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Business-to-Business

It's official: Business-to-business e-commerce is where the money is, or at least will be soon. When the strong e-commerce stock correction hit the charts in early 2000, pundits and analysts declared that business-to-consumer (B2C) companies on the Net had seen better days. So they went looking for the next big thing and what they found was business-to-business (B2B). Analysts like the Boston Consulting Group predicted that one-fourth of all US business-to-business e-commerce will be done online by 2003 and reach $2.8 trillion in transactions.

B2B and B2C

B2B is short for selling business-to-business and B2C is short for selling business-to-consumer.

With predictions like these, it seemed that it was B2B's time to shine and within a few short months, anything that hinted at being B2B got the lion's share of attention and funding. In the rush to distance themselves from the out-of-favor B2C label, many B2C companies even recast themselves as B2Bs. There's no doubt that the B2B marketplace is full of opportunities for e-business. However, a company still has the challenge of positioning itself in that market.

UPS Starts Tracking

Through an alliance with two Internet payment companies, United Parcel Service (UPS) will allow businesses to track the status of their invoices and make payment adjustments. With this service, companies can cut administrative costs and streamline business transactions through online dispute resolution, payment scheduling, and payment automation.

B2Bs are similar to B2Cs in one respect. The majority of them bring together many buyers and sellers at a single site. Some serve several industries at a time while others serve a specific niche. Revenue is generated from most B2B companies by charging fees for making introductions or handling the transaction and payment.

Some B2B Markets Hit Resistance

The promise of B2B success for super-exchanges such as PlasticsNet is fading as key players balk at paying transaction fees to do business with their existing partners. Super-exchanges need to offer additional value above and beyond just duplicating a B2B process that already exists for companies.

Basically, the B2B universe consists of four types:

  • B2B Product and Service Suppliers–The most typical and the simplest B2B commerce is the one most similar to B2C companies. Let's say a business manufactures computer cases. Another business uses computer cases for the PCs it manufactures. The PC maker visits the manufacturer's Web site, chooses the cases it wants and the quantity, and places an order. Done deal.

But these types of transactions are not limited to products alone. Let's suppose that a manufacturer needs to ship its products to distributors around the country. It visits the Web site of a trucking company and schedules a pickup and delivery. A simple service transaction between businesses done over the Net.

This one-to-one business model works best as long as products are standardized and prices are normally stable. Computer makers are just one example of who uses this kind of B2B e-commerce, as are companies that sell the hardware for the Internet.

  • B2B Non-industry Exchanges–There are many products that almost every industry needs, such as office supplies, advertising services, cleaning supplies, industrial glues, and so on–anything that can sell across more than one industry–but do not include the actual material to manufacture a product.

MRO.com (http://www.mro.com/) is good example of these kinds of exchanges that supply businesses with products for maintenance, repair, and operations. iMark (http://www.imark.com/) is another. It focuses on selling used industrial equipment in an auction format between businesses while iProcure (http://www.iprocure.com/) (see Figure 3.3) provides instant access to millions of industrial parts and supplies.

  • B2B Industry Exchanges–Unlike Non-industry Exchanges, Industry Exchanges focus on one specific industry. They cater to a single market like steel for cars or paper for boxes. They're often called vertical markets because they offer everything within a single industry, from raw materials to finished products. Flush with cash from venture capitalists, independently owned online exchanges are being formed for every conceivable product. While these exchanges are diverse, most of them will accommodate only one exchange. In this game, it's winner take all.

These types of exchanges work best for commodity type products like metals, paper, or plastics. ChemConnect (http://www.chemconnect.com/) connects buyers and sellers worldwide on everything from raw chemicals to finished plastics and resins. Another Industry Exchange is PaperExchange (http://www.paperexchange.com/), which offers a marketplace for everything from cardboard to fine office paper.

  • B2B Trading Hubs–When General Motors needs to purchase the necessary parts to make its automobiles, it puts out its request for bid and the many different businesses that make the hundreds of items that go into a new car bid for GM's business. Batteries, radios, seats, paint, and hundreds of other products that go into a new automobile are bought and sold on the Trading Hubs.

Automakers Create B2B Exchange

Five major automakers–General Motors, Ford Motor, DaimlerChrysler, Renault, and Nissan Motor formed an automotive Internet Exchange called Covisint. Covisint is an outgrowth of an exchange that GM, Ford, and DaimlerChrysler formed in the early part of 2000. Covisint (http://www.covisint.com/) is touted by the automakers as the largest Internet business ever created. The marketplace will create a single automotive-parts exchange for the companies' thousands of suppliers and dealers.

General Motors became a classic example of this type of B2B play when it put its procurement process online. Other automakers soon followed and joined GM's Trading Hub, choosing to share the benefits of a centralized purchasing process and the economies of scale it provided.

While this type of exchange is forming on the ground, another has formed in the air. Six major airlines including Air France, American Airlines, and British Airways have formed an exchange to link sellers of airline-related goods and services such as fuel and fuel services; airframe, avionics and engine components; and maintenance services.

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