E-Marketplaces will spark B2B boom

The phenomenon of the always-on, always-there, everywhere Internet is expected to have far more impact in the next several years in the business-to-business arena than it will in the business-to-consumer, according to the people whose job it is to peer into the future. "Business dominates in the five-year range," says Dr. Stuart Feldman, director of IBM's Institute for Advanced Commerce. "That's the way they think; they've already started that process. Changing people's style of activity [B2C] takes a much bigger shift."

This focus makes business models leaner and more efficient, and B2B is avoiding some of B2C's early fatal flaws.

One example of the different focus is the B2B approach of conducting old-economy business with new-economy tools to cut transaction costs while maintaining existing transactions and increasing customer satisfaction. Early B2C business models often seemed possessed by the efficiencies technology afforded and tended to focus on what didn't have to be done as operating strengths. In so doing, they often missed the boat on transactions that had to be accomplished, resulting in such things as underbudgeting for customer-service functions.

Bringing new Internet tools to the B2B marketplace increases dynamic interaction and adds a more complicated ordering process to what had become a somewhat staid system. Instead of a few brokers calling around, acting as middlemen between buyers and sellers, the sellers and buyers can meet in the Internet marketplace. These marketplaces also attract others who have similar or related products, or who can help in things related to the sale.

"It brings a larger number of people together," Feldman says. "It's like a medieval fair, where everybody goes to one place at the same time. People who want to help that business are nearby."

Industries accustomed to using brokers, such as raw materials and minerals, and distributors, such as processed foods and manufactured parts, are early players in this market. Replace the terms "broker" and "distributor" with "portal" and what you have is a business model conducted in fundamentally the same fashion that industry participants are used to, with almost no learning curve.

And the move to a B2B model is not one that businesses can ignore. In June, Keith Krach, chairman and chief executive of Ariba, told Congress that the money spent on e-commerce is not discretionary spending; it is money that must be spent, according to a report from the House Science Committee's Subcommittee on Technology. Spending the money on B2B initiatives, the report states, gives smaller companies the ability to make contact and work with larger companies.

Although the forecasts for the B2B market are huge, these businesses are subject to the standard pressures. Many of the marketplace sites that popped up onto the radar screen to much fanfare, such as one linking food wholesalers and grocers, died untimely deaths; participants decided to pursue competing plans, or established businesses announced placeholder marketplaces to compete with poorly funded start-ups.

And government intervention has cooled off some hot plans. Some initial B2B marketplaces - several only in the talking stage - have already attracted government attention as regulators try to balance the potential of an evolving business model with the potential for price-fixing or other abuses in these endeavors. The Federal Trade Commission has asked for safeguards against monopolistic and other activities from the Big Three automakers, which hope to establish a joint B2B site for bids and quotes on parts and raw materials. The delay in launching the site in order to respond to and get approval from the FTC has led several suppliers to withdraw their participation.

But these problems notwithstanding, B2B offers too much for companies to ignore. The ability to tighten links between a company and its partners in the supply and distribution chains offers significant cost savings, and moves from a just-in-time mode of production to manufacturing on demand with commensurate bottom-line benefits.

Additional reporting by Tom Monroy