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The Evolution of B2B

• By Beth Gold-Bernstein
• January 1, 1900

It may seem like a misnomer to talk about evolution and business-to-business (B2B) trends in the same sentence. Darwin taught us that evolution happens over thousands and millions of years. B2B commerce, on the other hand, is evolving in Web time. Forrester Research has predicted that B2B commerce will grow from $406 billion this year to $2.7 trillion in 2004. It is a trend that few businesses will be able to ignore and still remain in business. However, even in this fast-paced business climate there seems to be an accelerated evolution occurring in the way businesses interact in the Internet age.

Business-to-business commerce is not a new idea. Large companies have been exchanging business documents electronically through electronic data interchange (EDI) systems for years. But EDI was expensive to implement, required special networks or VANs, and was therefore used only by very large organizations.

The Internet, however, offers a level playing field for electronic commerce between firms. Organizations can now agree on document formats, code them in eXtensible Markup Language (XML) and easily exchange information via the Internet. Yet XML only provides a platform-independent way in which to code a document. To conduct business over the Web, companies need to agree on how the business process will work.

"You need three things to become an e-business," said Vivek Ranadivé, founder and chief executive officer at Tibco Software Inc., Palo Alto, Calif. "You need to tighten up your own value chain so that it ties together seamlessly in real time; you need to extend your business processes to business partners; and you need to extend your business to consumers. And if it's not real time, then you're not an e-business."

Many organizations have been working to tighten the value chain through supply-chain integration. While these solutions define common business processes, they often suffer from the same issues affecting EDI: They are expensive, proprietary, take a long time to implement, and are usually deployed only by large companies.

But newer solutions are evolving to enable supply-chain integration through more standard Web mechanisms and XML. Companies such as Extricity, NetFish and Vitria Technology provide technology to support defining and integrating business processes that cross organizational boundaries. But the issue is still defining and negotiating common business processes.

"The really hard work is taking processes in different companies that are fundamentally different and bridging them," explained Ross Altman, research director at GartnerGroup, Stamford, Conn. "It's an enormous challenge." This is why it takes so long to implement a supply-chain integration solution. Online exchanges and electronic marketplaces provide an alternative solution for enabling dynamic, business-to-business commerce.

A B2B exchange provides a centralized point of commerce. Rather than having to connect to each partner, an organization only needs to connect to the exchange. The exchange generally provides common services such as partner management, security, auctions, reverse auctions, product catalogs, order processing and billing. It may also provide inventory management, shipment tracking, financial services, logistics procurement and other services.

There are also hundreds of vertical-market business-to-business exchanges exploding on the Web. However, few of them tie all the way into back-end systems, enabling true automated B2B business operations. "The problem in B2B is to be able to communicate with a variety of systems without having to change any of them," said David Linthicum, chief technology officer at Saga Software Inc., Reston, Va. "There's a lot of confusion in the market with a variety of standards. There are different points of integration, and managing them over the Internet in a reliable and scalable manner is a very difficult challenge."

Tibco Software's Ranadivé agrees. "Right now, a difficult part of B2B is getting the plumbing in," he noted. "Everybody needs the basic plumbing."

GartnerGroup's Altman said that while "most people are focused on building functionality for auctions and reverse auctions, this is a simple part of the problem. There are many higher level functions that are necessary for online business-to-business selling. For example, the B2B business process includes requests for proposals and quotations. This requires broadcasting the request for proposals (RFPs) to all partners that have registered an interest in receiving RFPs, collecting responses and channeling them back to members. Methods and mechanisms for automating the process would constitute higher level services that are generally not available now in exchanges focused on auctions and reverse auctions."

The other limitation of exchanges is that they are generally vertically focused; large companies will therefore need to participate in multiple exchanges. Supra exchanges, which provide the advantage of needing to connect to only one exchange instead of multiple exchanges, are starting to emerge as portals to multiple exchanges.