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Special Section: B2B

4 Predictions

How Will B2B Companies Change In The Next Few Years?

By Clint Willis

Today's B2B e-commerce exchanges seem like pretty hot stuff--but so did IBM's first adding machine and VisiCalc's first spreadsheet. A few years from now, we'll recognize that the current state of B2B e-commerce is primitive indeed. Ask Mark Walsh, president and CEO of B2B heavyweight VerticalNet: "The industry today is in the Stone Age compared to where it's going."

And where exactly is it going? We made the rounds of B2B analysts and industry participants and asked them to identify trends that will shape the B2B sector in the years to come. Here's what they came up with:

Prediction No. 1: Web-based market makers will become full-service providers. Currently, sites often choose a single transaction model--whether auctions, exchanges, catalogs, or requests for quotations (RFQs). But Forrester Research notes that three-fourths of B2B exchanges plan to add additional transaction models by 2001. "I see reports arguing which model is better, but that's a useless debate," says Melissa Shore, B2B analyst with Jupiter Communications. "Most sites will need to do auctions, exchanges, and catalog aggregator models."

Vertical and horizontal market makers will find new revenue models as well. Currently, most derive cash from a mix of fees per transaction, site advertising, and subscriptions. Down the road, however, transactions will become a commodity as market makers will lower their fees to generate liquidity. That's why they'll make bigger and bigger chunks of their money by providing services, such as logistics and fulfillment, and charging marketplace participants for data about buying and selling patterns.

No. 2: Distinctions between open and closed markets will blur. Automakers, paper companies, and other Old Economy stalwarts that are creating Web-based marketplaces may start out limiting participation, restricting it to themselves and their suppliers. But that won't last. "Brick-and-mortar firms increasingly will realize that they must allow their competitors to participate on their exchanges and add more transaction models--because that is what the suppliers will demand," says Craig Wood, B2B analyst at Banc of America Securities.

No. 3: E-commerce will swallow the entire supply chain. Contrary to popular belief, you can't do it all at e-marketplaces. Most of them are primitive entities that can't begin to handle logistics, real-time inventory control, or payment services. That will change over the next three to five years: By 2005, most buyers' and sellers' internal procurement systems will be capable of linking to one another directly or via Web-based marketplaces. That will allow them to plan production schedules jointly and provide just-in-time manufacturing. Companies that offer logistics such as shipping and fulfillment also will be in the network.

All of this means that software companies that make supply chain management applications--like i2 and Manugistics--will flourish, because linking up Web marketplaces is a natural extension of what they've been doing for years. Meanwhile, electronic data interchange (EDI) companies such as Harbinger and Sterling Commerce (bought by SBC Communications) also will benefit--along with newer firms like XML Solutions. They'll help firms adapt their existing EDI systems to perform the new functions.

No. 4: Most of today's B2B marketplaces will disappear. Sites with the best technology, partnerships, and content/community features in a particular industry will generate the most liquidity and take control of their respective markets. The rest will disappear or get bought by the winners. "This is going to happen rapidly--over the next 12 months," predicts Scott Alaniz, Internet analyst at Stephens, an investment bank. CSC Consulting's Gary Meshell goes further, predicting that three or four companies will control most of the B2B e-commerce segment by 2004. He picks VerticalNet, Ariba, Commerce One, and Oracle. These meta-market makers will do it all, providing technology applications like cataloging and auctions, as well as aggregating the marketplaces that employ those technologies.