The business-to-business evolution

There is no question that "dot-commerce" is exploding, as ID's June cover feature pointed out. But when getting involved, you still have to be careful, or you could get blown up.

The recent meltdown of some high-profile business-to-consumer e-tailers drives home the point that not every e-marketplace here today will be here tomorrow. It is still early in the game, analysts point out, when risks can bring the greatest rewards, but failure is also common.

Therefore, whether buying or selling via an e-marketplace, or even forming an alliance to build one of their own, distributors need to do their homework before deciding with whom to partner up.

The whole concept of what a B2B trading exchange is, what services it should offer and how it should be compensated for them is still very much a work in progress. The final answer will depend in large part on what the market of potential users?including foodservice distributors?tells e-marketplace makers it wants.



While B2B exchanges are experimenting with many different approaches, the marketplace is not entire chaos. In general, trading exchanges are evolving along four levels of functionality, according to Scott Latham of AMR Research, Inc., Boston. At the most basic level is information, then facilitation, transaction and integration.

Information-based B2B exchanges start where most websites start and are basically a sort of souped-up website. They are highly vertically focused, featuring buyer and seller directories for an industry, product databases, discussion forums, classifieds and job postings, educational information and other content.

Facilitation marketplaces typically focus on sourcing. They enable RFP/ RFQ processes, product/service postings, negotiation, collaborative planning and often host auctions as well. They are not, however, vehicles for everyday transactions. They allow trading parties to communicate back and forth, but typically necessitate that users consummate actual deals offline or through other e-commerce links, Latham notes.

Transaction sites offer daily transactional capabilities between registered users. Increasingly they are managing the payment process, sometimes even funding receivables. They also usually support individualized, prenegotiated terms and prices, thus providing a platform for automating existing business relationships. They may also offer some open-market trading capabilities such as auctions.



At the top of today's evolutionary ladder, where B2B exchanges are heading?or should be heading if they want to be successful, says Latham, is the level of integration. A truly integrated B2B marketplace would enable seamless data exchange between both buyers' and sellers' back-office systems and the exchange. Most trading exchanges these days seem to fall somewhere between facilitation and transaction as their primary modus operandi, while integration remains a fairly distant goal.

"While the majority do an excellent job of matching buyers and suppliers, few help consummate the transaction online, and even fewer offer any integration into back-end systems, support for workflow and other more advanced functionality," Latham says.

In addition to integration with buyer and supplier users' back-end systems, successful trading exchanges will need to be able to integrate with other trading exchanges as well.

Most analysts forecast that the current explosion of online exchanges will inevitably be followed by a sharp contraction and, through mergers, acquisitions and attrition, eventually no more than two to three dominant marketplaces will remain in each industry. For these e-markets and their users to operate efficiently, there will have to be some kind of mechanism for inter-exchange communication?just as the ATM industry eventually created a system whereby different banking networks could talk to each other, several analysts point out.

Meanwhile, integration with back-office systems is being pursued by many e-marketplaces these days through various means and with varying degrees of dedication. One development to watch is the budding application service provider (ASP) industry, a recent explosion of companies that rent or lease software to users via the Internet.

Some marketplaces are beginning to partner with ASPs to make application software available to users, who, if they choose to use it, then have built-in integration with the marketplace's transaction systems. In another twist on this development, a number of ASP players, such as software giant SAP, Inc., are now developing their own e-marketplaces, where users of their Internet-based application services can do business with other trading partners using the same applications, in a totally integrated environment.

One observer, Dr. Ravi Kalakota, agrees that the future of successful e-marketplaces lies in consolidated, full-service, end-to-end procurement solutions that take responsibility for the entire process and perform value-added services.

The author of several books on e-commerce, and ceo of hsupply.com, Atlanta, a B2B e-services company serving the hospitality supplies industry, Kalakota says, "a true end-to-end e-procurement approach realized through an e-marketplace can save up to 15 percent in annual spending."

This is why Kalakota and other analysts say companies in general should no longer wait and see before formulating and implementing an e-commerce strategy. Although it is early in the game, business today moves at "Internet speed" and companies need to proceed, albeit with diligence. ID