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E-business Watch
Tracking the
online media to bring you the key e-business trends
March
23, 2000
Digital marketplaces:
the new cornerstone of business
There is no
doubt about it, business-to-business is where the action is. While the last five years have belonged to
business-to-consumer companies such as Yahoo, Amazon and Ebay, today’s key
players are the companies that are building the connections and tools for
business-to-business e-commerce.
As widely
reported by the online media, business-to-business is many times larger
than business-to-consumer e-commerce.
Whereas business-to-consumer e-commerce is
expected to reach $340 billion by 2003, global business-to-business
e-commerce already exceeds $140 billion annually. By 2004, the GartnerGroup
projects that it will surpass $7 trillion.
The core of business-to-business is the digital
marketplace. While expensive Enterprise
Resource Planning (ERP) applications make it possible for large businesses to
communicate electronically with individual suppliers, the emerging digital
marketplaces are able to bring hundreds of businesses into a dynamic
trading environment where they can exchange their goods and services. The benefits for participants include
streamlined procurement processes, billions of dollars in cost savings, better
product and logistics management, and closer relationships between buyers,
suppliers and customers.
Even at this early stage, businesses are beginning to see
very tangible benefits from digital marketplaces. Hewlett
Packard estimates by streamlining procurement and administration, it will
be able to reduce the cost of a purchase order from $125 to $10. For their part, the automakers estimate that
their online marketplace could reduce the cost of building a car by at least
10%.
Digital marketplaces come in a myriad of forms. Some, such
as Sciquest or Metalsite, operate “vertically,” providing
a central location for the trade of industry-specific goods and services. “Horizontal” marketplaces on the other hand,
supply the indirect materials – everything from office supplies to janitorial
equipment -- that companies need for their businesses (examples include Grainger.com, FreeMarkets and Onvia).
Finally, large trading communities such as those being built by Ariba and Commerce
One have taken on the challenge of linking these marketplaces toghether in
massive, new global trading webs.
The awakening giants
In a flurry
of recent announcements, the “giants of
the old economy” have finally signaled their entrance into the world of
digital marketplaces. Most notably, the Big Three automakers have
scrapped their plans to build their own business-to-business sites, and
have committed to build a single marketplace for the auto industry. The Grocery Manufacturers of America announced
that its members -- comprised of such key food, beverage and consumer product
companies as Kraft, Procter & Gamble, General Mills, Nestle, Unilever and
Bestfoods -- are planning a joint online marketplace.
The list of
companies launching digital marketplaces grows by the day. In the last month, new marketplaces have
been announced by Cargill,
Dupont and Cenex (agriculture), Conagra
(food-processing), Sears
and Carrefour (retail), Chevron and
Wal-Mart (convenience stores), Honeywell
and United Technologies (aircraft parts), and Dell and
American Express (shipping).
Who are the winners?
In the short term, young companies such as Ariba, Commerce
One, and i2 are creating multi-billion dollar opportunities by positioning
themselves as the hubs of these newly created webs of buyers, suppliers and
customers. Ariba and Commerce One, each of which went public during
1999, have already formed partnerships with leaders in the automotive, energy
and financial sectors, and are building global trading communities for buyers
and suppliers from across all sectors of the economy. Others, such as Internet
Capital Group, have benefited from their strategic investments in
leading-edge business-to-business companies. Meanwhile, established software and Enterprise Resource Planning
(ERP) companies such as Oracle, IBM, SAP and EDS are also attacking these new
business-to-business opportunities.
The
transformations required to move a company’s supply chain, procurement
processes and workflow online will take years to complete. Fully functioning
digital marketplaces will
require complex customer relationship management tools, sophisticated transaction
and auction software, as well as additional services such as credit processing,
shipping and logistics, currency conversions, inventory management, and back-office
integration tools. Companies such as Broadvision, PurchasePro, and Sterling Commerce have become the
crucial “enablers” of this new business infrastructure.
Over the long-term, the impact of business-to-business will
extend far beyond the “hub and tool” companies.
Business-to-business is causing radical
changes in how companies operate internally and deal with their buyers, suppliers
and customers. As ZDNet
aptly noted, “companies in general are starting to prepare from time that
dotcom and the Internet are such a part of mainstream business that the
designation ‘Internet company’ ceases to have much meaning, when all companies
are wired." Agile
enterprises that are able to restructure their businesses around these new
networks, capitalize on the efficiency gains and access to larger markets, and
move more quickly than their competitors, will have the opportunity to become
leaders in their industry.
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