstream market?
• The programming work required to create an online
catalog for the downstream market might be leveraged in
creating an online market upstream;
• Would distributors accept the same company as both a
downstream and upstream market maker?
• Could a startup with twenty-five employees conceivably
target both the downstream and upstream opportunities?
© 2005 UMFK.
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GBF
• Network effect:
– Strong;
– More buyers, more sellers – more products, better
prices, etc.
• Economies of scale:
– Significant;
– Site development costs are fixed;
– Direct selling and system integration costs vary with
number of market participants (but not with volume)
• Customer retention rates
– High CR rates because the network effect is strong;
– Database development and interface design;
© 2005 UMFK.
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Success or Failure?
• I think success. Reasons:
– Important VCs;
– Huge amount of experienced members in
management and advisory teams;
– Focused on a certain region, not the whole US;
– Management’s experience in construction and
IT industries;
– Business plan;
© 2005 UMFK.
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Latest update
• In January 2000, Palo Alto’s Blueline
Online Inc. and eBricks merged to form a
new company called Cephren. It was
backed with $41.5M from a unit of GE
Capital, Goldman Sachs & Co. and the
Bechtel Group;
• In October 2000, Cephren Inc. and Bidcom
Inc. confirmed that they were merging and
formed a new company called Citadon;
© 2005 UMFK.
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Citadon, Inc.
• Provides project management, document
management, and business process management
software and services for the online design,
construction, and operation of complex projects,
such as dams and public transit projects. The
company targets clients in the construction, oil and
gas, energy, transportation, drug discovery, legal,
and government sectors, among others. Customers
include Alcoa, Bechtel, and Halliburton. Citadon
counts Insight Venture Partners and Warburg
Pincus among its investors.
© 2005 UMFK.
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Citadon, Inc.
• Citadon’s application services are currently
being used in more than 30 countries, by
more than 30,000 active users on projects
with construction values in excess of $120
billion;
© 2005 UMFK.
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Questions???
© 2005 UMFK.