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ECommerceTimes.com

B2B Marketplaces Face FTC Scrutiny

By Paul A. Greenberg
Mar 29, 2000 12:00 AM PT

The honeymoon may be over for business-to-business (B2B) e-commerce, as a source close to the U.S. Federal Trade Commission (FTC) has publicly called for active enforcement of antitrust laws as they apply to the sector.

B2B Marketplaces Face FTC Scrutiny

While speaking to the First Annual Big Bang conference this week, Bert Foer, former assistant director of the FTC's Bureau of Competition, confirmed that the FTC has begun an investigation into the new online auto exchange that was recently announced by the big three U.S. automakers.

Foer said the main concern over such exchanges is that they could ultimately deter competition by controlling pricing.

While the venture is supposedly open to all comers, Foer said that members may end up being charged inordinately high prices and commissions that will eventually return to the Big Three as profits. The upshot would be that those who participate in the marketplace -- but do not share in the ownership -- will not share in profits despite having created them.

Furthermore, Foer said, the size and global influence of marketplaces make them potential monopolies.

Implicit in Foer's comments is the possibility of more stringent regulation by the FTC, an outcome that would limit the autonomy that the Internet has offered businesses so far.

B2B Marketplaces: Hope or Hype?

Many industry experts believe that business-to-business electronic commerce will be to 2000 as business-to-consumer e-commerce was to 1999, but at what cost?

Even if the future of e-commerce belongs to the B2B sector, some say that near-instantaneous growth is creating conflicts and problems that even the savviest online observers never imagined.

Chief among these worries are governmental regulation of the Internet and increased scrutiny of new alliances among what were once highly competitive companies. The FTC has so far treaded relatively lightly, intervening only in such extreme circumstances as the recent DoubleClick consumer privacy debacle.

Joining the Revolution on Impulse

Partly because of the lack of government restrictions, a number of companies are making the leap to join B2B marketplaces before considering all of the ramifications.

In response, GartnerGroup analysts Carl Lenz and Dan Miklovic have warned their clients that joining a marketplace just to make fast money on the stock market is ill-advised.

Some of the new exchanges, such as the one created by the automakers, are established as operations independent from any of their owners' core companies. Therefore, they will likely be taken public at some point. On the outside chance the marketplace does not live up to its hype, companies could find themselves left with high-ticket infrastructures that do not support their needs.

"Users should look beyond the hype and select marketplaces that have intrinsic value," Lenz and Miklovic said.

First is Not Always Best

The problem, according to some observers, is simply that companies fear being left behind if they do not jump on the B2B bandwagon while the concept is still in its infancy.

Skeptics are taking a wait and see attitude toward the companies that are leading the B2B revolution, including Commerce One, Ariba and Oracle. After all, they reason, it is way too soon to see quantitative results of this initial organizational period. Since the Internet moves at such great speed, any doubts will either be realized or quashed within months.

B2B Still Shows Promise

One element that may fuel the success of B2B e-commerce is that businesses are communicating to suppliers that online transactions are required, rather than optional. Even before the automakers joined forces, Ford and GM had already made that concept clear to all of their suppliers.

Right now, big business intends for B2B marketplaces to fully live up to their current great promise of cost savings and profitability. GM expects to save as much as $500 million (US$) a year through the online exchange, while its suppliers should benefit from lower selling costs and access to more buyers.

Furthermore, the sheer pervasiveness of B2B commerce may enable it to prevail -- Goldman Sachs predicts that B2B transactions will account for nearly 11 percent of the total business economy by 2002.


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