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Tracey S. Roth

Dot Com Commerce

Managing Editor, C@LL CENTER Solutions

[September 8, 1999]

Exploring The E-Commerce Iceberg

Consumer e-commerce makes headlines. It's sexy and glamorous, and the table of this industry is piled high with consumer e-commerce software solutions. But if you lift the tablecloth and peek underneath, you'll see something bigger lurking under there with the dust bunnies. Business-to-business e-commerce, largely ignored by the media and many e-commerce solutions providers, is huge, lucrative and growing by leaps and bounds. Two research firms, Zona Research and Forrester Research, currently peg the business-to-business e-commerce market between $7 billion and $8 billion. Both firms estimate this number will grow to somewhere in the vicinity of $65 billion by 2001. Lay this up against Cowles/Simba Research's prediction that business-to-consumer e-commerce will reach $4.27 billion next year, and it seems apparent that many solutions providers are busy feeding the guppies and ignoring the hungry, circling shark.

Business-to-business e-commerce makes sense. The Internet has been a boon to businesses looking to find a better channel to interact with suppliers, distributors and partners. Those of us who sat in the back of the classroom during business management classes valiantly attempting to stay awake will recall professors discussing "the cost of sales" and explaining how much money companies incur just bringing their product to market. Business-to-business e-commerce arrived, wearing a white hat and riding a stallion, and many companies saw an opportunity to not only reduce the physical costs of doing business, but in some cases, cut out expensive middlemen they needed just a few years ago in order to get products on the shelves. The Internet-era term "disintermediation," meaning using the Internet to entirely eliminate the middleman from transactions, is currently as hip and overused as putting an "e-" in front of every noun and verb in the English language. The truth of the matter is you can't really eliminate your sales channels. Unless you are having Betty the receptionist pack up product components and ship them out via the U.S. Postal Service, or the people in your accounting department warehousing your product in their cubicles, there will always be a cost of doing business, and you will never entirely eliminate your sales and production channels. But what intelligent firms have done is recognize the value of the Internet for streamlining and cutting the fat out of business-to-business transactions.

Here's an example. My company, which makes thingamajigs, needs to do business with several companies that make gizmos, which, as we all know, are a vital component of thingamajigs. In the olden days (i.e., two years ago), a production manager would have to fill out a requisition for the required number of gizmos and then submit it to the purchasing department. The purchasing department then processed enough paperwork to choke a rhinoceros before it could place an order for the gizmos. What if the gizmo-less production manager could go right to his company's extranet and purchase the product online from Gizmos-R-Us? Approval processes would already be in place, those who need to know about the purchase could be notified via e-mail, much of the paperwork could be eliminated, the likelihood of errors would be reduced and payment could be electronically automated. With a little preplanning, I might even be able to eliminate the bulk of my purchasing department.

The challenge is to make sure that Acme Thingamagig Company and Gizmos-R-Us are speaking the same language. Bob Dies, General Manager of IBM's Network and Personal Systems division, was quoted recently as saying that the question facing business-to-business e-commerce is understanding how to tie in your supply chain up and down the line. Dies also pointed out that a successful launch of b-to-b e-commerce requires building an infrastructure with robust, scalable servers with applications that support multiple servers. A company called webMethods, Inc. has recently introduced a product called webMethods B2B 2.1, an XML-based solution designed to facilitate inter-enterprising integration between enterprise resource planning (ERP) applications, Web sites and legacy data sources. IPNet now offers its IPNet.Suite, a software solution designed to help companies support all trading partner transactions, including the exchange of EDI (enterprise data interchange) transactions, supply chain management and a link between disparate ERP systems.

Companies considering Internet-enabling their supply chain can garner some pointers from a set of recently updated standards issued by a consortium that includes industry players such as American Express, Office Depot, Lockheed Martin, Microsoft, barnesandnoble.com and Netscape. The standards, called Open Buying on the Internet (OBI) version 2.0, were drafted to enable the automation of high-volume, low-dollar transactions between trading partners. These transactions account for 80 percent of most organizations' purchasing. The standards may be viewed at www.openbuy.org.

Hard on the heels of the announcement of version 2.0 of the OBI standards is a product introduced by EPIC Systems, Inc. called the B2B Toolkit. The product aims to help provide the tools needed to transform an existing e-commerce site into one that can conduct business-to-business commerce online and has been enhanced by support for version 2.0 of the OBI specifications.

An interesting issue likely to rear its head out of the deepening business-to-business e-commerce channel is the probability of the creation of closed trading communities. A report published by independent analyst Ovum, Inc. concluded that the reasons for this trend include the easy availability of connectivity coupled with the requirement for tight coordination between trading partners. The competitive and legal implications surrounding these closed trading communities are likely to make interesting reading in the next few years.

Companies tempted to jump on the bandwagon of business-to-consumer e-commerce might want to consider crunching a few numbers before doing so. They might find they're getting on the local train when the express train is sitting on the tracks, just a few feet away.

Tracey S. Roth welcomes your comments at troth@tmcnet.com.

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