e-Commerce Software Packages

(Major B2B Besides EDI)

Managing Information Systems

IDSc 6204

May 8, 2000

Matt Carpenter

Vishal Choudhari

Rich Kerckhove

Jay Patel

OVERVIEW___________________________

Introduction to B2B

B2B e-commerce refers to electronic transactions that occur between businesses. B2B e-commerce focuses on the development of sophisticated supply chain management, direct web marketing, and most importantly the creation of electronic marketplaces. The emergence of these electronic marketplaces has had a significant impact on business-to-business commerce. Today many different types of electronic marketplaces, with varying scopes and complexity, are used for B2B e-commerce applications.

Evolution of B2B electronic marketplaces

The first generation of electronic exchanges was sell-side solutions. B2B sites did not aggregate sellers but only buyers. These early web applications can be thought of as the 24-hour, Internet storefronts still prevalent on the web today. The seller primarily benefited in these structures by being able to reach a growing number of buyers.

Next came the buy-side applications. These sites reversed the previous set-up and aggregated sellers to a single buyer. Buying companies were looking to cut costs by putting order processing and requisitioning on a single employee’s desktop. EDI is often considered a buy-side solution. These systems benefited the buyer by increasing bid generation in a standardized format from numerous sellers.

Now comes the third generation, the electronic marketplaces. These applications are designed to enable multi-seller/multi-buyer interaction. These sites provide for continuous access by companies, customers, and suppliers for the purchase/sale of inputs and outputs in multiple formats. These new marketplaces are affecting a number of core functions for both the sellers and buyers. The companies that address these applications and make them strengths will be the ones flourishing into the next century.

B2B’s Growth and Future

B2B electronic marketplaces will fuel the Internet’s growth and help B2B e-commerce reach its full potential. Most people agree that we will see an explosion of growth in B2B Internet-based transactions. Forrester Research offers a relatively “conservative” estimate for the amount of B2B e-commerce to be transacted over the next four years. With 1998 B2B e-commerce measured at $43 billion, Forrester projects $843 billion in 2000, $1.3 trillion in 2003, and $2.1 trillion in 2004. However, other companies have more aggressive estimates. The Gartner Group projects the size of B2B e-commerce at $3.7 trillion in 2004 while Boston Consulting Group expects the size to reach $7.29 trillion by that same year. The Yankee Group predicts that B2B e-commerce in the U.S. alone will experience a 41% annual growth rate over the next five years. Although the estimates vary, they all predict that this medium will play a key role in a number of different industries.

Drivers of B2B Growth

Many different developments have driven the growth of B2B e-commerce into the present and other developments will help it grow into the future. These developments have included technological change, product innovation, and chance. A few of the major drivers of B2B development, both past and future, are outlined below.

The development of the XML language helped spur the creation of electronic marketplaces. In early 1998 the World Wide Web Consortium adopted XML as a formal recommendation for B2B development. XML, with its easy to understand structure, general public availability, database specification properties, and common usage, allowed for development of B2B e-commerce. These electronic marketplaces allowed Internet-based web browsers to perform the supply chain tasks usually performed through traditional EDI systems and more. XML has lower fixed and variable costs than setting up an EDI system, so many more companies find it affordable. For example, there are over 120 million businesses connected to the Internet versus only 150,000 running any level of EDI application. B2B applications are allowing companies to reach the smaller customers/suppliers that could not afford the cost or handle the complexity of previous systems. With XML’s increasing acceptance its benefits will continue to compound, as companies across industries will be able to easily share multiple documents in a common format.

Many B2B sites serve time sensitive industries such as food or medical services, or time sensitive consumers. However, the first B2B sites found consumers taking 3-4 days to receive an electronic letter of credit from a bank to close a transaction. These transactions with costs of $30,000 or greater were too large for credit cards, the Internet’s payment form of choice. Recently, companies have emerged that offer near “instant” online credit approval. Currently, there are two major players within this subset of the B2B industry, eCredit.com and General Electric Capital Corporation. Many time sensitive industries have taken advantage of these developments to open new B2B sites. GoFresh.com, a B2B site for seafood products, was not a reasonable proposition until this technology emerged. Other sites, such as PlasticsNet.com, have utilized this technology to gain a competitive advantage over its competitors, reducing the credit approval process by up to 2-3 days.

Often the growth in B2B development is spurred by a company’s new product that addresses a different problem schema. For example, Bowstreet (a B2B software developer) has delivered a B2B software package that allows for “sell side solutions” within the B2B environment. This software has shifted the general communication pattern from buyer to seller by developing a product that allows “communication to start with the seller, travel down the distribution channel, across channel partners and to the ultimate consumer.” Developments of this type create a much more dynamic and vibrant B2B environment.

B2B Technologies_______________________

B2B electronic marketplaces form by combining the right business processes and models with the right technology (software, hardware, and infrastructure). In this first section these technologies will be outlined. Although B2B systems vary greatly in functionality and complexity, most of them contain at least minimal elements of the following technologies.

Software Components

XML: Almost all B2B software has been developed in the XML (eXensible Markup Language). XML is a hypertext markup language that allows follow-on informational tags. These tags facilitate B2B interactions by allowing the company’s programmers to create “templates” that can contain such information as product catalogs, prices, inventory, security access levels, business discounts, and customer shipping information. Using XML, developers can quickly define, store, and retrieve XML-based documents.

Despite the apparent uniformity in XML, a number of different variations are currently in use. This variation often takes the form of differing interpretations of the meanings of the XML tags. For example <sale> may mean sale to a number of different partners but not to all of the partners. The sum total of the meanings of each XML tag forms a partner’s “tag set.” Uniformity across partners in this tag set will increase the efficiency of B2B systems greatly. When these tag sets differ, the market hosts must maintain a separate tag set in the database for each partner. A number of tag schema repositories have appeared to address this issue and push for uniformity. The two largest are Microsoft’s BizTalk and the OASIS xml.org. Even with these issues unsettled, XML is currently the most important B2B technology and will continue to be well into the future.

Content Management Software: These are back-end (hidden) software packages that can be used to assemble, transform, aggregate, and normalize product information from a database(s) and then deliver it to the front-end user(s). This normalization process is especially important in situations where this information is delivered down multiple channels.

Supply Chain Management Software: This software maintains the electronic flow of information from partners/distributors/suppliers to the back-end office units (production, manufacturing, inventory, etc.).

Business Intelligence Software: Analytical software to track and map consumer behavior looking for trends. Often, data mining falls into this category.

Partner Relationship Management Software: This software is often considered a subset of business intelligence software and is B2B’s answer to B2C’s customer relationship management software. Partner relationship management software (PRMS) not only closely tracks a partner’s behavior but also aligns the B2B system with that partner. Such alignment may include the configuration of special pricing arrangements. PRMS hopes to capture partner experiences for analysis to optimize the B2B system to maximize purchasing behaviors.

Communication Components

Transaction Platforms: These platforms manage the financial interactions and fulfillment relationships between buyers and sellers. Transaction platforms may be built around auction, negotiation, bidding, exchange, and payment technologies.

