PC EXPO: The rise of business-to-business portals

If you're searching for the next sweet spot in electronic commerce, you need look no further than business-to-business portals which are set to emulate the success of consumer Web portals such as Yahoo and Excite.

If you're searching for the next sweet spot in electronic commerce, you need look no further than business-to-business portals which are set to emulate the success of consumer Web portals such as Yahoo and Excite.

A panel discussion yesterday at the PC Expo trade show looked forward to substantial growth in the business-to-business portals markets which at present only consists of a handful of vendors. A portal is a Web site that acts as an initial entry point to other resources on the Internet.

One example of the next wave of 'Net business-to-business portals success stories is Ariba, which went public yesterday, according to panelist Henry Blodget, senior Internet/electronic commerce analyst for Merrill Lynch. Ariba's shares were priced at $US23, but opened trading at $63 and closed today at $90. The company specialises in aggregating the purchasing of supplies not related to production. Blodget said the company is currently ideally placed to create a standard in the embryonic market.

The business-to-business portals market will consist of three key areas, according to panelist Kevin Jones, founder and editor of Net Market Makers, a consultancy and producer of a newsletter which concentrates on tracking the development of 'Net vertical markets.

First, there are exchanges where buyers and sellers can make connections with each other to carry out transactions. Then, there are situations where transactions are a good deal more complex and so require someone acting as a buyer's agent to normalize the data. Finally, the portal can be used as a way to generate sales leads, Jones said.

"There is something broken in each industry and business-to-business portals are about what the Web can bring together in each industry," he added.

"We in the business-to-business portals market are currently at the stage that consumer portals were at in 1994," said panelist Mark Walsh, chief executive officer and president of VerticalNet . VerticalNet is a publicly held company which runs 40 different vertical industrial 'Net communities ranging from oil and gas to dairy, and solid waste to food packaging.

Walsh stressed the importance of realising the gap between the consumer online experience and that of industry sectors. "The Web has had a tsunami (tidal wave) effect on consumers, but there are still huge pockets of industrial behavior that it has never touched," he said. Some of VerticalNet's customers are still using 386 computers and using phone lines for their fax machines, Walsh added. Such customers have asked VerticalNet to set up and operate Web sites for them and the company currently runs 300 such sites, he said.

In some cases, the best way to bring the 'Net more fully into industrial sectors is to hide portals inside existing applications, for instance embedding them within decision support software, so that users' experiences aren't altered, said Jones at Net Market Makers. "The Web needs to be invisible," he said. "You're working against entrenched behavior, so you have to find a way to outfox it and sneak it in."

Another area where consumer portals and business-to-business portals diverge is over the role of middlemen. For the most part, consumer portals have been all about eliminating the middlemen in order to realize substantial cost benefits, for example in the case of online bookseller Amazon.com Inc.

"Lots of times in industry middlemen do add value," said VerticalNet's Walsh. "You don't get out of the Trojan horse until you're in the castle. If you declare war before that, people close ranks and try to screw you instead."

Michael Levin, founder, chairman and CEO of e-Steel, an electronic exchange for the steel industry, also stressed the need for maintaining value-added intermediaries in business-to-business portals. "It's problem solving and efficiency that drive the business, not technology," he said.

One of the concerns around portals is whether they can be profitable. Again, in the business-to-business space, it comes down to the difference between the consumer and industrial markets. "In the consumer market, there are no margins and no loyalty, but in business-to-business, people still believe in margins and still have loyalty," said Walsh at VerticalNet.

VerticalNet currently makes its revenues through a variety of models including advertising revenues, selling Web storefronts for $6,000, selling software and getting a percentage of sales made during online auctions that the company hosts, he said.

Levin's e-Steel receives seven-eighths of 1 percent of every steel transaction occurring on the company's Web site.

Although the focus on business-to-business portals today concentrates on vertical industries, there are some possibilities for horizontal portals. VerticalNet's Walsh cites HR (human resources) as one example. "If you ask any HR person what they do, they won't say 'I work for such and such a company,' they'll say 'I work in HR,'" he said. "They band together -- it's cross-industry behavior."

Business-to-business portals can help companies previously ignorant of each other's existence to strike up new relationships, Walsh said. Of the 40,000 leads VerticalNet received in April through the vertical storefronts it runs for its customers, about 20 percent resulted in product sales. Half of that 20 percent were vendors that had never done business with those companies before, he said. "The 'Net is acting as a new connector for buyers and suppliers that had not found each other before," Walsh added.

The 'Net can also be a great leveller of borders, with Walsh estimating that about 40 percent of the traffic on VerticalNet's site currently comes from outside the U.S. "There's a thirst for information, detail and transactions among second-world economies," he added.

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