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Enron's Lay Highlights Results of Transition to E-commerce

Enron's Lay Highlights Results of Transition to E-commerce

The transition to an online business model has led to cost reductions, improved efficiency and tremendous growth for Enron, CEO Ken Lay said last week during a web-cast conference on e-commerce sponsored by Houston-based FlashFind Corp. and the Independent Natural Gas Association of America.

"EnronOnline has reduced our transaction costs 75%," said Lay. "It's increased the productivity of our commercial people on average four to five fold. In 1999, our commercial transactions per [salesperson] were 672 but grew to over 3,000 last year."

Currently 75% of Enron's North American natural gas and electricity transactions and 50% of its worldwide business transactions are done online. Lay said that since launching EnronOnline in November 1999, the operation has done about 800,000 business transactions and about $500 billion in business. It currently is doing 4,000-5,000 transactions a day, worth $2.5 billion to $3 billion.

"Obviously it has been adopted very quickly. By all measures it has been a great success for Enron, but I think it has greatly increased the activity in the industry and the transparency and the efficiency of the markets in which we deal. I think that is measured in part because when it has from time to time gone down temporarily the markets basically freeze up.

"As large as it is, it is still growing," he said. "We have done as much as $6.5 billion in one day and 5,500 transactions. We now have 1,200 different products we offer.... One of the beauties of the Internet is if somebody says 'well why don't you offer x,' you can put 'x' online that same day if you want to, and within a week or so you know whether in fact there's a market for 'x' or not," Lay added. "At very little cost and instantaneous, the market tells you 'yes we want it' or 'no we don't,' and then you either leave it on and expand it or take it off."

That flexibility has led Enron to branch out into many new and diverse areas, including online credit checking, pulp and paper trading, broadband, assets sales, water sales and other areas.

"We've looked for industries that in some ways looked kind of like the energy industry or the natural gas industry or the electricity industry just five, 10 or 15 years ago," said Lay. He said companies in many industries spend a lot of time doing everything they can to try to differentiate their commodity from everyone else's commodity. "Does it sound familiar --- particularly in the oil industry?" They use extensive marketing and very "inefficient logistic systems because it's basically linear, integrated systems versus the network-to-network approach," he said. "There's very little transparency. Basically we are introducing the same approach to those markets that we introduced to natural gas, electricity, coal and many others."

Enron launched Clickpaper.com last September with many of the same protocols as EnronOnline, and it has become the most successful e-commerce site in the forest products industry, said Lay. "We have 65 financial products and about 70 physical products. We've bought physical capacity in the industry both for news print as well as for pulp so we do have a physical presence as well as all the financial products we're offering." He said the site has done more than $700 million in business with more than 40 counter parties.

The company also started EnronCredit.com, a new online credit checking operation, earlier this year. "When you are doing real-time business, you've got to have real time credit," he noted. "Most of the credit rating agencies are anywhere from one cycle to two cycles behind the curve on credit rating. We have a thousand credits that we monitor continuously online."

Lay also said Enron sold more than $1.3 billion in power plants on its own Dealbench.com site earlier this year with virtually no transaction costs and with the assurance that most of the industry participated in the bidding. "There were no investment bankers and no transaction costs of any consequence. We think...we got the best bid we could have gotten even if we had gone through a very elaborate investment banker type process. That again is how the Internet and e-commerce is changing everybody's business."

The company also launched Commoditylogic.com, which offers Enron's back office capabilities and modules to other companies, water2water.com for buyers and sellers of water, and ePower.com for broadband services, among others. But along with all the possible online ventures, the company that performs successfully in the brave new world of e-commerce needs a solid corporate culture and a "very entrepreneurial-type environment," Lay concluded.

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