LDAP: Within the individual web site these XML templates need to be able to communicate with one another. Many B2B market places have built their platforms on the Lightweight Directory Access Protocol. This protocol’s strength is how it facilitates the retrieval and linking of XML templates.

Relational Database Management Systems

The power behind B2B is not derived from static “Web Pages”, but instead, B2B uses the engines, relational database tools, located behind portal “Web Pages.” Many firms provide Relational Database Management System (RDBMS) tools that can handle data input from dynamic “Web Pages.” Oracle, Paradox, and IBM are a few of the firms that provide “Web-enabled” tools. An advantage of using RDBMS is having sustainable support for sharing data concurrently through multiple views. This software is capable of supporting unstructured text, images, audio, and video, as well as alphanumeric data. These tools are capable of handling fourth generation languages, known as 4GLs that improve database efficiency and function. B2B firms must evaluate tools on many criteria to ensure data integrity, maintainability, scalability, and reliability. The “Web” adds complexity to database management simply by allowing greater accessibility for users and, as a result, determining current and future user data needs is essential in RDBMS selection. Since B2B e-commerce is based upon an interface powered by RDBMS, a system that is not functioning properly is immeasurably damaging for a firm’s profitability. Therefore, RDBMS support is of highest priority when choosing an RDBMS application.

Security Devices

Encryption (SSL): One of the greatest concerns about doing business over the Internet is the lack of security. In order to ensure the confidentiality of data sent over the Internet, data is often encrypted before being sent to the recipient. Data encryption is the transformation of data into a format that is unreadable without a decryption key. Encryption ensures the privacy of information through this transformation. Secure Socket Layer is the security protocol developed by Netscape Communications and is based on encryption technology developed by RSA, Inc. SSL comes in two strengths: 40-bit, and 128-bit which is trillions of times stronger than 40-bit encryption. Bit refers to the length of the “session key” generated by every encrypted transaction. A longer key encryption code is more difficult to break than a shorter key.

Public key infrastructure (PKI): Public-key infrastructure is the combination of software, encryption technologies, and services that enable enterprises to protect the security of their communications and business transactions over the Internet. PKIs use a matched pair of keys (the “key pair”) to encrypt and decrypt a message. A public key is made publicly available by the owner while the corresponding private key is kept in a secure place. If a sender encrypts a message using the sender’s private key, anyone can decrypt the message using the sender’s public key and determine that the sender sent the message. While this does not protect the message from being read by anyone, it serves the purpose of identifying the sender since only the sender’s public key can be used to decrypt the message. In a sense, the public key acts as a form of a digital ID. In order to send a message that only the recipient can read, the sender must use the recipient’s public key to encrypt the message. Only the recipient’s private key can be used to decrypt the message.

Digital certificates: A digital certificate binds an identity to a public encryption key. This assures the identity of the owner of the public key and the corresponding private key. A digital certificate is obtained from a Certification Authority (CA), which can be any trusted central administration that will vouch for the identities of those to whom it issued digital certificates. Before issuing a digital certificate, a CA may require a driver’s license, a notarized application, or fingerprints in order to verify the identification of the applicant for a digital certificate. VeriSign, Inc. is one such CA. A digital certificate is the user’s public key that has been digitally signed by a CA. Because SSL is built into all major browsers and web servers, simply installing a digital certificate turns on their SSL capabilities.

Firewalls: Many B2B electronic marketplaces have developed operating systems utilizing dual firewalls, preventing hackers from accessing customer’s systems.

Dell, for example, has created an electronic marketplace using many of the above technologies. A schematic of this system is displayed below.

Hardware Components

On the hardware front, web, application and database servers are very similar. The software loaded on the servers is what differentiates them.

B2B computer hardware needs to operate in a 24x7 environment. Hence, redundancy is the key. Every piece of hardware infrastructure, from the network connection to the Internet, right down to the actual servers is made redundant.

- Redundant specialized routers for connection to the Internet backbone and private peering networks;

- Routers for interconnectivity to peer networks via multiple Network Access Points. This ensures the site is available even if a part of the Internet backbone crashes;

- Redundant T3 (or greater) connectivity to the Internet;

- Battery backups and on–site electrical generators;

- Environmental protection for the CPU, disks, and network;

- A physically secured server facility;

- On–site backup electrical generator;

- Uninterruptible power for the servers;

- 100 Mbps Ethernet connectivity for each server to an Internet router;

- 24x7 Customer Service Center (CSC) support for IP connectivity;

- Daily incremental and full weekly server backups; and

- Regular server maintenance, including administration, diagnostics, updates, and repairs.

From the Seller’s or Buyer’s Point of View:

B2B Integration Software for the Company

In most cases, businesses desiring to buy goods or services from existing Net markets do not need to make any investment in specialized business-to-business software. The individual responsible for procurement in the business simply has to find the appropriate Internet web site and log in. Once there, the user searches for the goods and services required. The user may or may not find them and, if found, may not be at the price desired. The user then ends up searching another Net marketplace for goods. This process does not appear to provide much in the way of efficiency gains or cost savings. On top of that, only about five percent of exchanges currently have some integration with ERP back-office systems. The B2B promise of streamlining the procurement process and providing for fully integrated Internet-based supply chain management cannot be made by the proprietors of 95% of the Net market exchanges, nor by the software vendors who supplied the infrastructure.

The larger software vendors, such as Oracle, Commerce One, and Ariba, provide solutions for market makers that will integrate with buyers’ and sellers’ back-office ERP systems. However, these large vendors prefer to host their own markets rather than sell the tools to others to build marketplaces. Although Ariba has been more willing to sell products to Net market makers than have Oracle and Commerce One, Ariba is taking on a larger hosting role through its partnership with IBM/i2. Both Ariba and Commerce One are partnering with telecom companies globally to build out hosting capabilities quickly.

webMethods is a provider of B2B infrastructure software and services that provides for full integration of a company’s enterprise application with those of its business partners. webMethods B2B can be used for buy side transactions, sell side transactions, or for market makers supporting both multiple buyers and sellers. webMethods B2B is used by Dell to create a business community where Dell’s operations systems are directly integrated with the operations systems of its customers. This provides for real-time data exchange, and speeds up business, production, order, fulfillment, shipping, and payment cycles. webMethods B2B for Business Partners links business partners regardless of the size or technical capabilities. webMethods B2B for Portals is used as the hub in hub and spoke business communities as well as for multiple buyer/multiple seller marketplaces.

Other software vendors supply products that work together with Ariba ORMS and the Ariba Network. NetResults markets ProShop, a sell side product that works with Ariba’s buy-side ORMS. Staples uses ProShop to create and operate on-line stores for its business customers.

