Business-to-business marketplaces are a dime a dozen. Every day it seems a new exchange appears on the economic landscape. Most industries are coming together to do business on the Web--no matter how arcane or antiquated their ways are.In 1999, B2B transactions totaled $215 million, or just 1.4% of all commercial transactions, according to Boston-based market researcher AMR Research Inc. While this is fairly low, projections are for over $5 trillion in transactions by 2004. Among the growing number of transaction dollars are those spent in the $700 billion global steel industry. Leading producers have agreed to buy and sell four million tons of steel annually on FerrousExchange.com, a New York-based exchange launched in September 2000. In the marine industry, Marex.com, a year-old Miami-based exchange, serves as a B2B anchor for the $40 billion recreational boating market. The multi-trillion dollar global construction industry boasts more online marketplaces than you can shake a two-by-four at, including buzzsaw.com and bid.com, two San Francisco-based sites that plan to offer everything from auctions to project management. Just name an industry, and it's a sure bet it has a B2B exchange--or two or three or 10. And that's the problem. Even the $100 billion food industry may not be able to support that many separate marketplaces. "There's probably not room for multiple exchanges," says Tom O'Connell, chief marketing officer at FoodUSA.com, in Madison, Wisc. "We talked to a lot of companies, and their worst nightmare is having to go to a different site for every supplier," says Christine Mason, chief strategy and communications officer at Metal Makers, a metals industry exchange in Chicago. "There is also a backlash because companies worry that businesses they've spent years building up are going to be deconstructed overnight." The concerns are understandable, but O'Connell, Mason, and others maintain that businesses must get on the bandwagon or risk getting left behind. "It's almost scary because there are so many companies not even using e-mail while others are using technology for everything," says O'Connell. "And I wonder if those avoiding it will survive."
| Online Supply Chains Will Dominate|
B-to-B buying and selling online is expected to swell from 3% to 42% of total B-to-B domestic trade over the next five years.
|Source: Jupiter Research|
So how does a corporation, be it supplier or buyer or both, decide on which industry exchange to do business with? Digital Darwinism With so many types of B2B exchanges out there, how can they all succeed? It may simply be a matter of survival of the fittest (see sidebar on p. 4, "Private vs. Public Exchanges). As a result, the question of which exchange to work with may answer itself. It's likely that all types of exchanges will coexist, at least for a while. After that, it's anyone's guess which ones will win out. It may depend on the industry when it comes to vertically focused exchanges run by either a consortia of large players or by independent entities. "The only ones that will eventually survive are the consortiums [consortium trading exchanges or CTEs]" says Kevin Prouty, Boston-based research director for the automotive industry at AMR Research Inc. The key, says Prouty, is generating enough content and traffic to thrive, which heavily favors industry giants with clout like General Motors Corp. or The Boeing Co. "But even the Covisints [Covisint is the automotive industry exchange established and funded by General Motors, Ford Motor Co., and DaimlerChrysler] will struggle," warns Prouty (see sidebar on p. 4, "Will CTEs Get Voted Off the Island?"). Take Lands' End. The company runs its own private exchange for corporate customers who buy apparel, like T-shirts for company meetings, stitched with their corporate logos. Customers can order clothes, specify their logo and where to put it, generate a purchase order, and pay for it on the site, which launched in 2000. Lands' End uses software from webMethods Inc. and Ariba Inc. "It was a lot of pain getting established, and it takes some time," says John Manzer, Internet business development manager, at Lands' End. "The behavior of the buyer is different on the Internet. But the Internet is an unbelievable marketing tool. We're just a little company in Dodgeville, Wisc., and we get a lot of business just because we're on the Internet." But in other industries, which are not dominated by a group of vendors either as buyers or suppliers, an independently run exchange may be the best solution and the only game in town. "We pick markets that are highly fractionated," says Walter Nelson, executive vice president at Ventro Corp., an exchange hosting company in Mountain View, Calif. "Autos, airplanes, those are not highly fractionated industries; they're dominated by a few key players. Our industries have some key players, but there is lots of room for improvements in the way business is done." He cites as an example Toyota Motor Corp., the Japanese car maker that has its own extranet and has decided not to participate in Covisint. In the end, Prouty says, the public and private exchanges will become one and the same. "The real end role for Covisint is to connect all the private exchanges," he notes.
One of the ways around the issues of security and control that make some businesses wary of cloud computing is to build a private cloud -- one that remains within the corporate firewall and is wholly controlled internally. Private clouds also increase the agility of IT an organization's IT infrastructure and make it easier to roll out new technology projects. Download this eBook to get the facts behind the private cloud and learn how your organization can get started.