Business-to-Business (B E-Commerce (2B) - Public Marketplaces And Private Exchanges

Industry sponsored marketplaces (ISMs) and consortia-led exchanges were only beginning to roll out their technologies in mid-2001 for their potential users to evaluate. Covisint, an e-marketplace backed by the major auto makers General Motors, Ford Motor Co., and DaimlerChrysler, was first announced in February 2000. As of mid-2001, the online auto marketplace still was not fully operational, illustrating the difficulties of integrating supply chains online.

The retail industry is served by several trading exchanges, including GlobalNetXchange (GNX), Worldwide Retail Exchange (WWRE), and Transora. WWRE was formed in early 2000 by a group of retailers including the Gap, Target, Walgreen, Best Buy, and Albertson's, among others. To help ensure the cooperation of companies that were competitors, the exchange set up collaborative teams with representatives from different retailers.

GNX was also formed in early 2000. Its founding companies included Sears, Roebuck & Co., Carre-four, and Oracle. While GNX's equity partners promised a purchase volume of $260 billion through the exchange, a year after GNX was founded only 5 percent of that amount had been used. In 2001 GNX was close to offering member retailers collaborative planning, forecasting, and replenishment (CPFR) services.

Transora is a consortia-led exchange serving packaged goods manufacturers and the retail industry. It began with 57 original investors, including companies such as Coca-Cola and Procter & Gamble. As of 2001 it was putting together a services package for potential users to consider. Among the components offered by Transora were online catalogs, auctions, and procurement. It also offered a collaborative planning, forecasting, and replenishment (CPFR) solution, which enabled retailers and consumer product manufacturers to share information. Transora's objective was to sign up large manufacturers, selected primarily from its group of original investors. The next step after that would be to present packaged subscription offerings to retailers. As more retailers completed their own internal integration, they would gain experience running some of their e-commerce activity through consortia-led systems.

In February 2001 Transora and GNX announced plans to form a megahub that would allow companies to collaborate with multiple trading partners through a single exchange. The site planned to operate as a transmissions application provider, translating EDI into versions of the platform-independent Extensible Markup Language (XML), thus facilitating the migration from proprietary EDI systems to Internet-based commerce and furthering collaboration among trading partners.

One exchange serving the consumer electronics industry is e2open, which was established in 2000 by IBM, Lucent Technologies, and other international computer manufacturers. The marketplace is for computer, electronics, and telecommunications companies to buy and sell goods and services. The exchange also provides the participating companies with an opportunity for collaboration on product design and supply chain visibility.

Exostar is an Internet-based marketplace that serves the aerospace and defense community. Founding companies were BAE Systems, Boeing, Lockheed Martin, Raytheon, and Rolls-Royce. The participation of major manufacturers has attracted thousands of suppliers to register with the exchange. As of mid-2001 Exostar was planning to offer a range of products and services. Its long-term goal was to provide a measure of standardization to e-commerce in the aerospace industry.

Private exchanges are created by companies for their suppliers. They may be set up with multiple tiers: e.g., first-tier suppliers, second-tier suppliers, etc. All first-tier suppliers might be expected to join the exchange or risk losing business. The cost of building a private trading exchange platform could cost a Fortune 500 company anywhere from $50 million to $100 million, according to AMR Research. The estimated cost would include not just a supply chain hub, but also all of the external enterprise systems that would link a very large company to its supply chain partners, its customers, and other key trading partners.

Another technology firm, Idapta, estimated that it would cost from $5 million to $125 million to build an industry-wide exchange, depending on the complexity of the products to be traded. Other expenditures to consider include integration costs, which Jupiter Media Metrix projected could cost a consortialed trading exchange from $50 million to $100 million. Forrester Research estimated that individual companies could spend between $5.4 million and $22.9 million to integrate with online exchanges.

Large companies typically look to exchanges for procurement. Sales efforts that are conducted through their own Web sites can be directed at customers or to distributors and dealers. Thus, while Ford Motor Co. participates in Covisint for procurement, it has established FordDirect.com to provide an extranet for its dealers and distributors. Boeing Company has run its online procurement and supply chain management activities through Exostar. For its customers, Boeing established MyBoeingFleet.com, which allows airplane owners and maintenance workers to purchase replacement parts online and provides them with extensive information about Boeing's products.

Typically, large companies will sell through multiple online channels. Office-supply retailer Staples, for example, operated three different portals for its business customers.

On the procurement side, some organizations are using reverse auctions to let buyers, contractors, and service providers bid down prices. Benefits include reducing the bidding process from several months to a matter of days, being able to reach a broader audience of suppliers, and enabling sellers to tailor their bids to the bidding process. In a reverse auction, the buyer requesting services or goods sets an initial price. Matching engines and marketplaces can be used to make the reverse auction known to a wider audience. Unlike a sealed bid process, a reverse auction keeps the industry posted of the prices while the bidding is in progress. This enables suppliers to submit additional bids at lower prices and tailor their bids to the bidding process. In this situation, suppliers need to know the lowest they could possibly go on a particular deal and still make money. Small companies can utilize reverse auctions to learn about the negotiation process and see a much larger array of suppliers. In some cases reverse auctions can become a reverse pricing tool that helps companies determine their own pricing as well as that of their competitors. Software company Egghead.com, for example, provides instant responses for larger-quantity product requests by using NexTag's pricing engine in its online Volume Pricing Center.

BuyUSA is a marketplace launched in 2001 by the U.S. Department of Commerce to help primarily small and mid-size U.S. businesses find international buyers and distributors for their products. The site allows businesses outside the United States to view product catalogs and obtain background information on U.S. companies. Other privately run e-marketplaces designed to facilitate international trade include GlobalSources.com and VLINX.com.

Recognizing that 28 million small U.S. businesses represent a lucrative market, Internet portals serving consumers have added B2B features. Yahoo! Small Business debuted in August 1998 and provides content, services, and commerce opportunities. In March 2000 the portal launched Yahoo! Business to Business Marketplace, which allows businesses to search for products and services across industries. In January 2001 it created three Yahoo! Industry Marketplaces for IT hardware, IT software, and electronics. AOL Time Warner went after the small business market through its subsidiary Netscape, which introduced its small business portal Netbusiness in September 2000. Microsoft's entry was bCentral, a small business portal that was launched in October 1999 and has since grown to offer a range of technologies and services.