In order to integrate into a B2B exchange, software solutions must be developed or purchased in a package form. webMethods B2B will be used as an example of how a purchased solution integrates with a company’s business partner. This software allows a business to extend business applications beyond the firewall, integrating the applications with ERP and EDI systems, legacy applications, databases, and Web sites of business partners. webMethods B2B is fully Java compatible, and uses XML to link data, information systems, and collaborative processes in real time. The diagram above depicts the architecture of B2B Developer and B2B Integration Server. webMethods B2B uses a graphical interface that allows users to define the B2B services and data transformations necessary to process data in any format. Although the diagram identifies several ERP systems running on the company side, webMethods requires the purchase of specific modules to fully integrate the company’s back office with a business partner’s catalog, order, and shipping systems. The modules that can be purchased include Baan, SAP R/3, Oracle, IBM MQ Series, and ActiveWorks. webMethods products support several standards, including HTTPs, XML, HTML, SSL, X.509 digital certificates, COM, Java, RosettaNet, and OAG. The products are 100% Java and run on Windows NT 4.0, Solaris, AIX, HP-UX, and Linux. Integration Server requires minimums of 60 MB of disk space and 96 MB of memory, while the individual integration modules require 60 MB of disk space and 128 MB of memory. In addition to the requisite ERP application software, the integration modules also require either Netscape Navigator or Communicator 4.0 or higher, or Microsoft Explorer 4.0 or higher. The cost of webMethods B2B starts at $100,000.

Example: “How it all works together”

OVERALL

The above diagram represents a “long distance” view of what happens in these B2B electronic marketplaces. Sellers and buyers can interface at a common electronic marketplace by accessing the Internet via a simple web browser. Information then travels via HTTP to the server that contains the “front page” of the electronic marketplace’s web site. The server then calls up the necessary information for a transaction to start. A buyer may then search for sellers or a seller may then search for a proper buyer by using a search engine to access the electronic marketplace’s database. If a proper partner is then found, the correct forms/pages may be completed to fulfill the transaction using the XML language. This XML is then transferred back into the proper IP protocol to be sent back to both the buyers/sellers. Once this information arrives back at the buyer/seller it is then transferred back into the right format to be absorbed by the buyer’s/seller’s IS systems (ERP, SAP, Oracle, etc.)

BUYER/SELLER SPECIFIC

How it works from the Buyers viewpoint

Buyers can purchase:

- Through EDI transactions

- Directly from suppliers through proprietary catalogues maintained by the buyer

- Through a Multi Vendor Exchange

- Directly from Supplier’s website

- Through traditional off-line buying channels

How it works from Sellers Viewpoint

Sellers can sell:

- Directly from seller’s website

- By including products in Trading exchanges

- By registering in Buyers proprietary catalogues

- Through EDI transactions

- Through traditional off-line selling channels

ELECTRONIC MARKETPLACE SPECIFIC

There are six main steps in B2B e-commerce between buyers and sellers, through an exchange, or in a marketplace:

1. Requisition routing and approval
2. Supplier sourcing
3. Order matching
4. Fulfillment
5. Settlement
6. Content management

1. Requisition Routing and Approval.

The purchasing enterprise typically has an internal approval process for orders over a certain size, and the enterprise isn’t about to let employees go clicking away unchecked.

Procurement software codifies the approval process in workflow technology that can be modified as corporate policies change. Requests are routed to the appropriate managers for their approval. Companies like Ariba, Commerce One, and Oracle manufacture such systems.

Most Internet exchanges don’t provide this feature, but instead partner with Ariba or Commerce One to hook in their workflow and approval process.

2. Supplier Sourcing

For a B2B exchange to be valuable, it has to source suppliers to sell through its network. The exchange does the legwork to find suppliers and get them registered in the marketplace.

Currently most B2B exchanges have simply bought supplier lists from aggregators that simply list out product information but provide no detailed product description, availability information, or fulfillment capabilities.

As the importance and the amount of the purchases grow, buyers demand to know more about the suppliers. For this to happen, someone has to knock on doors and sell thousands of suppliers on the concept and provide the technical integration services.

3. Order Matching

Order Matching is a core function of a B2B exchange/marketplace. It refers to the process of connecting buyers with sellers. There are four different forms for order matching.

a) Catalog Order: The buyer browses a catalog to identify a fixed-price item. Catalogs are used in instances when items are too low priced to justify negotiation.

b) Dynamic Pricing: Real-time bidding and bid-ask spreads. This is appropriate for commodity-like items with standard identification and semantics, volatile pricing and substantial volumes.

c) Auctioning: The auction process is best suited for infrequently traded or unique items that can significantly vary in value depending on the buyer.

d) Request for Proposal: Technique to facilitate complex requisitions in time. A transaction in time with detailed specifications online, and bids are consolidated and compared. This is appropriate for project-oriented work.

4. Fulfillment

A matched order sets off a complex series of events that lead to shipment and delivery of the product.

To date, exchanges have at best served as rudimentary communications mechanism for shipment status. Most exchanges send the order to the supplier and leave the rest of the fulfillment and settling process to the trading partners, who then handle things offline. Today most exchanges can’t handle fulfillment online because they can’t verify inventory before the order and they haven’t integrated tightly with the supplier’s back-end systems.

5. Settlement

Exchanges are largely relying on P-Cards (procurement cards which are similar to debit cards) and credit cards for financial settlement of orders. However, current systems are designed for consumer credit.

More sophisticated payment systems are in the offing that are more attuned to business commerce. Companies like eCredit are building B2B payment networks that may be used for settlement in the future.

6. Content Management

A catalog documents specifications, price, and availability of products. Displaying merchandise for sale through an online catalog is a fundamental requirement without which an exchange has a tough time existing.

For an effective online catalog:

- Content must be properly categorized for parametric searching;

- Catalog should have public and private areas, to display proprietary/confidential information, which can be viewed only by certain buyers; and

- Content must be maintained current.

Catalogs can be maintained by the buyer, the exchange, or the supplier.

Buyer maintained catalogs are preferred where the catalog items are proprietary. The buyer may add it’s own content to the catalog to allow internal divisions to purchase.

Exchange maintained catalogs can span multiple vendors, and still contain private areas where negotiated prices between business partners are stored. In supplier maintained catalogs, the exchange only provides a high-level index of catalogs available. The onus of keeping content current lies on the supplier.

Anatomy of a B2B transaction

1. The buyer browses a catalog hosted in a B2B marketplace. That catalog has products from multiple vendors. The catalog was built with Ariba ORMX or Commerce One BuySite tools and suppliers send periodic updates for SKUs, prices, and availability.

2. The buyer selects a product with several optional components. The online configurator checks the order to make sure the configuration is valid and all the components work together and with the end product.

3. The order is routed to a supervisor for approval. The supervisor(s) can approve the product or make changes and add notes.

4. The order is submitted and routed either (1) directly to the supplier over the Internet or increasingly (2) routed to Ariba.com or Commerce One MarketSite.

5. The order is checked for validity and credit. Ariba.com or Commerce One MarketSite formats the order in the preferred format of the supplier. The order may get exploded into multiple pieces targeted for several different suppliers. The order(s) are sent to the suppliers over the Internet.

