Planet 2000: Computing giants debate B2B strategies

If you could cut the price of your company's products by 50 percent, wouldn't you jump at the chance?

That's the promise of business-to-business (B2B) e-marketplaces, according to Sanjiv Sidhu, chairman and CEO of software company i2. But although B2B mania has swept the business world, with major industries such as automobile manufacturing converting to the cause, online exchanges face steep challenges before their promise is realised.

An e-marketplace is a kind of virtual shopping centre for businesses and their suppliers, designed to replace complicated, static one-to-one relationships with dynamic features such as auctions. They also simplify and standardise much of the buying and selling process. IBM, which announced a marketplace for computer components earlier this month, said it saved $250m (£165m) last year by purchasing over the Web.

IBM will be working with i2 and Ariba to build its marketplace. The three companies, along with most major PC manufacturers, are in Vienna this week for i2's Planet 2000 conference to lay out their vision of how B2B marketplaces will change the world.

Industry experts expect e-marketplaces to boom over the next few years, creating a $1.4tr market by 2003, according to Forrester Research and Deloitte Research. Forrester analyst Varda Lief wrote in a report earlier this year that aggregators, auctioneers and exchanges will "change the rules of engagement by flattening industry inefficiencies".

Outside the PC industry, the Big Three automakers and Volkswagen have announced rival exchanges, and the fervour has extended to such industries as chemicals and metals manufacturing.

Deloitte believes the exchanges are so compelling from an economic point of view that they could ultimately be linked to traditional stock markets. "If the price of a company's major input declines and the price of a major output increases, then a logical result would be an increase in the value of the firm as reflected in its stock price," the company says in a new report.

i2's Sidhu says e-marketplaces can make a business much more streamlined, but he admits it also forces companies to react more quickly and directly to their environment. "You were flying a jet at 30,000 feet, but today you're required to fly one foot above the ground," he said.

One problem that might make it harder to steer is that just about every major company involved in B2B seems to have its own vision of where online markets are going. IBM's recent launch was a case in point, coming on the heels of the announcement of a rival market that will include the likes of Compaq, Hewlett-Packard, Gateway, AMD and Infineon. (The two exchanges are expected to interoperate.)

These marketplaces could drive part prices down for OEMs, but the plan could backfire. "You could see a supplier backlash," said i2 CTO Jim MacKay. "The next thing that's going to happen is the suppliers are going to build a marketplace and tell everybody they have to join."

Other companies, such as Sun Microsystems, say public marketplaces like IBM's have a limited future, since participants must provide sensitive business information. "I had one guy tell me 'Look, there's no way I'm going to put my content on a public market,'" said Sun global account manager Julius Lukacs.

Instead, Sun focuses on improving its own relationship with its suppliers through a private e-marketplace, an approach also recommended by i2's Sidhu. "You will have to work with the outside world and you must, but the focus should be first to clean your own house before inviting guests to come into it," he said.

E-marketplaces discussed at Planet 2000 in Vienna

  • They could offer up to 50 percent savings for businesses

  • Different visions are emerging from buyers and sellers

  • Security concerns may limit public marketplaces

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