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THE
BASICS They
also go further than that, building communities, allowing for marketplaces
to be globally dispersed and enabling knowledge transfer at the same time
that products or services are bought and sold. It's no wonder that B2B exchanges have been popping up in just about every industry and corner of the globe. The Gartner Group predicts that there will be 25,000 B2B exchanges by the end of 2001. While the upcoming year promises to be bumpy for the Internet and technology sectors, successful B2B marketplaces will develop, evolve and flourish. The benefits of B2B exchanges are numerous and far-reaching:
Forrester
Research found that in 1998, the number of companies trading in business-to-business
goods and services via the Internet increased ten-fold. The Forrester
survey found that companies are increasingly realizing that the cost and
time savings generated from transactions via the Internet are significant,
amounting to easily two-thirds less expensive than traditional purchase
cycle. BusinessWire reports that fully one-third of companies expect e-business channels to account for 20% or more of their revenues this year. Goldman
Sachs Investment Research estimates the value of transactions conducted
on-line between companies will reach $1.5 trillion by 2004. Transactions
on B2B exchanges n the US alone could exceed $600 billion in annual value
and generate annual revenue for the exchanges in excess of $3 billion
by 2004.
There
are three kinds of B2B online marketplaces: Expect each type of the online business exchange to develop during 2001, especially exchanges that are focused on a single industry or bring together players with common needs in related industries. The most evolved form of B2B marketplace is known as a "fully automated exchange," which offers a centralized platform for competitive bidding between multiple buyers and sellers, with automatic matching of orders. Industry-specific
sites jump into their target markets without expensive advertising. Put
together a few powerful partners as founders, add limited direct marketing
to a select niche and the marketplace may have critical mass. As the B2B
rule goes: The value of any network increases in proportion to the square
of the number of people using the network. A marketplace with 500 companies
is 2,500 times as useful as one with only 50. Three
of the world's largest PC makers said they would set up a separate company
to run an online marketplace for their electronics parts and procurement
needs. Compaq (No. 1), Hewlett-Packard (3) and Gateway (5) expect the
move to save them 5 percent to 7 percent on procurement costs. IBM recently
announced plans to set up a similar B2B marketplace with partners in the
US, Korea, Japan and elsewhere. Hyatt
and Marriott plan to lead a B2B initiative in hotel supplies, a $50 billion
business in the U.S. The
most important potential problem is how fast industries adopt technology.
Without technology, Web-based exchanges cannot develop and evolve. Other
factors include how entrenched traditional business structures are and
how products are customized or oriented toward service. Finally,
these marketplaces have to prove themselves and will have to withstand
criticism and fickleness from investors and the media. But many exchanges
are already profitable and some have redefined the business sectors in
which they operate.
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At
the core of this interaction is the business-to-business
marketplace or exchange. B2B marketplaces create efficiencies and value
at every point
in the trading process, enabling both buyers and sellers to focus on their
core competencies so they can become more effective businesses. 
By
the end of the year, it will be difficult to imagine how many industries
functioned prior to the advent of the B2B exchange. 