While selling books and CDs online was revolutionary, it wasn't exactly rocket science. But now that parts for rockets and other complex products and industries are being traded online, the applications that enable these exchanges must be up to the task--even if it takes a few rocket scientists to figure it out.
Online marketplaces and exchanges have been slowly creeping into industries of all kinds since MetalSite, an online exchange for the steel industry, first opened its virtual doors in late 1998. At last count, AMR Research of Boston estimated that there were an astounding 600 exchanges in 39 vertical industry segments.
This first wave of B2B entrants, which includes the aforementioned MetalSite, along with such heralded exchanges as ChemDex (recently renamed Ventro) and Altra, which AMR anointed tops in the oil and gas industry, have focused primarily on the straightforward buying and selling of hard goods--manufacturing equipment, spare parts, even standard office supplies--over the Internet. Sounds relatively simple, but this is no mean feat when you consider the technological and cultural hurdles associated with coaxing companies into altering lifelong business processes. Not to mention the
often-onerous task of transforming dog-eared product catalogs into searchable Web pages.
However, as we enter B2B Phase 2, the game is changing dramatically and aggressively. Transactions are still at the heart of any exchange of note, but the nature of what is being purchased is moving in a decidedly different direction. Several ambitious start-ups entering the market in their respective industry segments, as well as established exchanges looking to compete for customers and survival, are facilitating the purchase of highly complex products and services. In addition, they're adding on extras like business-intelligence services and consolidated billing and invoicing. And they must. Of those 600 exchanges, AMR's research indicates that even the best and most heavily trafficked account for less than 1 percent of the B2B activity in their
respective vertical segments.
"The race is on to implement value-added services in these exchanges," says Randy Covill, AMR senior analyst for
e-commerce strategies and applications. "A business based purely on transaction fees will only work for huge volumes, which none of the exchanges have right now, so they're all trying to figure out what services they can offer directly, or even through suppliers that will fill out their business model."
Moving beyond the catalog metaphor
Clearly, exchanges are moving beyond the online catalog metaphor, particularly those that are gunning for complex industries. However, doing so effectively requires elements that weren't always a part of the initial B2B market-maker philosophy, not the least of which is intimate knowledge of the sector being served. Consider the tricky issue of complying with federal environmental regulations, a tremendous concern for just about any large company. The idea of procuring goods and associated services online to address that may seem preposterous, unless you happen to be chatting with someone at Blue292, a Durham, NC-based B2B start-up focused on providing environmental health and safety products and services.
This Southern-style exchange was founded in 1997 and
is currently conducting a so-called "soft launch" with about 50 suppliers and a handful of high-profile buyers that includes General Motors and chemical giant Reichold. Obviously, its raison d'?tre is to help organizations stay within the environmental letter of the law by offering the products necessary to conduct environmental tests as well the certified service providers to do so.
In addition, foreshadowing the increasing desire of many
exchanges to fade into an organization's computing woodwork, Blue292 wants to be such an integral part of both its buyers' and suppliers' workday that they can't help but use it. One way the exchange intends to accomplish this, according to Susan Acker, Blue292 CEO and president, is by integrating with various calendaring applications. The result; notifications as to when the Feds need proof of compliance are always at the ready for buyers, as is a quick link to the appropriate suppliers within Blue292's network.
While this all sounds sensible, not to mention clever, convincing its target audience that Blue292's team has the know-how to pull it off has sometimes been a tough sell. After all, a missed filing or noncompliance can result in big fines at best and bad publicity at worst. And the pervasive image of the
arrogant barn-storming dot com CEO doesn't help either.
"Domain expertise is clearly required here. Companies are not willing to hand this off to kids with tattoos," Ecker says. "Our four founders all come from the environmental field, and we have also intentionally added several 25-year veterans to our staff who have the combination of knowledge and experience the companies that are participating in our exchange need."
This sentiment is heartily echoed by Anthony Lye, president and CEO of ePeople, an online marketplace for technical support services based in Sunnyvale, Calif.; the company changed its name from NoWonder earlier this year. Lye himself is a relative old-timer in the tech support field, having held senior
positions at both Remedy Corporation and Tivoli Software, and his core management group consists of tried-and-true computer company executives who have lived and breathed the offerings ePeople is peddling.
But aside from the experience of its leaders, ePeople has something else in its hip pocket that this new breed of service-oriented B2B exchanges must have--a portfolio that does more than just broker a particular service or product. Lye says simply bringing buyers and sellers together won't cut it anymore as the world of B2B e-commerce moves forward. Blue292's plans to do the environmental thinking for a company by integrating with the desktop exemplify this philosophy.
As for ePeople, it has addressed the value-add conundrum by developing a slew of business offerings that essentially run off the same infrastructure but that are engineered to serve a wide variety of companies, as well as consumers, in terms of both size and needs. The first service, and the one ePeople is currently best known for, is a standard online marketplace to which companies in search of outsourced technical support can go for either full-time service or special events, such as the increased support demands brought on by an unruly computer virus.
