Business-to-Business Ecommerce
Robert Chi
B2B EC Introduction
• Introduction
• Size of B2B
• B2B Business Processes
• B2B Evolution
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B2B Definition
• B2B is referring to business-to-business commerce
conducted over the Internet.
• The primary components of the B2B marketplace
include e·frastructure and e·markets.
• E·frastructure is essential architecture of B2B
consisting of:
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auction solutions software,
content management software, and
Web-based commerce enablers.
• E·markets are Web sites where buyers and sellers come
together to:
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communicate,
exchange ideas,
advertise,
bid in auctions,
conduct transactions, and
coordinate inventory and fulfillment.
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B2B Size
CAGR: Compound Annual Growth Rate
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B2B E-Commerce Revenues
http://www.tradeum.com/pages/frset-3forum_white.html
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Global B2B Market Opportunity.
That’s Thousands of Billions.
B2B On-Line Commerce Gross Revenue (USD B)
$5,000
$4,500
$4,000
$3,500
$3,000
$2,500
$2,000
$1,500
$1,000
$500
$0
Asia Less Japan
East Europe
Mid East/Africa
Latin America
Japan
Europe Union
NA Less USA
USA
1999
2000
2001
2002
2003
2004
2005
Source: Goldman Sachs
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B2B eCommerce Introduces Powerful Benefits
to Both Buyers and Sellers
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Lower transaction costs
Shorter purchasing cycles
Improve inventory control
Lower prices paid or higher price sold
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What Is Behind B2C? B2B
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B2C vs. B2B
B2C
B2B
Switching
Costs
Low with multiple
suppliers
High when integrated with efrastructure; few qualified
suppliers
Relationship
Type
Transaction
Type
Transactional
Long term, mission critical
Smaller average
selling price
Larger average selling price
Revenue
Model
Traffic volume is
critical; Large
customer base is key
Don’t need every customer, only
need the right customers
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B2B Markets Are Truly Global
• Multi-lingual, multi-currency
• Cross-border financing, taxation, customs,
regulations
• Complex shipping and logistics
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B2B Business Models
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Seller-side: Direct-sell
Buyer-side: eProcurement
Vertical vs. Horizontal
B2B marketplace
B2B consortia
Case studies
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Business Models Based on the Value Chain in the Market Place
Raw
material
producer
Exchange
• Independent
market
operators
• Consortia
Manufacturer
Distributor
C2B
New
Middleman
Retailer
B2C
Examples:
• B2B: Vericalnet.com
• B2C: Amazon.com
• C2B: Priceline.com
• C2C: eBay.com
Consumer
Service Providers:
• Logistics
• Financial
B2C
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C2C
Business Models: Multiple Dimensions
• Buy-sell direction: Buyer-side, seller side, and
marketplace
• Industry covered: single vs. multiple (Vertical
vs. Horizontal)
• Ownership: Buyer, seller, independent, software
vendor, consortia
• Service: Core vs. extended services
• Products: Core vs. MRO; Direct vs. Indirect;
• Pricing: Fixed price, Auction, Reversed auction,
negotiated
• Timing of purchase: Contact vs. spot vs. ad hoc
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Number of Sellers and Buyers
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Features of Various Business Models
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Seller Side B2B
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First Generation Model: Sell-side Solutions
• Benefits
– Reduced cost of sale
– Extended customer reach
– Enhanced customer service
Buyer
Supplier
Buyer
• Challenges
– Buyers must find individual suppliers
– Supplier’s process does not match
buyer’s purchasing procedures
– Buying power lost
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Direct Sales
• Selling Directly to Buyers from
Own Website
• Examples: Dell, Cisco
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Dell.com
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Dell
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Dell
• Implementing a B2B integration model offers a number
of advantages, many of which were deciding factors in
Dell’ s decision to pursue a B2B integration strategy:
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Fewer errors.
Improved customer satisfaction and support.
Improved inventory management.
Reduced time to market.
Improved manufacturer-distributor coordination.
Better outsourcing coordination.
Improved order management.
Tighter links with logistics providers.
Better delivery of information required for planning and
forecasting.
Value-add for customers.
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Cisco’s Business Web
Source: Digital Capital
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Cisco Systems Case Study:
Winning With the Force of Technology
Cisco
Gross Margin
Industry Peers
64.8%
47.6%
• 90% of orders booked over
Web
• Just starting to adopt Web
sales
• Enhanced supply
forecasting - better
component pricing and
availability
• Longer lead times due to
component shortages
• Enhanced demand
forecasting - rapid shift to
regional demand changes
• Outsourced manufacturing
(build to order)
• “Virtual Close” - updates
accounting on a daily basis
Note: Industry peers comprised of COMS,
• Slow to react to demand
shifts
• In-house manufacturing
(beginning to sell off
manufacturing operations)
• Accounting updated
weekly or bi-weekly
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Buyer-Side B2B
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Buy-side Solutions
• Benefits
– Reduced purchasing costs
– Buying power is captured
Supplier
Buyer
Supplier
• Challenges
– Supplier has to conform to buyer
purchasing procedures
– Only affordable by large companies
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General Purchasing Process
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Buy-Side Solution-Enabled Purchasing Process
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Functionality of the Marketplace
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The Cost Savings Created by Buy-Side Solutions
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Division of Corporate Spending (Typical Manufacturer)
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Buying Activities and Suitable E-Procurement Solutions
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Selected eMarketplaces Powered by eProcurement Vendors
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Ariba.com and Ariba Network
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Marketplace
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Overlapping Models Address the Unique Dynamics of Each Market
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Net Markets
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Many Buyers
Many Sellers
One Marketplace
Examples: Chemdex, VerticalNet, Altra
Supplier
Buyer
NMM
Supplier
Buyer
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Auction
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eBay Approach
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One Seller, Multiple Bidders
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Prices Move up Only
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Surplus Equipment, Inventory
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Dovebid Example
www.dovebid.com
Auction Example
Dovebid
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www.dovebid.com
Used Capital Equipment
Click and Mortar Spin-off
Bidders– Contact Sellers; Warrantees
Can Touch the Merchandise
Exchange
• Nasdaq-style Bid/ask
• Prices Move Up and Down
• Best for Commodities, Perishables
• Example: Altra Energy
Exchange Example
Altra Energy
www.altra.com
• Natural Gas, Electricity, Crude Oil
• Grand-daddy Site
• Bought Energy Brokerages
Critical Success Factors for e·markets
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Sustainable Business Model
Market Size (Large addressable market size)
Industry Domain Expertise
Structural Inertia: Fragmentation and technology adoption maturity in the
industry
First Mover Advantage - “land grab”
Branding
Community Features
Technology
Blending Revenue Streams
Management Execution Hustle & Expertise
Strong Partnerships for Distribution & Logistics
Neutrality: Neutrality has quickly become the “First Commandment” of B2B
markets.
Liquidity: The “holy grail” for every market maker, they must build a critical
mass (large number) of buyers and suppliers. No much behavior change and
adoption “spark”.
Going Public (if ready): Provides them with highly valued currency to quickly
grow their businesses through acquisition.
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