E-commerce among companies is rapidly changing the nature of procurement.
By Jennifer Riley
A small-business manager casually awaits e-mail from an Internet auction site on a bid he submitted for a computer. If he seems strangely at ease for someone shopping online in the middle of the workday, in plain view of his boss, it’s because he’s simply doing his job.
This is the new face of business-to-business (b-to-b) commerce. No longer limited to retailing, the sprawling online marketplace is becoming a magnet for companies looking to purchase work-related goods and services. Online business transactions by U.S. small and medium-size companies will value a collective $1.3 trillion by 2003, up dramatically from the current $48 billion, according to a Forrester Research projection. In comparison, the online business-to-consumer market is expected to grow from $8 billion to $144 billion.
"Both sectors will continue to grow, because e-transactions on the whole are just at a noise level right now," says Jack Skeels, a senior business analyst at Rand and an electronic commerce professor at the University of Southern California’s Marshall School of Business in Los Angeles.
"Those numbers sound big, but we have a $7 trillion economy. So $8 billion in e-commerce transactions is a lot of money, but it’s still a ‘so-what.’ We’ll probably see electronic commerce grow to represent 20 percent to 30 percent of the economy, because if I do anything electronic as part of the transaction, it’s assumed to be an electronic transaction. B-to-b will be for the parts of the sales process that are better done electronically."
Although the Internet is credited with revolutionizing the way we do business, companies have been engaging in b-to-b e-commerce since the late 1960s through a system known as Electronic Data Interchange. EDI enables companies to electronically exchange purchase orders, invoices, shipping orders, confirmations, and other business documents in a standardized format ("The EDI Revolution," April).
But EDI’s greatest advantage – its proprietary, secure networks – is also its greatest weakness when it comes to electronic commerce. While EDI’s closed system prevents the loss of e-mail, it also costs money to use. Enter the Internet, an open medium accessible to anyone with a computer and a modem. Companies that use the Internet for e-commerce may risk losing the occasional e-mail message, but they enjoy considerable savings in terms of cost and time.
"It’s hard to say what the fastest-growing segment of b-to-b e-commerce is," Mr. Skeels says. "Effectively, this is all about information. The fundamental economics have changed. What is defined as the middle ground is changing. If we say the consumer is at one end and the manufacturer is at the other, everyone else is in the middle. E-commerce is going to be about redefining your role in that space."
There’s been a lot of redefining lately. According to a 1999 study by InternetWeek, a host of business activities have undergone significant change with the spread of the Internet, including corporate communications, marketing, customer service, job postings, and manufacturing. This in turn has spawned a new generation of online services such as Bizbuyer.com, Onvia.com, and DigitalWork.com. These companies offer everything from online auctions for products and services to consulting services aimed at small and medium-size businesses.
"We give business owners an opportunity to do all their business in one place," says Gretchen Sorensen, director of public relations for Seattle-based Onvia.com. "If you’re a buyer, there are more than 100 services you can access, from 401k plans to Web design. We have more than 25,000 sellers selling products and services through our site. We’re getting incredible testimonials from people who say our site is revolutionizing business. One person said he’s hired an employee just to follow our Web site."
Onvia.com (www.onvia.com) and Bizbuyer.com (www.bizbuyer.com) work in similar ways. A prospective buyer visits the Web site, chooses a category of product or service, requests quotes from registered sellers, receives quotes from interested vendors, compares quotes, and makes a purchase. While Onvia.com serves as a one-stop shop for both purchasing and consulting, Bizbuyer.com is more of a pure online auction house that offers little in the way of advice or handholding.
On the other hand, DigitalWork.com, which can be reached through www.HispanicBusiness.com, positions itself as a "do-it-yourself business agency." The site offers small and medium-size firms services ranging from public relations to marketing and from sales to information technology. Visitors to the site can participate in 30-minute online workshops in each area for prices starting at less than $100. In the online public relations workshop, for example, visitors learn how to create and disseminate news releases without the hassle and expense of contracting with a PR firm or hiring a communications professional.
These and other online b-to-b companies have begun attracting the attention of Wall Street. In a March 1 IPO, for instance, Onvia.com shares were initially priced at $21, opened at $46.50, and closed at $61.50. Bizbuyer.com, having attracted $45 million in venture capital last year alone, is likely headed for an IPO of its own. Evidently, investors are taking the expansion potential of the online b-to-b market seriously.
"Most of our development – more or less 60 percent – has been in b-to-b," says Ralph Armijo, CEO and president of Navidec, a leading Internet development and consulting company based in Greenwood Village, Colorado. "I think b-to-b is a very significant driver because it has a more significant impact [than b-to-c e-commerce] and offers businesses a cost reduction. It will help them garner market share in nontraditional ways. It helps link them to other businesses and customers."
Mr. Armijo started Navidec in 1993 after working in the computer industry for 18 years. What began as a value-added reseller developed into a full-service e-commerce consultancy once he recognized the Internet’s imminent evolution from a tool of government and education to a distribution channel for businesses. He merged with a software company that focused on the Internet in 1995 and has since focused on the Internet as a developer of e-commerce solutions and services.
"Within the construct of providing e-commerce solutions, we consult, build, and manage," Mr. Armijo explains. "On the consulting side, we talk to all aspects of management. If you only have one part involved, your probability for success is reduced significantly. With building, we’ll collaborate with the customer as if we were building a home. We’ll provide blueprints of the whole project and set a schedule. Just as when you build the first room in a home you have to integrate into the 50th room, we architect the whole Internet initiative and develop a 90- to 100-day schedule of implementation. Time to market is probably the primary driving factor in today’s e-commerce initiatives."
Mr. Armijo in fact is so confident of the online b-to-b market’s potential that he has created a dot-com incubator at Navidec. Having launched companies in the automotive and financial industries, Navidec is currently incubating a b-to-b service in the agriculture industry. While he receives upwards of one business plan a day from people requesting technical or strategic support with a start-up, Mr. Armijo says he accepts less than 5 percent of proposals.
He says a successful b-to-b start-up, like any Internet start-up, must have industry knowledge and expertise, personnel to run the business, money to finance operations, and the technology to bring everything together. To the companies that meet these criteria, Mr. Armijo preaches patience. The evolution from ordinary business to successful e-business, he says, involves a four-step process.
"The biggest pitfall is expecting too much too soon from a site," he explains. "You need to understand where you are in the business transformation curve – the life of every company on the Internet. Every company starts by knowing it needs to be there; then it moves into the prospecting stage, interacting with customers or suppliers. Then comes business integration, where, for the first time, you have return on your investment. Transformation, the final stage, is a whole new business paradigm."
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