The four immutable laws of B2B

We missed it on B2B, or business-to-business Web e-commerce sites. All of us. Blew right past reality, in our blind enthusiasm for the Net and The New. Talk about "irrational exuberance," to steal a phrase from Fed chairman Alan Greenspan....

Now reality is starting to sink in. Or actually, the rubber-band-like overreaction in the other direction is sinking in: Suddenly everyone's dissing B2B. Can't succeed. Just another Web disaster. As bad as B2C (business-to-consumer). A fraud.

Bah, humbug. B2B's big now, and it's going to get a lot bigger. B2B is now and will continue to be a fundamental part of business purchasing.

But not, it turns out, in the simplistic, gee-whiz way we thought. So often the projections for B2B numbers, and for the ease of building B2B sites and companies, sounded like the Mickey Rooney character in 1939's Babes in Arms: "Hey! Let's put on a show!"

It's not that easy. As a lot of B2B investors have learned, expensively.

Watching the rise and fall and rise again of B2B, and the sorting out of what works and what doesn't, I've discovered what I think are four immutable laws of B2Bdom. They may not be on the level of Newton's Laws, or Moore's Law ("The number of transistors on a chip doubles every 18 months"), or even Machrone's Law ("The PC you really want always costs $5,000"), but they do embody some important observed phenomena, expressed as truisms:

(1) Big companies are not stupid, and they need little companies much less than little companies need them.

We thought dot-com A and dot-com B, and so on ad infinitum, would set up online markets, where the Fords, American Airlines, General Electrics, and other big companies would come to buy everything they need from their suppliers. The dot-coms behind these B2B sites would rake off a small percentage of each sale, and would, almost overnight, make their shareholders rich beyond imagination.

Hah! Turns out the auto companies, airlines, and so on know perfectly well how to hire people to build B2B sites for themselves, and they aren't about to give up that vigorish to anyone else. Sure, they might hire an Ariba or Commerce One to build a site or perhaps license some software, but any savings to be had are going to stay in the pockets of the big companies themselves.

We forgot the underlying principle of the Web: It leads to disintermediation, or the elimination of unnecessary middlemen - not the creation of new ones.

(2) To make a real success of B2B, you need a real marketplace, not just an exchange.

The difference is critical: not just a trade exchange where company A says what it wants to buy and companies B through J step up with steadily declining bids, in a reverse-bidding process, but a true marketplace, where things are available for sale all the time.

We forgot that big companies have their purchasing procedures down to a pretty fine science, and they don't want to play start-all-over-again just for the glory of getting to fiddle around on the Net every morning.

(3) Providing more than just buying and selling attracts even more buyers and sellers.

VerticalNet is a B2B company that creates and runs online B2B marketplaces - it calls them "communities" - in many areas, from chemists' lab supplies to bakeries' needs. Recognizing that making its sites "must-read" information centers for people working in those areas would increase sales, VerticalNet has built an editorial team for each site, with up-to-the-minute stuff people need to get their work done and keep their careers going. Smart, verrrry smart.

We forgot that none of us, company or consumers, live by buying and selling alone.

(4) If you help start the sale, you've gotta help close the sale.

Credit checks are an essential part of commercial transactions, yet very few B2B sites have any kind of support for either party to the transaction, in terms of qualifying buyers and providing credit histories, guarantees, and so forth.

We forgot that it is a tough world out there, and when people start dealing with people they've never met, over evanescent electronic links, they want some assurances.

Don't let the naysayers persuade you that B2B was a bad idea, or even an unimportant one. Using the Net to buy or sell materials will shortly be as common for businesses as buying a book at Amazon.com is for consumers.

We just didn't understand what B2B really meant. And predictably, we overestimated the ease of pulling it off.

Watching the rise and fall and rise again of B2B, and the sorting out of what works and what doesn't, I've discovered the four immutable laws of B2Bdom.