An Introduction to
Business-To-Business
Internet Trades
Zhangxi Lin
December, 2000
Outline
Electronic Commerce and Internet
Technology
 Business-to-Business (B2B) Models
 Peer-to-Peer (P2P) E-Commerce
 B2B Forecasts
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Sources for B2B

US Federal Trade Commission

Workshop on B2B Electronic
Marketplaces (June 29-30, 2000, 600+
participants, organized from 200+
sources, 30 statements submitted)
www.nmm.com
 Cnet news
 Technews

Three IT Adoption Waves
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The first ripple occurred in the 1980s, when
many businesses reluctantly adopted computing
to improve productivity.
In the 1990s, change accelerated when the
powerful tide of client/server computing brought
new capabilities to businesses, allowing them to
compress value chains and expand reach.
Today, the third wave, Internet computing,
presents a clear set of incentives driving far
more rapid adoption than the two previous
phases.
Company IT Adoption
B2B Dictionary
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B2B, B2C and C2C
ASP (Application Service Provider)
CRM (Customer Relationship Management. An
application system.)
EDI (Electronic Data Exchange)
Fulfillment (The act of physically getting a
product to a buyer)
Hosts (e-market makers)
Functional Hubs (A way to describe horizontal
products and services.)
Five B2B Generations
EDI (Buyer-centric)
 Storefronts (seller-side systems)
 Buyer-driven Procurement (Buyerside systems)
 Net Markets, Independent or
Coalition
 Hosted Private Market

Net Market (4th Generation)

Net Markets are online intermediaries
where many buyers and many sellers can
congregate to trade. Net Markets
essentially match buyers and sellers using
a variety of market mechanisms including
auctions, catalogs, and Nasdaq-like
exchanges. The first Net Markets were
independent entities, often funded by
venture capital, which sought to be
neutral intermediaries between buyers
and sellers.
Net Market Model
Private B2B Marketplaces
(5th Generation)
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The latest model to emerge has been that of
private marketplaces, defined as areas within
independent or coalition Net Markets in which
specific buyers can interact and trade with
designated sellers, or vice versa. Private
marketplaces use the technology infrastructure
of the Net Market to create essentially direct
connections between buyers and sellers. This
system saves infrastructure investments for
buyers and suppliers and offers additional
revenue sources for Net Markets.
Three B2B Ownership
Models
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Third-party exchanges, e.g. Ventro and
FreeMarket
Consortia-led exchanges, e.g. Covisint
Private/Proprietary exchanges, e.g. Dell
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> 745 B2B exchanges have been announced
in the first half year of 2000
93% are of the third type
Business Models for
B2B Intermediaries
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Catalog:
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Exchange:
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Tradex
Auction
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CommerceOne and GM’s TradeXchange
FreeMarkets
Negotiations
Vertical vs. Horizontal
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Hub types:
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Vertical (e.g. VerticalNet, PlasticsNet)
• Serves a vertical market
• Requires industry knowledge and
relationships
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Horizontal (e.g. MRO.com, Adauction)
• Provides same function across industries