6. The suppliers receive the order and send shipment status back to Ariba.com or Commerce One MarketSite (advanced ship notice, backordered, partial ships, etc.).

7. The buyer sees shipment status updated in its buy-side application (Ariba’s ORMX or Commerce One’s BuySite).

The supplier handles fulfillment and ships the product.

Types of B2B Electronic Marketplaces

Types of B2B sites

Vertical Hubs

Vertical hubs serve a vertical market or an industry focus. For these hubs to succeed, they must quickly reach a critical mass of suppliers and buyers. Enough suppliers and buyers must use the marketplace to keep the exchange functioning efficiently. For these sites to succeed and add value, they must possess substantial knowledge of their served industry. For this reason, many vertical hubs have found it hard to diversify or have diversified and been met with failure.

Description: These sites offer their consumers (both buyers and sellers) deep domain specific content and extensive industry-specific relationships. The core business of these sites is to automate and host the procurement process. These sites must host powerful search engines to quickly sort massive databases. These massive databases are made necessary by the increasing product breadth that must be maintained on these sites.

Value Added: Vertical hubs prosper when markets are fragmented and when there is substantial inefficiency in the existing supply chain.

Current Sites: e-steel, plasticnet.com, ultraprise, and Band-X.

Case Studies: Gofish.com. Gofish.com is the Internet’s first online frozen seafood exchange, offering a marketplace for buying and selling wholesale seafood. The Web site lists marketplace data for several species of seafood, including the direction of prices and supply. Market reports are updated weekly for five markets, with a different market report on each business day. The site offers currency exchange information, as well as fish stories (news regarding fish businesses or business news that affects the fish industry). Gofish charges sellers a 1.6% commission, and subscription fees for access to various services on the site.

Floraplex. World Commerce Online, the owner of Floraplex, is the first company to market global B2B to the floral industry. The Flower Purchase Network allows buyers to directly negotiate with growers. Purchasers buy from Holland, Israel, Africa, and North and South America. In addition, manufacturers and suppliers of nonperishable products, as well as floral related products, can sell worldwide.

Functional Hubs

Functional hubs provide the same service or automate the same process for many different industries. This focus allows vertical hubs to become scalable across a number of different markets. Often these functional hubs must customize the process slightly based on industry-specific differences. A functional hub’s ability to handle both high-standardization along with this customization often plays a key role in the site’s success and survival. Often these hubs employ managers whose job is to develop the industry specific content needed to provide some level of customization.

Description: Functional hubs automating the same function or business process across different industries. The functional hubs gain the ability to customize these business processes through knowledge and workflow automation expertise.

Value Added: This expertise can add value by cutting costs or increasing efficiencies in cases requiring a high degree of process standardization.

Current Sites: Processors Unlimited (reverse logistics), MRO (maintenance and repair), Employease (employee benefit administration), and YOUtilities (energy management).

Case Studies: Industry to Industry (i2i). I2I provides a platform for business buyers and sellers to negotiate and consummate transactions. Although I2I offers industry specific marketplaces, such as energy, chemicals, retail, construction, and engineering, I2I also hosts a cross-industry trading platform. Products are traded through either auction, classified, or exchange. A strategic partnership with SAP allows for full integration with trading companies’ existing ERP system.

Onvia.com. Purchase Now, one of Onvia’s products, offers a one-stop shop where small business customers can find over 37,000 business products and services. Onvia offers an auction service where buyers can name their price for everything that they need for their business and sellers can sell old, new, or renovated equipment. In addition, the Request for Quote product allows users to obtain quotes for services needed or to sell services to buyers in over 100 categories.

Types of B2B Exchanges

Auction

A common form of B2B electronic market is the online auction. These B2B auction sites work much like the ultra-popular B2C auction site eBay. In both cases, buyers bid against one another on goods placed for sale by sellers until a maximum bid can be determined within a set time frame. Recently these B2B sites have grown in popularity and many have appeared to serve the special needs of consumer sub-sets.

Description: Creates value by matching buyers and suppliers.

Value Added: Auction sites work best when products are non-standard, one-of-a-kind, and buyers possess differing perceptions of value.

Examples: Capital equipment, surplus goods, used products, non-saleable returned products, perishable products, excess inventory, and hard-to-find items.

Current Sites: Imark (used capital equipment) and adauction (online and print advertising inventory).

Case Studies: eBay.com. Many people are familiar with eBay, the world’s leading electronic personal trading community. eBay extended its online auction exchange offering to the small business market, making available products that are used by small businesses (under 100 employees), such as computer hardware and software, electronics, industrial equipment, office equipment, and professional tools. Sellers pay a fee to have their items posted on eBay’s Business Exchange, where potential purchasers search through the listings of merchandise and bid on those items. Business Exchange commenced operations on March 15, 2000, listing nearly 60,000 items in 34 business related categories. eBay has a customer base of 10,000,000 users, many of which use eBay for business needs. The URL for Business Exchange is http://pages.ebay.com/business_exchange.

DoveBid.com. DoveBid is another B2B auction site. DoveBid began business as Dove Brother in 1937. Prior to launching its business on the Internet last November, DoveBid was in the business of auctioning used capital assets. Prior to the emergence of the Internet as a place for doing business, capital asset auctions were held wherever the items to be auctioned were located. DoveBid plans to transfer its expertise in site auctions to its new Web strategy, eliminating the need to bring customers to the site of the capital assets. Comdisco, Datastream, and Sun Microsystems will supply assets to DoveBid’s marketplace, and past customers include FDIC, Toshiba, Xerox, AT&T, and Lucent. Seller commissions, which are typically ten percent in the bricks and mortar world, will be five percent of the auction price.

Barter

Description: Create value by matching two parties with reciprocal assets.

Value Added: This process adds value by allowing exchanges of assets without any financial transactions. Overall, this process hopes to increase efficient/profit-maximizing uses of assets.

Examples: Assets, capacity, and services.

Current Sites: The vast majority of barter sites are intra-company and not public

Case Study: Ubarter.com. Unlike other B2B commerce sites where cash is exchanged for tangible goods or services, Ubarter.com allows businesses to barter for their goods. Ubarter members assign a Ubarter Dollar value on items listed on the site (one Ubarter Dollar equals one U.S. dollar). When an item is sold, the seller’s account is credited with Ubarter Dollars. The Ubarter Dollars can then be used to purchase items from the Ubarter site. In order to allow members to purchase before they sell an item, Ubarter.com will allow members to open a line of credit. Both buyers and sellers are charged a five percent fee for each transaction. No listing or membership fees are required.

Catalog

Catalog electronic marketplaces were the first to appear on the web. These systems are much like looking at a catalog for any consumer retailer while online. Sometimes, smaller sellers will join forces with one another to form a “super-catalog.”

Description: Generally, sellers list their products with prices, specifications, and delivery terms to facilitate web based ordering.

Value Added: These exchanges tend to create value by aggregating buyers and sellers in industries where transaction size is small, negotiation is not cost effective, or where prices and demand do not fluctuate. These marketplaces stress ease and speed of transactions, often with pre-qualified suppliers and business rules.

