Fox and his colleagues left their lucrative jobs at McKinsey and set up the Dulles, Va.-based EqualFooting.com in Kim’s basement. “We went to Home Depot and bought some damaged doors, put them on sawhorses to make tables and started to work.” That was in June 1999. They have since raised millions of dollars from venture capitalists and have hired some 150 employees. In March the company announced its launch and had already signed up 2,000 suppliers.
Wall Street has battered the stock prices of all dot-coms in recent weeks, especially those of consumer-oriented companies. Some B2B stocks have taken a hit as well. But the B2B upstarts that supply software for e-commerce companies–like Oracle, Commerce One, Ariba and i2 Technologies–have been market winners for much of the past year. Companies are flocking to online exchanges, and it’s not hard to see why: in 1999 companies saved $200 million by switching to online procurement, says Albert Pang, an analyst for IDC in Mountain View, Calif. “This is the tip of the iceberg. The amount of savings will skyrocket”–to $103 billion in 2003, he says. Research firms produce wildly varying estimates for the business-to-business market, but they’re all high. The most common predictions for the global business e-commerce market by the year 2004 is between $2.7 trillion and $7.3 trillion.
It’s not surprising, then, that a lot of those consumer sites are saying, “Hey, we’re B2B2–er, too!” Take eBay, the roaring success of the C2C marketplace. (That’s right, consumer-to-consumer. There’s even such a thing as C2B–Priceline’s “reverse auction” business model.) In March eBay kicked off a new service called eBay Business Exchange, where small businesses can get office supplies and equipment. Yahoo followed with an announcement of a business portal of its own, and America Online has announced that it is partnering with a B2B company, PurchasePro, to serve small businesses. Priceline says its name-your-price strategy will work as well for businesses as it has for consumers. (So how much would you pay Boeing for a 747?)
Consumer sites are still plagued by “walkaways”–shoppers who begin filling their carts but don’t follow through with actual purchasing. Businesses are less skittish than consumers when it comes to transacting business online. (If you’re going to build that skyscraper, you’re really going to need those girders and windows.) And while consumers might find ordering online more cumbersome–and, perhaps, intimidating–than simply handing over a credit card at the mall, the online marketplace is far more efficient than the traditional way in which business shops. By automating the marketplace, buyers and sellers get rid of time-wasting telephone tag between purchasing agents and sales reps, and the paperwork of filling out orders–not to mention the huge cost savings for buyers who suddenly find that comparison shopping is just a few mouse clicks away.
That’s why companies like Ariba are enjoying such explosive growth. In the last quarter Ariba (which has 1,000 employees) says it had 90 Fortune 1000 buyers whose annual purchases, overall, amount to $220 billion. It boasts 60 live marketplaces, including Chevron’s Petrocosm, Buzzsaw, Chemdex and, yes, Water2Water (a forum for trading water rights in a public market). “Marketplaces are like a land grab out there,” says Bobby Lent, Ariba founder and senior vice president of strategic development. Ariba likes to think of itself as an enabler of markets and not a creator, says Lent. About 1,100 suppliers are listed on its network.
Making the promise of B2B pay–like everything else in the e-commerce world–will be tricky. Make markets more efficient, and companies on either side of the transaction will prosper. But what about the middlemen? Getting a cut from every transaction is one of the supposed roads to riches, but only a few players will emerge from the scrum of hours-old e-companies as the marketplaces of choice.
There’s worse news, potentially, for the exchange builders. The biggest companies are beginning to ask: why does anyone need a middleman at all? That’s certainly part of the logic behind the announcement that the Big Three U.S. automakers are forming their own B2B marketplace (box). And they’re not the only giants jumping on the bandwagon. The aerospace and defense industries, including Boeing, Lockheed and Raytheon, are planning to develop a similar and global megamarketplace. Their exchange, with Commerce One and Microsoft, will be a secure, electronic marketplace where governments, airlines and some 37,000 suppliers around the world can conduct business.
The new exchanges, especially the big marketplaces like the automakers and the aerospace companies, may be challenged by the government or smaller players who will claim antitrust or monopoly violations. “These new exchanges will have large muscle power,” says Jay Swaminathan, professor of manufacturing and information technology at the Haas School of Business at the University of California, Berkeley. As the Microsoft case has shown, the federal government hasn’t been sleeping through the monumental shifts in the new economy.
Not everyone thinks that B2B will automatically bring improvements to markets. “I see a lot of hype in the marketplaces,” says Judith Gebauer, a research fellow at the Fisher Center for IT and Marketplace Transformation at UC, Berkeley. “The most powerful players will impose their way of integrating technology on others,” she says, suggesting that potential methods for increasing efficiency will be quashed.
Yet, there’s another view that smaller suppliers may catch a break from B2B online commerce. Gebauer herself conducted a recent case study of Los Angeles County and found that minority businesses were able to sell more goods through its computerized procurement system. The notion that B2B marketplaces might actually help small business as much as big is part of the real promise of the B2B boom, according to Fox of EqualFooting. He believes that companies like his might actually strike a blow for small businesses by giving companies the opportunity to focus on what they do best. He decided to name the company EqualFooting, he explains, because his marketplace will help to put all suppliers and buyers on a level playing field. “These small firms are at a very competitive position with these very large companies,” Fox says. “That is something you could not have done without the Internet.”
Other challenges remain. Having a vast mob of companies wanting to sell supplies to you might seem enticing, but it can also be scary. Whom do you trust? That’s the job of Open Ratings and other outfits–further offshoots of the nascent B2B boom–that hope to help companies make sense of the online bazaar (box).
If there is a dark side–and what boom doesn’t have one?–it could be the effect on employees of the newly efficient companies. “Things that are done by people are now going to be done by networks,” says Shakar Ghosh, chief executive of Massachusetts-based iBelong.com. To Ghosh, the gushing news stories about the B2B boom miss an important point about the human cost. “What people mean when they say ‘inefficiency’ is that people do the work,” he says. Workers who now push paper and ride the sales circuit could find themselves uncomfortably expendable in the new age. While the economy eventually will improve through B2B efficiencies, “it’s pretty disruptive when it happens.”
Many consumers might still be wondering what B2B means, but one group has caught on: the venture capitalists who fund new companies. Fox of EqualFooting felt the change in the attitudes of venture-capital firms. When he and his partners began talking with them about the company, “it was a hard sell with some,” he recalls with frustration and amusement. “They were looking for something cool and neat that you can do a neat commercial on. They could tell their mom about it.” Now, he says, “it’s flipped over. Now VCs don’t want to talk to you unless it’s a B2B, unsexy big market.” Venture capitalists–impatient, impulsive, finicky, driven by financial greed? Who would’ve figured?