Ancillary marketplace services include a business-intelligence offering through which organizations can drill down into the
exact kinds of questions their support staffs are being asked so that they can determine where resources should be allocated. In addition, ePeople provides consolidated billing for buyers who are using more than one service provider and, likewise, consolidated invoicing for its 15,000 registered suppliers. On the side, individual consumers can bid for technical support at ePeople's Helpdesk Online, and, to flip the coin, large corporations can build branded "help" sections on their own Web sites, again,
using ePeople's infrastructure.
"We knew that to survive long term we had to move beyond being a standard dating service," says ePeople's Lye. "We had to also help companies sort through the complex attributes that come into play when they pick a service provider, and, of course, we also had to streamline and improve the entire process for all parties."
As Lye so eloquently notes, offering value for all parties, not just buyers, is another change rippling through the B2B world. Gone are the days when marketplace executives could decree that suppliers participate or risk extinction. And this is particularly so as the new breed of B2B exchange attempts to lure suppliers who may have highly specialized skills, services or products to offer online but who may not be so savvy when it comes to the Internet.
This is an obstacle BlackHog, a
recently hatched exchange for the capital equipment industry, is currently facing head-on. What BlackHog brings to the table is a way for both the suppliers, who make parts for chip-manufacturing equipment, and buyers, the companies that make the equipment
itself, to manage a horrifically complicated and ever-changing process.
According to Louise Funke, BlackHog's vice president of business development, participants on both sides are at the mercy of every changing chip specification and market demand. This translates to parts orders that may change numerous times in just one 24-hour
period. And to make them even more difficult to keep up with, order alterations are typically conveyed via a quick phone call, voicemail message or fax.
A Web-based exchange, from the outside, would appear to make a tremendous amount of sense, but that's from the outside. In some initial focus groups, BlackHog learned that many suppliers weren't comfortable using the Internet and were extremely concerned about competitive pricing pressures. Given that information, BlackHog's management team and developers, all of whom hailed from the semiconductor industry, took the time to build serious tracking tools for suppliers to help them keep up with changes electronically, which means late fees are avoided and parts arrive on time.
"We literally spent hundreds and hundreds of hours at these plants to understand how people work and then we designed the exchange around that," says Funke. "We also wanted to be sure we provided benefits for everyone by looking at the entire procurement cycle; not just quotes, not just the order, but the whole cycle." BlackHog is also conducting extensive training programs to help buyers and suppliers get it right the first time out of the gate.
Like many an exchange, BlackHog is just barely out of the gate. The company launched a beta trial in June in which 12 suppliers and a couple of major buyers, like PRI Automation, participated, so it's still far too early to know what its impact will be. And that goes for the entire B2B market. After all, the
elder statesmen of the movement have been around for less than two years, and the creation of exchanges for complex services, products and processes, like some of those spotlighted here, has truly only just begun.
"We're still in an experimental mode
because this is an early, early market, which means there will be lots of innovation and a few duds in the coming months," says AMR's Covill. "But there will be some real benefits, too.
"If these exchanges can pull off things like giving sellers opportunities to differentiate their offerings and buyers the
opportunity to comparison shop for parties they trust," Covill continues, "as well as true industry collaboration, everybody wins big."
Whether exchanges will deliver on the promises Covill outlines clearly remains to be seen. But one thing is for certain: It's the end of the world as we know it, at least in regard to the existing B2B model. Or perhaps an exciting new beginning.
SIDEBAR1 HEADLINE: Boeing Puts Smarts Online
For Bob Ott, manager of the product and technology licensing groups at Boeing, drumming up business is a tough proposition. Ott and his team are in charge of finding new revenue streams for the company's internally developed technologies, which means stumbling across the right person at the right company with the right project. So when yet2.com, an intellectual property marketplace, launched this February, Ott decided to give the freshly minted marketplace a try.
As for results, Boeing hasn't had many nibbles yet. To date, only one unnamed company has expressed interest in licensing a Boeing technology listed in the exchange. However, Ott believes it's only a matter of time. "You have to remember that yet2.com is only six months old, but we believe there will be big benefits in the future," he says. "Right now, it takes between 12 and 24 months to finalize a licensing deal, but the exchange will help accelerate this process and will probably generate other opportunities as well." --S.R.W.
SIDEBAR2 HEADLINE: Attributes Made Easy
Naturally, new kinds of B2B marketplaces need new kinds of technology. And that's where Phoenix- based Hologix comes in. The company's Attricom product line, as officials there describe it, takes over where the typical online catalogs in an exchange end by allowing companies to post complex parts and services. It does so by first creating what amounts to a detailed map of a product or service's components, then digitizing that information, and finally making it available for searching, bidding and purchasing on the exchange.
Once this initial information is built, attributes can be added or changed on the fly with no programming required. "As marketplaces become more competitive, they need the ability to add broader arrays of services quickly," says Hologix's vice president of marketing, Adele Revella. "Our product lets you integrate everything from advertising services to complex metal sites."
So far, Hologix has signed up several public exchanges, including the Global Textile Network and a metals marketplace, Aluminum.com. --S.R.W.