Examples: Chemicals and auto parts.

Current Sites: Chemdex, SciQuest, and MRO.

Case Study: Staples.com. Staples.com is the e-business division of the office products retailer, Staples. Staples.com lists over 6,000 SKUs while the special order catalog offers over 25,000 items. The Staples.com website allows customers to personalize the home page to streamline the most common office supply purchasing tasks. Customers receive free delivery of all orders over $50 and next business day delivery is available in most markets. Customers enjoy the benefits of Staples’ delivery service for catalog purchases also, but items ordered through the catalog must be done so over the telephone. Staples.com targets businesses with fewer than 50 employees.

Market-Exchange

These online electronic marketplaces function much like the NYSE stock market. On these exchanges, buyers state their prices and sellers state their prices and the exchange looks for a match between a buyer and seller. As the dynamic market forces continue to grow into the future, more sites operating in this manner will likely appear.

Description: These exchanges work on a real-time basis with bid-ask matching to reach a point of price determination. After the process of matching bids and asks, these exchanges will focus on settling and clearing the transaction.

Value Added: These exchanges create value by time-based matching of supply and demand through a third party with no immediate use for the product. These electronic marketplaces work well with near-commodity items that have large demand and price swings.

Examples: Steel, petroleum products, and paper.

Current Sites: Paperexchange, Altra, e-steel, and Tradeum.

Case Study: Houston Street Exchange. Houston Street Exchange is a Web portal for the trading of energy commodities, providing an online trading engine at the site www.houstonstreet.com. The website is patterned after trading floors, where buyers and sellers list the quantities and their respective bid and ask prices. Offers are countered and recountered, until an agreed upon price is determined. The commodities traded include electricity, crude oil, and refined products, such as jet fuel, heating oil, diesel #2, and gasoline. An information panel on the side of the “trading floor” provides current weather and energy news. Traders may also pre-select trading partners without divulging the traders’ own identities. Houstonstreet.com is XML based, allowing users to integrate trades with their back-office applications. Commissions on the sale of electricity range from $.01 to $.02 per MWh with a $12 minimum user fee. The commission is charged to both the buyer and the seller. Petroleum based commissions were not provided by the site.

Drivers of B2B Development______________

Once a company understands the general pieces of B2B technology and the types of B2B electronic marketplaces out there, how does the company decide to go B2B enabled and to what extent?

First, companies wishing to benefit from B2B must make many of their internal IS systems compatible to these electronic marketplaces. Often the technology a company must purchase/develop is dependent on the type of B2B marketplace it wishes to participate in. These decisions carry a substantial amount of risk, and backtracking once a decision has been made can be expensive. Commonly this process is referred to as “B2B integration.” B2B integration software improves the communication between a company’s internal systems (ERP, SAP, etc.) with outside suppliers/buyers. Of course, a company must decide when it is the right time for it to go through this B2B integration.

On the other hand, if the company is an industry leader, it may decide to develop/host a B2B marketplace. The company must decide whether it wishes to do this alone, with industry partners, and/or with technological partners. These electronic marketplaces are where the vast majority of B2B transactions are going to take place in the future. Companies can leverage their industry knowledge to create an efficient B2B marketplace, but other companies will probably try to do the same.

A few common drivers often help companies with these complicated decisions.

Monetary Considerations

The costs to make a company’s existing systems B2B compatible can be extensive. For large companies evaluating the opportunity and the potential usually costs around $500,000. Getting a pilot system up and running costs an additional $500,000 to $1 million. For a company to fully take advantage of B2B marketplaces will cost an additional $1 million to $20 million. On average, a large company will spend $6.5 million. These costs are substantial but may simply be the costs of playing the game into the next century.

Smaller companies can usually integrate their buying/selling systems into a larger B2B marketplace for around $20,000 to $200,000. These costs are substantial given the size of many of these companies but are mitigated by the lack of compatibility between many of their internal systems. This lack of integration actually reduces costs for these companies, as fewer adjustments to existing systems need to be undertaken.

The costs to develop a B2B marketplace from the ground up are staggering. With marketing costs included these costs often exceed $500 million. Many companies today are forming syndicates and taking on technology partners to help defray the costs of B2B web site development. Not only do these syndicates reduce the costs for the participants, they also lend a number of competitive advantages to the associated electronic marketplace.

Technological Needs

A key point of competitive advantage within the B2B industry is speed. The companies that get their exchanges, or get their connections to exchanges, operational first often prosper in industries where time is measured in weeks and days. Therefore, more companies are opting to purchase key components of their B2B exchanges from established software providers rather than writing extensive proprietary code. These companies are getting bare bone sites up quickly and then adding additional functional components in the following periods. Companies, such as Ariba, IBM, Commerce One, BroadVision, and Open Market, that offer quick e-commerce solutions are doing a brisk business. These solutions allow companies to extend the critical business applications beyond their corporate firewalls, integrating these solutions with countless other systems.

Companies looking at B2B software must decide what functions they wish for the software to possess. A small subset of these functionalities is emerging as the most important and is becoming the key criteria when selecting a B2B software package. The most important current elements in B2B software selection are the following:

1. Personalization Features. Companies are coming to realize that exchanges and engines that pander to a particular customer can add a lot of efficiencies. Customers greatly prefer to have their wants and needs addressed up-front and expediently.

2. Content Management. Content management will become more important in the near future as catalogs increase in size. Increased coordination will be needed between transactions and information.

3. Auction Capability. This format is becoming the favorite within the B2B community. Companies that do not currently offer this functionality are moving to do so quickly through mergers and acquisitions.

4. Extensibility. Extensibility means the ability to operate in and through numerous standards, protocols, and platforms. These standards include XML, cXML, Acord, ANSI, BizTalk, CPFR, FpML, OAG, OBI, Solaris, AIX, Linux, HTML, C++, Java, Unix, and RosettaNet.

5. Supply Chain Management. Companies want B2B software systems to communicate with supplier/buyer systems while performing as many tasks as possible automatically. These systems, by removing human interactions from the process, lead to the inventory management and quicker ROI that many companies are looking to achieve.

6. Automated Procurement. Companies want their B2B systems to allow them to find the cheapest products quickly by searching a number of exchanges. This ability to query multiple locations and then compare the results helps companies implement operational improvements such as JIT.

7. Shipping & Logistics. These B2B systems can also integrate the logistical requirements of a company with its major shipping vendors. This process reduces costs while allowing companies to continually access their shipping status.

Other important elements include:

· Search and requisition engines;

· Pricing;

· 24x7 operation and support;

· Shipping and handling;

· Tax calculation;

· Payment processing;

· Customer service;

· Security;

· Intranet support;

· Scalability;

· Order processing capabilities; and

· Inventory and catalog systems.

However it would be wrong to classify these B2B software systems as “off the shelf.” Even vendors admit that large amounts of training and support are necessary to get any level of functionality out of their products. Vendors are now trying to make sure purchasers know that they are getting a “packaged,” not an “off the self,” system. Early customers quickly found out that customization costs almost as much as building a system from the ground up. Many companies quickly moved to B2B exchanges without considering the companies’ true wants and needs. Now vendors are working with customers, helping to work through these problems before the customers decide on a system.

