Chapter 1. The New World of Business-to-Business E-Commerce

In the future, our grandchildren may ask us to tell them what life was like before the Internet in the same way we marvel at how our grandparents managed before electricity or television. Yet today, it is not obvious that the impact of the Internet has been as revolutionary as we have been lead to believe. This is, in part, simply because e-commerce—online retailing—has proven to be less dramatic in its effect on company sales, or on our everyday lives, than predicted. In fact, as we now realize, there were many mistakes made in the frenzied dotcom era that is now drawing to a close, for which many start-ups (and the consultancies and venture capitalists that supported them) are today paying the price. But among those errors, the worst mistake that industry generally has made is that in our enthusiasm for Web pages and online retail sales, we have ignored the far more revolutionary aspect of the Internet—business-to-business e-procurement.

It is true, electronic procurement may seem less glamorous and, in many ways, more difficult to initiate, than online retailing. But, in fact, e-procurement (business-to-business electronic trade) has a far greater potential for cost savings and business improvement than online retailing or enterprise resource planning systems, and will permanently and fundamentally reform the way we do business in the future.

There is no doubt that e-commerce has been a boon to the stock exchange and has attracted vast amounts of venture capital, enormously boosting the earnings of advertising agencies, newspapers and billboards, executive recruiters, and, temporarily, at least, consultants. But as the bubble burst, it became apparent that the one group that had not benefited were the employees and investors in the dotcom companies themselves, which are, at the time of press, in virtual free fall.

In fact, a recent study by British Telecom reveals that nearly 80% of organizations that have rushed to establish Web sites for online buying have failed to invest in the purchasing and distribution systems that make delivery of the products possible. Instead of focusing on using the new Web-based technologies to streamline their supply chain, senior management of companies have focused on providing Web sites that promise much, but far too often, can deliver very little. This myopic focus on Web sites and e-commerce meant that many of the dotcom firms never came near profitability. Etoys, for example, lost more than $4 on every order. Other online start ups suffered even more. Drugstore.com lost over $16 on each non-prescription item they delivered.^[1]

The entire online buying phenomenon has certainly succeeded in raising our expectations as customers to a level of near-instant gratification, with demands for ever-wider availability of goods, delivered cheaper and faster than ever before. But this combination of ever-greater expectation and consistently disappointing results—who does not have a story about the flowers that were never delivered to their mother-in-law, the books that arrived six weeks late, or the lamp shade that was left in a package on the front steps in the rain—has left many customers (and increasingly, investors) skeptical about the hyperbole of the press and the true value of online retailing.

But in many ways and for some time—at least, from an economic point of view—we have realized that providing a way for the public to buy items online was little more than an electronic extension of the sales process. There is nothing more revolutionary, once we stop for a moment and reflect, about ordering a book or flowers online than there is about ordering them over the telephone. Although having access to brochures online is convenient, and being able to send family photos electronically to friends is fun, many would argue that e-commerce has actually done little to change the nature—or more importantly, to improve the profitability—of the vast majority of “bricks and mortar” organizations.

However, just as enthusiasm for huge investments in e-commerce is beginning to wane, interest in a new area of e-business is beginning to grow. Business-to-business (B2B) e-commerce—the area which encompasses any electronic transaction between organizations and in which e-procurement is a central function—is set to become a major area of interest for all types of organizations. Already, B2B e-commerce accounts for more than ten times the dollars spent in consumer-based e-commerce, and even more than retail e-commerce, B2B is being touted as likely to produce enormous cost savings and productivity improvements for organizations and for the economy as a whole.