Phase 2: B2B drives on

The closure of Dell's B2B marketplace after just 4 months of operation shows once again how skittish businesses can be about trading in an online exchange.

There was a time when exchange operators had believed that by building an exchange platform alone--and getting suppliers and buyers to register--were sufficient to see huge volume of transaction going through the exchange.

Now, it has pretty much been determined that having a platform alone is not enough.

"That's a very typical first generation concept or mentality of the exchange," said Steven Mun, CEO of Xponet, a B2B solutions provider who has put out two exchanges of its own. "Now, we are taking steps to stretch that."

Indeed at a time when dot-coms are reporting failures, and huge Internet companies are making sharp adjustments to their business models, the B2B space is not showing any sign of slackening.

If anything, players in the field are jostling to encompass more--to expand further both the functions of B2B exchanges and the geographical footprint of their companies.

The expansion may be necessary, as companies emerging from the euphoria of the last year are expecting the year ahead to be a grow or die year.

The year began with US's Oracle making an announcement to incorporate collaborative applications into its B2B solutions.

Within the month, Ariba followed with its own collaborative commerce addition, by acquiring Agile software.

On the Asia front, companies are a little behind in taking up after the lead adopted by those global players, but the idea of expanding the functions of the B2B exchanges is taking hold.

"E-exchanges is not going to be just about price, if that's the only factor, what's going to happen is all the e-marketplaces are going to price it lower and lower and that's going to kill the industry," said IDC's Richard Jacobson. "Instead, the same rule that applies to consumer portal is going to apply here: 'what will make a business come back to an e-marketplace and do business'… the stickiness."

Mun agrees. For the last six months, Xponet's CTO has been examining the features of other exchanges and incorporating them into the company's own platforms, including a sophisticated multi-party collaborative platform for its Xpoprint portal.

"Gone are the days when you start an exchange and say you can get this number of buyers and this number of vendors and when the 2 groups of people meet, there will be business generated," said Mun. "We need to offer more to both the vendors and the buyers. There must be more than one reason for them to come in, other than soliciting for new products or competitive pricing."

If the Oracle and Ariba announcements are any indication, collaborative commerce and greater supply chain integration can be expected in the future of B2B exchanges.

For Mun and other vendors who operate their own exchanges, the key will be in identifying the features that are valued by the respective industries they serve.

"E-commerce in its earliest day caters for the needs that actually existed a long time ago," said Mun, "once that is done, you have to tell them that beside this commoditized way of going into e-business, I have also this little value that makes me slightly different from other service providers."

"I am sure this period of 1-2 years will be a time for the innovation of new values or new services. And it'll also be a period when consolidation will happen," he added. "Exchanges who do not see the reality of adding more value, or are unable to cater to their own customers' requirements will wither away."

Mun isn't the only one who has consolidation on his mind.

IDC believes that at present, less than 10% of all B2B e-commerce goes through an independent exchange. By the end of 2004, that figure is expected to go up to approximately 60%.

In a separate report, IDC projected Internet commerce worldwide to be worth US$500 billion this year. Of that, US$18 billion will be coming from the Asia-Pacific region, excluding Japan.

That presents a sizable chunk of a pie for B2B players--if they survive the consolidation.

That's one of the factors that have driven the recent merger of Singapore's Sesami.com and Hong Kong's Asia2b.

Executives from both companies have only begun meeting informally late last year. But last week, just two and a half months after the initial contact, the companies had announced their merger.

The merger will result in a company with a market capitalization of US$75 million, making it one of the largest B2B players in Asia.

Combined, Sesami.com and Asia2b drive a volume of US$320 million through their exchanges every month, according to released statement.

Sesami Inc.'s Co-CEO, Poh Mui Hoon is candid about what the company sees as the future of B2B in the region and why there is pressure for the merger.

"In fact, in the next wave, we see in Asia itself quite a bit of consolidation coming up. Not everybody will be able to remain in business," said Poh. "By coming together we feel that we have even more clout to take advantage of the opportunities that would come out during this consolidation."

Other B2B players are also expanding in the region. Commerce Exchange (Comex), a Singapore based B2B enabler, began setting up offices across North Asia late last year. Xponet itself is nearing the end of a partnership discussion with players in China.

The consensus seems to be that size will matter in the next phase of B2B developmet. The opportunities that Poh refered to are simply the chances of snatching up weaker exchanges or companies as they become vulnerable.

All eyes are turned toward North Asia, in particular the China market.

"The response from China about B2B exchanges seems to be much better compared to South East Asian countries," said Mun. "That's because in China, the provinces are very segregated by distance. And that is where the exchange and e-procurement models will have the most impact."

At the height of the euphoria about B2B marketplaces during 1999 and 2000, a Cap Gemini vice president said this about the industry in Asia Pacific,

"The digital marketplaces here are just beginning to function. There are many that have been announced and they are nothing more than a press release. There is not even a person there yet."

"It is unhealthy," he added, "many of the business models really are not founded on sound business principles . . . There is so much hype around all this stuff, and most of it before the day is done is going to fail."

The hype may well be coming to an end.

The next phase of B2B development may very well do the trick of separating the boys from the men, as IDC's Jacobson puts it.

For vendors and exchange operators who have emerged from the first phase of B2B development at a relatively strong position, the current setback is in fact a welcomed one.

As the farcical gets weeded out, only strong business models will remain. And that will bring greater clarity and rationality to the market...so goes the conventional wisdom.

"The bursting of the bubble has brought people back to reality," said Mun. "And once they have recovered from the initial shock, they will begin to understand the real benefits of e-commerce."