Industries as diverse as oil, cars, steel and the legal profession are taking procurement online, establishing B2B marketplaces whose aim is to simplify and bring down the cost of buying goods and services. The Gartner Group predicts that the number of B2B online marketplaces will grow from a few hundred today to over 10,000 in the next two years. But are these marketplaces delivering what they promise? And, more importantly, how are they affecting the average salesperson? Perfect.com, developer of an automated request for quote (RFQ) process it hopes to sell to online marketplaces, thinks it has the answer.
Kevin Surace, a veteran of software maker General Magic and Perfect.com's CEO, says 98 percent of online marketplaces today are poorly run. Most offer competition only on price, he says, which can be disastrous for a salesperson. A salesperson who previously prepared five to seven quotes a day for a restricted geographic region could be overwhelmed by what Surace calls "the fire-hose effect," or thousands of requests for quotes to which the salesperson has no way of responding. "All those things that used to count, like service and quality, don't count anymore," says Surace.
Based on the theory of Paul Milgrom, a stanford University economist, Perfect.com's automated RFQ process aims to create a perfect market on the Internet. A textbook perfect market is one in which buyers and sellers can meet and get full information about supply and demand, where there are no barriers to access and where each buyer is matched with the seller who most closely meets the buyer's needs.
Traditionally, markets have been far from perfect, but the closest we've come is the RFP or RFQ process, in which the government or a large company spells out its needs in a hefty request for proposal, and potential suppliers reply with an equally detailed and lengthy document. However, all but the biggest suppliers have been excluded from this expensive and time-consuming process.
Perfect.com's patented technology creates an automated RFQ process. Buyers logging onto a B2B e-commerce site "powered by Perfect" will be able to describe what they want in many different dimensions, specifying such things as speed of delivery, supplier's reputation and warranty period, as well as price. Suppliers also fill out a form on the Internet, setting up rules that will govern how their bids can change to respond to the requests that come along.
The process consists of three steps. A company that wants to buy advertising, for example, would choose a type of media (let's say a television ad), then choose an audience profile and finally adjust priorities with a set of on-screen sliders indicating the importance of things like price versus demographics. The buyer is automatically presented with a list of suppliers and can click through to buy. Suppliers can run simulations to see how changing the rules they set would affect their win rate.
"This way, salespeople can compete on value, not just price," says Surace.