Performance Needs

B2B integration with a company’s existing processes can lead to numerous performance improvements. These improvements are described below.

· The automation of B2B transactions can prevent errors, thereby reducing costs and preventing delays. When errors do occur, the electronic paperwork associated with an order helps to expedite problem resolution.

· B2B systems integrated with a company’s inventory system can improve inventory management and, accordingly, cut costs and improve the management of inventory levels.

· The augmented integration between manufactures, distributors, and buyers helps maintain order integrity while avoiding many distribution problems.

· B2B systems can help improve access to logistical information needed for planning and forecasting. Now companies can get more information than ever before on a real-time basis.

Competitive Pressures

Many companies now feel that the development of B2B systems has become a competitive mandate, especially for the larger companies. Although the competitive pressures are currently being felt by the largest of industry players, over time they should move down the industry value chain to medium and small sized companies. The effectiveness of B2B in saving money, improving operations, and reaching more sellers or buyers cannot be ignored by businesses any longer. Large companies need to develop solutions now while smaller ones will need to do so in the near future.

Industries being served

Based on the above topics and explanations, it should become clear that some industries could greatly benefit from the presence of active online B2B marketplaces. Below are descriptions of a few industries currently feeling the turbulence of change and the beginnings of benefit from B2B marketplaces.

As the process of mass customization continues in the new economy, it has created a demand for B2B solutions in order to create efficient, more profitable, networks that aid both consumers and vendors. As a result of the new B2B movement that is aimed at matching buyers and sellers, there now exists over 600 online marketplaces that supply the chemical, telecommunications, automotive, and aviation industries. In fact, there are over 50 sites focused on chemical procurement. These marketplaces must understand the psychographics of their particular markets as well as their participants in order to succeed.

Chemical Companies

In most industries the B2B marketplace is very fragmented. The chemical industry’s B2B initiative is populated by sites from many start-up companies, as well as sites that leverage the power of traditional companies within the industry such as PPG, Eastman Chemical, and Rohm & Haas. The United States chemical industry will reach online sales of $128 Billion by 2003 as indicated by Forrester, making it the third largest industry behind high tech and automotive. The Envera site was recently launched with the support of B.F. Goodrich, PPG Industries, and Sunoco Chemicals in response to other B2B sites. In fact, at least two companies that are backing Envera through equity investments also support a major established B2B chemical consortium called ChemConnect. VerticalNet Inc. formed a joint venture with Eastman Chemical Co. to establish an independent marketplace for the paint and coatings industry. Following the lead of other incumbents, Schlumberger, Texaco, Chevron, and other petroleum industry giants, Royal Dutch Shell and BP Amoco have recently announced B2B alliance initiatives that include other firms such as Conoco, Dow, and Phillips. Overall, Salomon Smith Barney analysts report that industry participants could save $4 to $6 billion annually. Therefore, a company that is entering the petroleum industry as a B2B provider may have difficulty in attaining profitability unless the company has the backing of some major participants. In addition to B2B lowering prices and raising efficiency, as well as competition, in the chemical industry, B2B should help replace complex negotiations for product procurement with auction-like, open bidding formats.

Telecommunications Companies

The telecommunications industry has emerged with many B2B providers of bandwidth and bandwidth trading. Companies such as Band-X.com pioneered the concept of bandwidth trading. Band-X was launched as the first independent market for exchanging telecom capacity. The site operates in a manner similar to NASDAQ as an open forum for buyers and sellers of bandwidth and related services. Other B2B companies such as ace-asia.com also provide a medium of exchange for bandwidth. However, ace-asia has segmented its own marketplace to include capacity issues in Asia. Similarly, InterXion and Cidera promote bandwidth exchange in Europe. Since telecommunication industry participants may not be operating at capacity, they sell their excess capacity in order to use their available bandwidth and optimize profits. Through economies of scale, bandwidth exchanges helps optimize capacity for all participants.

Automotive Companies

The largest B2B initiative in the automotive industry combines the resources of the major automakers, GM, Ford, and DaimlerChrysler, to form an online supplier exchange. On the other hand, Volkswagen has chosen to embark on its own B2B initiative that is aimed at creating an e-marketplace standard in Europe with the aid of industry giants such as IBM, i2, and Oracle. Recently, suppliers within the industry, such as Dana, Delphi, Eaton, Motorola, TRW, and Valeo, have undertaken their own B2B initiatives in the form of a group that will provide complementary services to initiatives that the suppliers have already begun. BBCN has created a network that involves 400 auto parts suppliers and 500 dealers. Similar to the petroleum industry, a company that is entering the automotive industry as a B2B provider may have difficulty in attaining profitability unless the company has the backing of some major participants. In addition, another obstacle that new B2B providers may stumble into is the issue of “critical mass” that does not easily allow new entrants easy access to profits.

Aviation Companies

The aviation industry, along with most industries, is changing due to B2B initiatives. Industry giants such as Boeing, Honeywell, and Raytheon are embarking on B2B strategies in order to increase profits. As disintermediation continues in the new economy, B2B providers without specific products may also become disintermediated as major players within industries form their own company based B2B exchanges.

Benefits of B2B_________________________

Digital commercial exchange sites create value by aggregating buyers and sellers in a value-creating two-way network, increasing market place liquidity while decreasing transaction costs. Additionally, these commercial exchanges reduce search costs and information transfer costs, allow for standardized systems, and speed matching between buyer and seller. These lead to the following types of benefits:

Competitive Advantages

First and foremost, if used properly, B2B can save companies money. These savings are primarily driven by the creation of an open, competitive electronic marketplace. With a larger group of potential consumers/suppliers, pricing becomes more competitive. Also, with a greater liquidity and mass of product information, companies can find the need inputs at a faster pace. On the other hand, suppliers can expedite their search for the “right” consumer as well. This time savings, coupled with competitive pricing, can lead to a number of financial benefits.

B2B can offer to companies the ability to extend their reach. B2B electronic marketplaces can allow companies to reach new buyers that are geographically displaced, unable to afford to implement previous technologies, or unreachable by a sales representative due to the cost involved. This extension of the selling chain allows for a rapid and substantial increase in a businesses market. These B2B electronic marketplaces may even reduce the time to market for new products. These marketplaces help cement real-time availability and publicize product design information.

Once a firm has reached new customers, B2B integration can help the company maintain that company. Many companies are using these technologies to greatly enhance customer satisfaction and support. B2B exchanges help companies quickly and easily respond to customer needs. In the end, this process leads to greater customer retention.

