E-commerce hubs: Channel shopping

While the shine may be wearing off business-to-consumer Internet ventures like Freeserve and, investments are still piling in to business-to-business (B2B) plays. And it’s not just venture capitalists funding dotcom startups-although plenty of that is happening. Giants of the bricks and mortar world like Ford, General Motors and Boeing are getting in on the action too.

What’s got everyone so interested is a type of B2B site, the electronic marketplace or Internet trading hub. There is widespread agreement that this, finally, is the killer business-to-business application of the Internet.

The key advantage is cost reduction. Goldman Sachs estimates that costs could fall by around 20 percent in the computing, freight transport and metal industries thanks to better e-enabled procurement, by around 10 percent in aerospace and chemicals, and by 5 percent in the food retailing industry thanks to B2B e-commerce. And that’s just in some of the industries affected in the first wave. Other savings could come later as new ways of trading start having an effect further back in the supply chain-in agriculture, for example.

These things are so new that the jargon hasn’t stabilised yet, so you’ll also see them called e-markets, trading portals or B2B exchanges. But the essentials are the same-a site that provides a particular industry or group of professionals with a range of content, value-added services and the opportunity to make contact with trading partners. Some sites go a step further and allow you to complete the transaction online.

The Build-Online site,, for example, is aimed at the UK and European construction industry. Visitors can buy and sell building materials and services, get supplier catalogues, read construction industry news and chat with others in the industry.

So far this sounds a bit like a traditional construction industry trade magazine, but in electronic form. That in itself marks a significant advance, as everything happens at electronic speed and without the usual constraints and delays imposed by geography. But the Internet makes it possible to go beyond the scope of any magazine. Build-Online, for example, has project management tools hosted on the site which groups of users can use to run projects collaboratively.

Build-Online is an example of a vertical e-market, targeting a particular industry. This is the most common sort of e-market but there are also so-called horizontal e-markets, aimed at particular group of professionals irrespective of industry, such as HR people, or a function such as transportation and freight.

There’s something of a land grab underway, as different companies and consortiums vie to establish their site’s dominance within a particular community. For example, Boeing and BAE Systems (formerly British Aerospace and Marconi) have launched a site to compete with, set up earlier this year by United Technologies and Honeywell.

In the horizontal freight market there are several competing trading portals for companies requiring transport or hauliers offering it-eLogistics at is a UK-based example.

The jury is still out on whether it helps to have strong backing from an existing industry titan such as Boeing or General Motors, or whether more people will come if the site is perceived to be independent. The key thing is to get critical mass fast, so your site is the place everyone comes to do business.

In some industries e-markets have already achieved considerable success. Altra Energy, whose site,, is based in Texas, claims to be on target to handle about $12bn of transactions this year in various energy markets, and to already account for around half the liquified natural gas transactions in the US.

The Band-X site,, is probably the great British e-market success story, but is little reported as its area of activity is rather technical. It helps telephone companies, Internet Service Providers (ISPs) and large corporates to trade bandwidth-telephone capacity. It already has most of the major telcos signed up as members.

Because of the nature of the product Band-X can do much more than put potential partners in contact-it can often execute the transaction as well directly from the site. It has a big cluster of Cisco routers and switches located in London Telehouse, a Docklands facility also used by many of its clients. This allows the trading of unwanted Internet protocol (IP) capacity to occur in real time. Band-X makes money by taking a (low) percentage cut of the value of the bandwidth traded.

The typical electronic trading hub will have a variety of ways of making money. As you’d expect from their similarity with specialist magazines, advertising and sponsorship are very common. Some sites also require sellers and sometimes also buyers to pay a subscription fee-usually fairly low as most sites are desperate to build business quickly at the moment.

But the holy grail is to charge a commission on transactions initiated on the site. This may not be easy to do-Band-X is in an unusually fortunate position here. Other sites not so directly involved in delivering the product or service may find transaction charges a lot harder to police.

Nonetheless, there is a major opportunity here, not just for participants in the main types of transaction going on at a particular site but for anyone else offering some good or services to the same community. The scale of it all is quite daunting-analysts are coming up with some very bullish figures.

Forrester Research expects to see $1.4 trillion of business conducted via e-markets in the US alone by 2004. And Durlacher Research estimates that $408bn of European business will pass through trading communities by that date. That’s equal to just over a third of all business-to-business transactions, and the equivalent of 4.1 percent of the GDP of the 15 core EU members.

The arrival of Internet-based electronic marketplaces really is one of those “disruptive changes”, “paradigm shifts” or “strategic inflection points” that the gurus love warning us about. Ignore it at your peril.

See websites for free reports.Return to the Management Consultancy website

Ian Stobie is research editor of Computing

Free reports

Dataquest: The E-Market Maker Revolution.

Short 20-page report describing the main types of trading hub, the services they offer and their business models. Download free from the Net Market Makers site,, which is itself a useful resource.

Goldman Sachs: B2B: 2B or not 2B?

Excellent, long, comprehensive report. This describes not only many of the sites but also the companies providing infrastructure to them. Free from ,

Durlacher Research: Business-to-Business e-commerce: An Investment Perspective.

The most recent of these reports, published in March 2000. Durlacher prefers to call e-markets “online intermediaries”. Strong on European examples and good country-by-country breakdown. Free from ,

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