B2B taking shape

The recent setbacks to B2B have given the industry time to take a breather and re-find its footing. The technological and business models that are now emerging indicate that we have been underestimating the process all along.

As it turns out, online B2B ventures are going to be a lot more complicated than we have thought.

“The portal idea of just having everybody convene and then buy and sell stuff, that is too unsophisticated a thing,” said Living Systems AG’s CEO, Kurt Kammerer.

Living Systems is a German B2B solutions vendor who has recently been picked as the most promising company in the e25 index by consulting firm Bain and Company.

Metagroup’s John Brand, program director of Electronic Business Strategies, concurs with Kammerer’s view.

The heart of the matter, according to Metagroup’s Brand, lies in a portal’s ability to transit to a more sophisticated trading environment of a B2B exchange.

“Most portals are very much focused on consumers and catalogues with some transactional capabilities, but the question is whether they can make the leap to provide a marketplace or exchange-type functionality,” said Brand. “And even if they can do that technically, is the market there to support it?”

“Our prediction is that anybody who is in the pure portal game today is pretty much dead,” Brand added.

Part of the problem is the level of technological complexity that is required to make online B2B business work. Most of the technologies available today, according to Kammerer, are “patchwork” solutions that do not replicate real world conditions nor add enough value to the process to make B2B attractive to businesses.

To really take advantage of B2B, businesses actually need to build a layer of technology around themselves to connect into portal and marketplaces, to have the flexibility to switch from marketplace to marketplace and still have the ability to conduct end to end, seamless transactions. That’s a tall order, and it’s going to cost a lot.

“There is a layer in between that always has to be customized,” Brand continued, “the problem today is that the customization layer is costing most organizations the most money.”

“If people continue their marketplace initiative in the same way they have been in the past two years, they’re likely to spend about seven times as much on this type of projects as they did on their original ERP implementations,” Brand added.

As such, large corporations and conglomerates are likely to be the first organizations to spend on this kind of technology. And first movements in the B2B space are likely to be in the private networks built by these organizations.

The issue of technological complexity is partially addressed by Living Systems’ concept of the B2B eco-system, a blueprint which the company has been using to build its B2B platforms.

Not surprisingly, most of Living Systems’ customers have been large organizations. Beginning with at least three portals at a time, Living System’s eco-system projects attempt to replicate real world business-to-business conditions by building - not one or two verticals - but a network of portals that facilitate the flow of trading processes from end to end.

“The real world has to be replicated in all its complexity to a high extent,” said Kammerer, “otherwise, it’s just patchwork over the Internet.”

“As the business world is a complex one, you have to be able to run complex processes over the Internet, and this is what the interaction layer must be able to do. If you go deeper into supply chain, you’ll find that you’d have to be Rosetta Net supported, you’ll find out that you’d have to support many different types of product catalogues. You’ll find that you’d need a relatively complex way of doing business,” Kammerer explained.

An eco-system that is operational in Europe began with the combination of one vertical market and two horizontal portals. The horizontal portals facilitate the business flow of commodities or services by supporting the primary functions of finance and logistics. The verticals are industry specific and can be added on over time.

To further ensure the flow of business through the eco-system, Living Systems partners heavily with industry experts from finance, logistics and the vertical industries to make sure that every process in the trade fulfillment cycle is taken care of. Even then, not all business needs are met by the current level of technology.

“We’ll need a couple more solutions to be developed before we can have true, end-to-end, business-to-business transaction flow,” lamented Kammerer.

A similar project in Malaysia is currently being developed by Living Systems. The Malaysian project will mimic previous eco-systems by beginning with two horizontal platforms and one vertical industry portal. The earliest industry that has come onboard is the palm oil industry.

“The belief previously was that if you create a vertical marketplace that did everything, you would then get the transactional value going through there that you weren’t going to get from a horizontal approach, “said Metagroup’s Brand. “That thinking is wrong.”

“The fact is you have different things in your organization that requires different marketplaces to support, so you’d have to be able to build the infrastructure that can connect to whatever new B2B thing that comes along,” Brand reiterated. For businesses participating in B2B technology, the picture that vendors and industry watchers are now describing implies that a long-term view needs to be adopted for any B2B initiative.

Start small, grow big
As B2B will only get more complex, an organization will not be able to get it all right on the first try. Instead of blowing heavy investment on an overly-sophisticated piece of solution, start with simple systems that have limited functionality. This will give employees time to adjust to the technology and the organization the space to seek out and plan the solution mix for its long-term goals.

“If you try to launch an over-sophisticated solution, then you’ll simply kill the interest because people are going to have problems figuring out what to do with this aircraft engine while they are still on the bike,” Kammerer explained.

Build infrastructure, not solution
“The question is not will I have to support multiple B2B types of initiatives,” said Brand. “The question is how do you build an infrastructure to be able to plug and play those relationships.”

To fully take advantage of B2B, an organization will need to have a framework of technology that is highly flexible. Metagroup predicts that in the future, most companies will not be ported to one portal or exchange, but to multiple marketplaces. Online trading relationships will take the forms of direct trading relationship, indirect trading relationship (through a hub), and inter-mediated trading relationship; an organization’s B2B infrastructure will have to be able to accommodate for all three types.

Take a long term view of vendor relationship
Initial implementation may take only three-six months, but a real B2B plan will take years to complete. An organization will have to be very careful about selecting the right vendor to work with. The vendor’s track record will have to be scrutinized to see if the vendor will last that long, its business model studied to determine if it suited an organization’s long term B2B goals.

“It is going to be an evolutionary step,” said Kammrer, “so you’ll need somebody who is with you not just on launch date, you’ll need somebody who is with you for three years or more to come.”