Supply Chain Management

B2B’s ability to bring together fragmented supply chains forms the core of its value creating process. Especially in markets where buyers and sellers have a hard time finding one another, B2B electronic marketplaces can bring these entities together. In industries where prices fluctuate greatly, products change regularly, or inventory levels are unstable and product information tends to be complex, the presence of a B2B intermediary can help aggregate this information to make the search process easier/quicker. The importance of supply chain management will continue to grow into the future with industries moving quickly and globalization becoming the norm. B2B intermediaries will play a key role in this growth. The primary benefits created by B2B electronic marketplaces to the sellers, the buyers, and the market hosts are spelled out below.

To Sellers 1. Creates new marketing and distribution channels 2. Allows for online customer service 3. Provides more complete product information 4. Automates order and fulfillment processes 5. Lowers operational costs

To Market Host 1. Creates a role within the product chain 2. Establishes a value adding digital economy 3. Increases service level 4. Leverages information 5. Provides access to more suppliers

To Buyer 1. Lowers up front costs and risks 2. Provides information and supplier access 3. Creates secondary and excess auctions 4. Leads to comprehensive solutions 5. Eliminates ongoing software and maintenance costs 6. Utilizes outsourced expertise

Critical Success Factors

These electronic marketplaces are causing a fundamental shift in the way companies do business. These shifts in the business process are creating a new set of critical success factors that a company must address in order to remain competitive in the 21^st century. As represented by the diagram below, many of the variables used to measure current IS process success will serve as a basis to measure the success of the IS function in the B2B marketplace. In addition, the accurate measurement of these parameters that have been adapted to evaluate future processes will remain essential.

As with most IS initiatives, a business must accurately quantify and qualify impacts associated with an IS application on its business processes in order to measure the value added. In addition, a business should identify its business processes in order to align its IS initiative. However, if a business does not have the resources available to execute the initial steps that lead to strategy implementation, a firm may outsource its B2B initiative to B2B providers in order to gain competency in these areas as well as e-security.

Successful B2B providers must align their business processes in a simplified, standardized, manner in order to gain buyer and supplier participation at their hub. Generally, auction sites such as eBay, Imark, and Adauction enjoy customer participation as exemplified by their simplified, standardized, user-friendly business process that a costumer manages when at their interface. System requirements vary across business applications. Nevertheless, B2B systems must provide cost effective services that are easily scalable and reliable. Their performance must be high and they must have low latency periods that may be achieved through dedicated networks, high-speed connections, or other speed efficient processes. Through the use of processes that are engineered for robust consumer delivery, B2B companies can foster a healthy environment for success.

Technology changes and improvements require constant attention in a B2B environment. Strategic decisions should always focus on customer requirements before technology implementation such as new software or systems. In order for a B2B network to succeed, a strategy that monopolizes site-specific exchange has a better chance to succeed than one that only involves a few of the industry participants. In other words, a B2B provider can help assure its own success by collectively gathering all of the industry’s participants at its hub.

However, this is only one step in achieving network success. Another initiative that can help assure success can be achieved by focusing on changing buyer behavior through active programs that solicit hub participation. Programs that place emphasis on network participation such as training supplement the business process. These and other initiatives can help B2B companies gain consumer acceptance and lead to “increasing returns.”

Deployment is similar to networking. The B2B exchange medium, “the Web,” is an ideal arena to connect suppliers and buyers. Through adoption of new web-based technologies, consumers will be able to access B2B portals from remote areas of the globe through many types of devices with wireless and non-wireless connections. Through the use of processes that are engineered for robust consumer delivery, B2B companies can foster a healthy environment for success that owns the customer’s total experience.

PRICING

Before the Internet, price was the primary point of differentiation between products and services. Now, however, any consumer can use the Internet to get a complete spectrum of pricing information. This transparency in pricing is even serving as a deflationary price driver. In the past, company marketing divisions determined pre-negotiated and set prices based on company expectations and the market. These set prices are becoming harder to maintain given the popularity of B2B electronic exchanges. Through B2B electronic markets, we will continue to see an increase in corporate acceptance of dynamic pricing structures.

SOFTWARE VENDORS_________________

In 1999, the market for B2B software tools totaled at just under $5 billion. Given the growth in this industry, software sales are projected at $40 billion by just 2002. Currently, there are over 140 e-business software providers. The top four B2B software providers in 1999, based on volume of sales, were Oracle, Commerce One, Ariba, and i2. The software provided by these companies can be classified into the seven categories listed below. After each category name, in parenthesis, is the percentage that this type of software comprised of the entire marketplace.

1. e-Infrastructure (34%) This type of software includes the specific tools necessary to build an e-business site.

2. e-Content (32%) These systems manage the dynamic content that forms the key to e-business.

3. e-Process (11%) This software coordinates the multiple tasks involved in the e-business value chain.

4. e-Procurement (9%) This type of software manages the purchase of everything from inputs to human resources.

5. e-Service (5%) This software allows e-businesses to manage partners, customers, and prospects along the entire value chain, 24x7.

6. e-Analysis (5%) These systems analyze competitors’, suppliers’, and buyers’ behavior on the web.

7. e-Market (4%) This software supports the marketing and transactions that are enabled by B2B electronic marketplaces.

Software providers differ in the amount of auxiliary services they provide. Some software providers will consult companies on positioning, marketing, implementation, and hardware configurations. Some software companies will even sell you the needed software. Other software providers hope to provide simple off the shelf solutions to common B2B problems. The variety in services plays a key role in helping companies select which software provider is right for them.

CLOSE-UP ON SOFTWARE PROVIDERS:

Ariba: Ariba provides several B2B solutions under its comprehensive eCommerce platform. According to Ariba, this platform “integrates internal and external commerce processes of buyers, suppliers, Net market makers, and value-added service providers.” Ariba’s eCommerce platform includes the following products: Ariba ORMS application, Ariba ORMX application, Ariba Network platform, Ariba Internet Business Exchange (IBX) service, and the Ariba Market Suite.

Ariba ORMS application is a solution for buying organizations to manage procurement. In order to streamline the purchasing function, ORMS incorporates purchase requisitions and purchase orders, expense reports, and service requests into the product. The ORMS application provides even inexperienced users the ability to obtain the goods and services they need in their business without any training. In a nutshell, ORMS enables purchasers to purchase the goods that they need, provides content access, provides routing for approval, and integrates with existing ERP solutions.

Ariba ORMX platform is a version of ORMS that is tailored for use in an ASP environment. This allows smaller businesses that were not able to afford the up-front IT investment, and opted for the employment of ASP services, to take advantage of the features offered by ORMS.

The Ariba Network integrates buyers using the ORMS product into an electronic marketplace, connecting the buyers with suppliers and value-added service providers. Some of the services included in the Ariba Network are supplier directories, supplier catalog and content management, access to supplier content, transaction routing, and multi-protocol support for numerous ways of exchanging transaction information. This last service eliminates the need for a single standard for electronic commerce. Additional services include electronic payment, logistics integration, and dynamic pricing, such as auctions, reverse auctions, and exchanges.

Ariba IBX is a hosted Internet service that enables businesses and Net market makers to quickly build electronic marketplaces powered by the Ariba Network platform described above. This exchange is focused on vertically integrated markets. The advantage of IBX is that small to mid-size businesses can take advantage of volume discounted pricing and streamlined internal purchasing processes, utilizing a single access point to an organized market of goods and services.