Which one will win? 
URL’s
www.CommerceOne.com
 www.Ariba.com
 www.Tradex.com
 www.FreeMarkets.com
 www.VerticalNet.com
 www.PlasticsNet.com
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Case 1 - PlasticsNet
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Operator of vertical trade communities for
the plastic industry
Founders came from plastics instead of
technical background
Goes from a BBS to B2B communities
High-margin transactions:
5—10% commission
Case 2 - FreeMarkets Online
Inc.
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Pre-select qualified suppliers
Assess, evaluate & short list
Conduct global online auctions
Helping companies with RFQ for custom
components
3000 companies from 45 countries
participate in
Operates about 70 different vertical
industries
$7 million in 1998 commissions
Case 3 - Aeroexchange
A consortium for 13 airline
companies
 offers airframe, avionics,
maintenance services, and general
goods and services
 With web-based applications
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Case 4 - Covisint
Created by Ford, GM and
DiamlerChrysler
 For trading automobile related goods
and services
 Attracts 20+ buyers and suppliers,
such as Nissan, Renault and BASF.
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Case 5 - Exotar
Formed by Boeing, Lockheed Martin,
Raytheon and BAE Systems
 For aerospace and defense industry
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Case 6 - DELL
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Michael Dell started his computer business in 1984
Dell Computer’s growth
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1985
1990
1993
1996
– $6 million
- $500 million
- +40%, but faced operating loss
- $7.8 billion
Dell’s direct sell (started in 1997)
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Order-shipping process 36 hrs vs. regular 75-100 days
Reduced suppliers from 204 in 1992 to 47
13-day inventory
Cash flow cycle reduced to 24 hrs comparing to Gateway
16.5 days and Compaq 35 days.
Direct monitor shipping from suppliers
Efficiencies of B2B
Electronic Marketplaces
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A survey conducted in spring 2000:
Only 1% companies are conducting ebusiness through their websites.
 80% B2B processes are still manual,
and 20% considered automated are
actually not yet.
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B2B Efficiencies
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Administration costs
Search costs
New markets
Maverick purchasing (buying occurs outside the normal
channel)
Joint purchasing
System integration (with the legacy system)
Supply chain management (from push marketing to pull
marketing)
Collaboration (Outsourcing product design), joint channel
of distribution
Middlemen (the new service particularly for small business)
B2B’s Attributes
Huge market opportunity
 Financially light business model
 Scalable
 Acquisition cost effect
 Sticky products
 Multiple revenue stream
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How B2B Companies Make
Money?
Sales of products
 Service and maintenance fee
 Transaction fee and listing fee
 Advertising
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Peer-to-peer E-Commerce
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P2P history
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Napster was set up as a network of PCs with a central
server acting as a clearinghouse. It primarily facilitated
exchange of MP3 files and grew to be popular in a very
short time.
Although Napster has suffered in the lawsuit against its
copyright problem, a large number of other P2P
networks are flourishing without centralized servers. So,
no target to be attacked.
E.g. Gnutella by Nullsoft, shares all type of information.
Freenet by Ian Clarke, is a more efficient decentralized
P2P platform.
Why P2P So Hot?
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It provides a technology that allows people
search for and retrieve files from individual
computers around the world.
A June article in Fortune magazine dubbed file
sharing “the hot idea of the year,” alerting
investors to a trend that would “revolutionize
infotech and reinvigorate the PC industry.”
P2P will likely seep into B2C and B2B ecommerce and fuel demand for the services.
The Power of P2P
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The key idea of P2P is decentralization
with two characteristics:
Load balancing (like distributed cashing)
 Effective searching (e.g. InfraSearch)
Users are active in P2P, while in a typical
Internet application users are passive and not
provide information to the network.
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P2P in B2B
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Using P2P in B2B can avoid
problems rooted in the web-based
centralized e-market architecture.
Issue for P2P in B2B
Distributed authentication
 Confidentiality
 Standards
 Information asset protection
 Peer qualification
 B2B Services charged for P2P
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Key Comments on P2P in
B2B
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Standards are critical
How P2P drives real value in B2B
The borderless economy will be
accelerated by P2P
P2P changes the Internet as the Internet
changed computing
It is difficult to maintain security
It is hard to make profit from P2P
Will P2P Companies Thrive
or Die?
Optimists: “P2P is going to be the
computing paradigm in the future.”
 Detractors: “P2P companies will
never make good revenue because
the essence of file sharing is
contrary to file selling and profits.”
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Online B2B Growth
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Total US B2B non-service trade will rise from
$11.5 trillion in 2000 to $15.1 trillion in 2005.
The Internet's share of total US B2B trade will
soar from 3% in 2000 to 42% in 2005.
Internet trade will grow more than 20 times in
five years from $336 billion in 2000 to $6.3
trillion in 2005.
In 2004, online trade will represent over 50% of
total B2B commerce.
By 2005, Net Markets will account for 35% of Bto-B online commerce as compared to 2% in
2000.
B2B Trade Forecast
Models for Trade Between
Buyers and Sellers
Net Market Online Trade
Penetration, by Industry
Online Trade Forecast: Top
Five Industries
B-to-B Online Trade
Forecast
Mapping Online Potential of
Industry Segments
Factors Driving Online Trade
Adoption
Stock Price (Commerce One)
New Economy Crisis?
Nasdaq
Crash
Hi-tech
Investors lose
confidence
90% Dot COMs
go bankruptcy
VCs Reduce
investment
Venture capital
companies (VC)
are hurt
The Future is Brilliant
Information Technology will continue
to exert profound influence in
economy growth
 The fluctuation will be finally
stabilized.
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