After a short run as a buzz phrase during the dot-com surge, business-to-business (B2B) exchanges have fallen below most people’s radar screens. In recent years, in fact, B2B sites and online trading hubs have most often found themselves in the headlines for the wrong reasons, such as when Enron’s energy-trading site became the focus of attention.
However, the truth is that B2B is quietly trucking along. The only difference between the vision of yesteryear and the reality of today is that instead of a few massive hubs, the Web is home to scores of smaller sites where businesses can trade their wares, reducing the expense, time and hassle of dealing with customers and partners.
In fact, some believe B2B is still in its relative infancy, only now hitting a second growth spurt as the cost of setting up secure and reliable trading sites plummets.
“Companies gravitate to online supply purchasing when they see it has real benefits for them,” Forrester Research analyst Jim Nail told the E-Commerce Times.
So, what is the best way for aspiring B2B exchange founders to go about building a hub? Experts say it is okay to dream big but better to start small.
Slow But Steady
Although the initial belief was that B2B would explode as firms embraced the Web with abandon, the reality, Nail said, is that online buying requires a cultural shift and process changes before it can be effective. “That takes time and patience,” he noted.
That is why the best approach may be to start slowly, with an idea that is workable and that fills an existing need. Do not expect customers to radically change their behavior as a condition of participating in a B2B exchange.
Aaron Keller, a partner with brand identity firm Capsule, which has helped launched several B2B hubs, said he has seen several projects fail because their decision-makers did not understand the market well enough. For instance, one Internet exchange collapsed because its target customers were on-the-road salespeople who were not accustomed to using wireless technology.
“They did everything by phone and in person,” Keller said. “Did the exchange fail? You bet it did. You can’t change behavior overnight.”
It’s Who You Know
A site’s partners and associates also may help determine its success, Keller told the E-Commerce Times. For example, a corporate relocation site he helped launch, which was eventually scooped up in an acquisition, succeeded because it won trusted partners to process payments and provide insurance and other services. Those partners, in turn, lent credence to the site.
In addition, whereas B2B hubs were once driven by high-tech companies or incubators that had grand plans to transform the entire business landscape, they are now more likely to grow organically out of a business or industry, according to University of Pennsylvania professor George S. Day.
Day found that 43 percent of independent hubs — those not associated with a company already in business — that existed in April 2000 were out of business by July 2002. He also estimated that of some 1,500 exchanges set up in 2000, fewer than 200 are likely to survive over the long term.
Find a Niche
However, the forecast is not entirely gloomy. Despite the demise of many once-heralded exchanges, numerous small, niche-oriented sites have sprung up in recent years.
That is exactly what happened with CharterAuction.com and its B2B arm, LegFind.com, an auction site that connects private plane owners with companies or individuals needing transportation. Founder Nate McKelvey built the site with the help of an employee and then began marketing it, mostly one-on-one, to charter operators.
Within six months, the company had brought 250 operators into the fold. It now has 700-plus. McKelvey projects revenue, which totaled $1.2 million in 2001, will hit $20 million this year.
That example, multiplied thousands of times across myriad industries, may provide a glimpse into the future of B2B, according to Forrester’s Nail. “Smaller companies are embracing the Web for purchasing, as are larger ones,” he said. “It’s just not happening overnight like some thought it might.”