The Ariba Market Suite was developed for Net market makers, enabling them to deliver a frictionless e-commerce environment that supports dynamic pricing. The dynamic pricing products include Auction, where a single seller offers goods for sale to multiple buyers, Reverse Auction, where multiple sellers respond to bids solicited from a single buyer, and Exchange, where multiple buyers and sellers engage in a bid/ask system similar to the NASDAQ in order to complete a business transaction.

Commerce One: Commerce One is a provider of B2B solutions that links buyers and suppliers in trading communities on the Internet. The company provides solutions to streamline the purchasing process, eliminating the need for point-to-point relationships with each supplier. Commerce One’s products include Commerce One Buy Site, Commerce One MarketSite, and Commerce One MarketSite Portal Solution.

Buy Site is a global solution for businesses, streamlining the procurement process for multinational organizations. Buy Site supports multiple languages, multiple currencies, multiple international date, time, number, and address formats, and international tax requirements. This product also connects to Commerce One’s Global Trading Web, a business-to-business trading community comprised of several interoperating portals. These portals are owned and operated by independent market makers. Buy Site can be configured to match the operating structure of any business by using an organizational mapping feature. Like the Ariba products above, the procurement process is streamlined, providing for paperless routing and approval of purchase requisitions and electronic payment.

MarketSite provides suppliers access to the Commerce One Global Trading Web. MarketSite functionality includes on-line order processing, exception handling, taxation, distribution, invoicing, and payment. MarketSite also provides for surplus disposition, bid and auction, RFP, and RFQ processing. MarketSite is operated by Commerce One. MarketSite Portal Solution is a technology solution for businesses that want to build their own e-marketplace.

Commerce One also provides a direct material solution for businesses. Direct Material Solution is designed to increase supply chain efficiency, and offers integrated sourcing, collaborative planning, real-time transaction management, and support services across the entire supply chain.

Oracle: Oracle is one of the world’s leading suppliers of e-business solutions. Oracle technology can be found in approximately ninety percent of B2B commerce sites. Oracle positioned itself as both a solution provider and as a solution consultant. Oracle offers products that provide fully integrated Internet-based supply chain management. Internet Procurement, Oracle’s solution, improves internal processing, automating the procurement process. Sourcing, approval routing, requisitioning, receiving, and payment processing are automated and centralized. Oracle Exchange is an online business-to-business marketplace, allowing companies to buy and sell goods and services using any purchasing method. Oracle Exchange is open to any company and does not require the use of any Oracle software. Exchange provides both horizontal and vertical markets. Content on the Exchange is provided by the Oracle Supplier Network

Future of B2B__________________________

Consolidation and Partnering within the industry

Last month, officials at GM, Ford, and DaimlerChrysler said they would combine their online purchasing and procurement activities. This is the first industry to undergo such consolidation and should result in a highly liquid online market and potentially an increase in part standardization. Early in this process, the US firms were trying to recruit the Japanese companies to join their syndicate, but part standardization kept them away. The Japanese companies are now looking to form their own syndicate.

This trend has continued to be repeated. In the aerospace industry, BAE Systems, Boeing, Lockheed Martin, and Raytheon joined forces to form a B2B electronic market for their industry. Days later, Johnson & Johnson, GE Medical Systems, and Baxter International did the same in the health care industry. These market mergers will continue as each B2B electronic marketplace must have enough users to ensure scale and liquidity. As vertical marketplaces find it harder to diversify, we will see an increasing number of alliances among functional and vertical B2B hubs. Large, non-B2B companies will partner with other B2B electronic marketplaces in order to gain the expertise and scale to impose significant barriers to entry. In mid-April, VerticalNet announced a partnership with Microsoft to serve this need. This process will lead to a limited number of participants (B2B electronic marketplaces) in each field.

Within the technology sector there will be a similar pattern of mergers and acquisitions. Software providers, IT consulting firms, and hardware providers will increasingly join forces to create the right mix of products and service to meet the needs of this industry. In early April, Peregrine Systems (business software maker) announced it was buying the e-business software provider Harbinger Corp. for $2.1 billion in stock. This merger hopes to take advantage of Peregrine’s infrastructure expertise and combine it with Harbinger’s business-to-business solutions. Examples such as the above show that software providers hope these mergers give them the synergies to survive and prosper in this increasingly competitive field.

Pricing Mechanisms

Currently, these B2B electronic marketplaces only support spot markets. In the future, we have to expect these B2B electronic marketplaces to move from spot to derivative markets. This move will be expedited as participants become more competitive and software platforms improve in functionality. These derivatives could take the form of both options and futures for both commodities and manufacturing capacity.

These dynamic online marketplaces could lead to the creation of “arbitrage bots.” These “arbitrage bots” would be software agents that automatically check multiple markets to make appropriate pricing decisions. These agents could even set prices for delivery and terms for shipping. These agents would examine multiple types of electronic marketplaces, looking for profitable exchanges to be buying/selling across those electronic marketplaces.

Financial Success

Through the successful implementation of B2B initiatives, a B2B firm or a firm conducting B2B may achieve financial success. As with any business, its financial success is dependent on a variety of factors. Lowering operational costs for sellers is seen as one of the most important business drivers. Aberdeen group estimates that a traditional purchase requisition costs approximately $75 to $150 while a purchase requisition using e-commerce costs approximately $15 to $45. In addition, e-commerce helps reduce the cost of goods sold via a better-managed inventory system, bringing costs down further along with prices.

The traditional view of financial success generally expressed company worth in the form of tangible assets that allowed a firm to add future value. Since the movement into the new economy was initiated, the value of an organization is based more and more in the form of experience, relationships, knowledge, and human capital. Because of these factors, implementing a B2B initiative boosts a firm’s stock price today. In March 2000, three of the biggest consumer Internet sites, AOL, eBay, and Yahoo!, announced the development and launch of B2B electronic marketplaces. These companies are using their consumer base to target small to mid-sized companies. In the days after these announcements eBay’s stock rose $34.00, Yahoo!’s stock rose $18.00 and AOL’s stock rose $2.00. Clearly, having B2B capabilities is highly valued in today’s marketplace.

However, the high valuation of B2B sites and marketplaces across the board will not continue. Just like B2C sites, B2B sites are starting to spend a lot on marketing/advertising. In 1999, B2B advertising totaled just $460 million but this amount will top $2.5 billion by 2002. B2B firms that are not quickly successful will never recoup their marketing costs. As mentioned before, B2B sites need a lot of users for the exchanges to operate properly. In industries with a number of B2B sites attempting to serve them, substantial consolidation and failures will strike in the coming years. One analyst at Morgan Stanley Dean Witter, referring to B2B sites with nice-to-have business models that do not add incremental value, stated, “We are seeing a tremendous period of innovation that will be followed by a tremendous period of failure.” Other analysts believe that the B2B fallout should start by the end of the current year.

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