B2B. Business-to-business. It''s the only sure bet left in the Internet profitability race, right? Think again. There are reportedly close to 600 eMarketplaces right now, with every conceivable niche having more than one player. According to AMR research, this number will fall between 50-100 by the end of 2001. Why? Today, B2B exchanges, or eMarketplaces are mostly hype. Many companies have raced into the space without so much as fully functional software to support the basic procurement process.
I had a client that wanted to get into the B2B space by participating in just such an exchange. What did the exchange promise in return for the hefty sign-up fee, as far as automated processes went? An e-mail notification that an order had been placed. This is apparently par for the course. My client was willing to use either an API or EDI to accept the orders, but this exchange was as much in the business of signing up merchants as in the business of facilitating true B2B commerce. The exchange wasn''t even interested in looking into implementing real-time order processing or pass-through - just in collecting the up-front fee and the monthly maintenance fees.
Everyone has scrambled to get into the B2B game, while the VC funding is good, but there''s very little behind the eMarketplaces to add value to their business customers: buyers and sellers. In fact, some B2B exchanges are little more than cocktail parties where buyers and sellers meet, exchange contact information, including the fact that one''s interested in selling a certain product and another''s interested in buying it, and then all details of the deal are negotiated off-line via phone, fax, and e-mail, outside the scope of the eMarketplace. This presents a significant problem for the eMarketplace in the future, when these same parties are unlikely to return to the exchange for the next deal, since they already know each other.
According to Forrester''s April 2000 report, eMarketplace Hype, Apps Reality, most B2B exchanges rely on home-grown software that doesn''t support any of the procurement processes necessary to making these exchanges paperless or hands-free for either the purchaser or the seller. It''s a conundrum for the exchanges because the software vendors have lagged in producing suitable software for the many-to-many relationships involved in marketplaces: they could either develop top-notch software at great expense, or develop inadequate software for their own use at a reasonable price. The good news for those exchanges that have developed the comprehensive software is that they''re well positioned to get out of the exchange business and into the exchange software business, where adequate software is still lacking.
Which eMarketplaces are working? The ones run by buyers to connect themselves with their principal trading partners, and these are mostly private. Private exchanges - also called extranets, under certain conditions - are able to enforce process automation based on agreed-upon standards because all the players have so much to gain from the automation.
RosettaNet, the independent organization named for the Rosetta Stone (which, you''ll recall from History class, cracked the secret code of Egyptian hieroglyphics) that''s been chartered with the task of creating XML standards for B2B across all business processes, has found that its work will take at least 18 months longer than it had expected. Why? It''s trying to solve the problems that the multitudes of exchanges, which resemble Turkish bazaars more than structured business marketplaces, aren''t solving. The first to market race has left most of these exchanges with software that doesn''t support the rest of the business process, and the transaction itself is a small part of the equation.
There are many estimates of how much money B2B procurement will save businesses that participate. However, most of these estimates assume that all the needs of the procurement process - identify vendorsof products, confirm that vendors are reputable, collaborate with vendor(s) on product specifications, request quotes on products, confirm that delivery specifications are acceptable, negotiate on price, agree on price, process order, track order, ship/receive shipment, exchange funds, handle returns, resolve disputes - will be met. In fact, most exchanges only take the players through the price agreement, with some skipping key steps along the way such as not providing background checks on the vendors. When a merchant receives the order by e-mail or fax, there won''t be much in the way of cost savings, since the order has to be manually entered into the order management system, and possibly confirmed manually, as well. Until the procurement process is automated and integrated, businesses will not realize the promised savings.
Recommendations
Those in the B2B exchange business should be looking to discard their home-grown software for robust commercial solutions, building value-added features such as vendor and purchaser profiling, chat rooms, customer service, financing, and fraud detection into the system with third-party software, as needed.
Businesses should follow the work of RosettaNet closely so that when there are standards, they will be in a position to implement them, yielding significant cost savings by automating entire business processes. They should stick with the exchanges that also implement these standards. Merchants should avoid paying any up-front fees to participate in exchanges, allowing the exchange to live or die based on how well it does lining up other businesses, and facilitating transactions.
Merchants should view these B2B marketplaces in the same light as B2C aggregators such as PriceScan.com and Deja.com. They should be compensated at between 1% and 5% of the order price (depending on the industry and the margin) for generating the lead. Only marketplaces that automate the entire process and enable hands-free procurement and order acceptance should be compensated as business partners.
Resources
eMarketplace Hype, Apps Realities, Forrester Research, April 2000
AMR Research
RosettaNet (www.rosettanet.org)
Alexis D. Gutzman is an E-commerce Technology Author and Consultant and author of The HTML 4 Bible, FrontPage 2000 Answers!, and ColdFusion 4 for Dummies. She can be reached at agutzman@internet.com
IE 7
Firefox 2.0
