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B2B MARKET
Taking Care of Business
By Jackie Cohen
The Internet's greatest promise has always been in creating avenues of communication. Its greatest commercial
promise has come to be in connecting people who are doing business, either within or across industries, in the
category known as business to business, or b-to-b.
When it comes to electronic commerce, says Bill Burnham, a former analyst with Credit Suisse First Boston who recently
joined Softbank, direct barter between businesses "is almost always at the center of the business models.
Companies look at the Internet as a way to increase efficiency, whereas consumers look at it for both entertainment
and utilitarian purposes."
Businesses have taken to the Net with a passion – and in the process have found previously unexplored avenues for
supply and demand. While retail e-commerce is currently growing at an impressive 69 percent annually, business-to-business
sites are exploding, growing 99 percent a year.
Further testimony: In 1998, b-to-b sites saw $43 billion in revenues, dwarfing retailers' $8 billion gross. Forrester
Research (FORR) estimates that by 2003 online trade between companies will reach $1.3 trillion, compared to just
$108 billion in online retail spending. Another way of looking at the trend: Online commerce made up 0.2 percent
of business-to-business trade in 1997. In 2003, e-commerce is expected to account for 9.4 percent.
CHANGE IS GOOD
Each industry has a different set of inefficiencies – typically the fruits of long-standing business practices
and archaic hierarchies. But thanks to the Internet, business practices are ripe for redesign. Forrester predicts
that, on average, b-to-b sites will save participants anywhere from 18 percent to 45 percent through quicker ordering
of supplies, speedier delivery of goods, fewer errors, better information and more opportunities to find the lowest-priced
products and services.
Take the world of electronic-parts purchasing. Engineers tend to buy electrical parts from a select group of suppliers
with whom they've negotiated discounts. Each of these suppliers, in turn, usually has made deals to sell parts
from certain manufacturers. Everything works fine until suppliers don't have the parts their buyers need. Customers
have to scramble to find them on short notice – and be prepared to pay a premium.
That's where companies like PartMiner come in.
PartMiner, headed by Daniel Nissanoff, caters to electrical engineers
looking for computers, telecommunications equipment and other tech gear. Gratis, buyers can set up their own online
communities with their preferred suppliers of goods. If the preferred suppliers don't have a desired product, PartMiner
will host a reverse auction, getting new suppliers to bid on the order. The site picks the best deal, marks it
up and sells it to the buyer.
WASTE NOT, WANT NOT
Besides hooking up buyers and suppliers, b-to-b sites help businesses ensure that inventory doesn't go to waste.
In the consumer market, Priceline.com offers a way to book empty hotel rooms, airline seats and other unused items.
Similarly, some companies are using the Internet to sell off excess resources. The National Transportation Exchange,
for example, has been using the Web since 1996 to help companies find a vehicle to ship their goods. Conversely,
it taps transport companies with idle trucks to pick up loads. (The Downers Grove, Ill., company previously relied
on phone, fax and other less efficient means to broker deals.)
"In the motor-carrier industry alone, capacity may be underutilized by as much as 50 percent today,"
says Greg Rocque, president of NTE. "This is costing buyers and sellers of transportation services at least
$31 billion annually."
The site expects to steward 125,000 to 175,000 shipments this year, notes
Rocque. Without disclosing specific fees,
he says NTE charges a startup fee based on the size of the customer and their technological requirements, and takes
a percentage of each load's value.
DAISY-CHAIN ADVERTISING
One advantage of industry-specific sites like PartMiner and NTE is that they can jump into their target markets
without expensive advertising. A bit of direct marketing to a select niche is often all that's needed. Once a few
participants sign up, they'll try to get their preferred business partners on the service, and it can snowball
from there. Those in the business-to-business game put it this way: The value of any network increases in proportion
to the square of the number of people using the network. A marketplace with 500 companies is 2,500 times as useful
as one with only 50.
This explains how sites like the San Francisco-based
LoopNet, which matches buyers and sellers of commercial real
estate, have been able to grow so quickly. The site has snapped up 86 percent of the commercial-listings business
in the United States and Canada after just five years of operations, according to data from Forrester Research.
LoopNet now has real estate listings from 90 organizations – commercial realtors, associations of realtors and
other services that list commercial properties.
One reason for LoopNet's phenomenal success is that it can help participants close real estate deals in a short
period of time – just two months, compared to the six months it normally takes for properties listed offline. Another
is substantial cost savings: With LoopNet, sellers and realtors now have a central place for their properties,
and no longer have to spend time and money listing them in newspapers and other media outlets. Plus, LoopNet opens
up opportunities for buyers from far-flung areas, not just locals.
BEYOND PORK BELLIES
There are other ways that b-to-b sites can cross established boundaries. In the field of agriculture, buyers and
sellers of farm equipment and produce typically load goods onto a truck and drive to the nearest town – or wait
until the next country fair or auction. While some farmers have turned to the phone and even satellite-TV auctions
to buy and sell goods, agricultural Web sites are the latest, and perhaps greatest, innovation.
Sites like the Chapel Hill, N.C.-based
Farms.com, which is drawing customers and vendors from as far away as Australia,
Ireland and Germany, is one leader in this market. In the past year, it's done $2 million in auctions, reverse
auctions and Dutch auctions of livestock and grain. The site charges $1 per ton for commodities transactions and
a 2 percent to 15 percent commission on livestock transactions – with buyers paying all fees.
"We can save farmers time and effort in locating products and achieve the best price through our auctions,"
says Ben Vaitz, founder and CEO of Farms.com. "We can sell a load of commodities in 30 seconds."
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