B2B: only the strong survive

As B2Bs proliferate there is a tussle over who controls the space, writes Paul Mason

As B2Bs proliferate there is a tussle over who controls the space, writes Paul Mason

B2B exchanges just won't go away. Despite the fact that there are clearly too many netmarkets in the world today, young hopefuls are setting them up faster than they are dying out.

There will come a day, of course, when most of the B2B exchanges go the way of the chrome scooter. But that does not mean you can ignore the challenge. The corporate giants will step in to make sure they dominate the act of B2Bcommerce in the online world just as they do offline.

But what is the rationale for an e-marketplace? A round-table discussion with e-commerce supplier Asera this week identified several types of exchange:

  • Cutting the cost of the transaction. This is the rationale behind giants like Covisint, the car manufacturers' alliance, that is aiming to slash more than $2,000 off the procurement price of each car

  • Cutting the cost of the commodity. This is what B2B auction specialist Freemarkets.com offers to buyers. An impressive demo is doing the rounds where an unnamed large manufacturer sees potential suppliers underbid each other in a two-hour live Dutch auction until - and in a final gambit - the incumbent supplier slashes its price by one third. Freemarkets says the advantage of this is that much bigger savings accrue from making a more perfect market: 5% off the cost of a widget is going to be a lot more than 5% off the cost of buying it

  • Creating a new market. Yet2.com - whose European chief is profiled in our e-visionary slot - has been created to allow large R&D spenders to sell their unused technology licences.

    Among B2B insiders there is increasing acceptance that the whole space will be dominated by the large players. With Covisint, the gorillas got in first. The barriers to entry in the auto-exchange sector are now absolute. With Freemarkets, you can bet that while the big buyers love that plummeting S-curve of bids, suppliers were crying into their morning coffee all across the American rust-belt. And even among the surplus-mining exchanges, size matters.

    Yet2.com is independent but backed by some of the world's biggest spenders on R&D - Du Pont, Nippon Steel and Schlumberger, to name just a few. Meanwhile, a constant refrain I hear from smaller B2B exchanges, in sectors like industrial components, construction and freight, is that the big boys will not let them near the table.

    So are small B2B exchanges doomed? Clearly there's a space for them in the parts of the economy where there are many small players. But if you are selling in a sector where the corporate giants dominate, you have to ask: why they are going to let you take a cut of the transaction costs when they could keep it?

    One of the bonuses about the current B2B craze is that we are starting to see real people getting involved: engineers, industrial chemists, hauliers and building contractors now populate the venture-cap cocktail circuit, edging out the B2C brigade that is now snidely referred to as the "black-collar workforce".

    The e-revolution has shaken all this talent out of big firms - gasworld.com's team for example came mainly from BOC. But when the dust settles, the smart money is betting that the industrial giants will be in overall control.

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