Overview
Praise from Ira Magaziner, former Senior Policy Advisor to President Clinton for Policy Development"This definitive analysis of B2B exchanges shows the enormous impact they will have in revolutionizing the global economy." —Ira Magaziner
The New Economy has sparked a revolution in the way that businesses buy and sell products from each other as a result of the recent acceptance of the Internet by corporations. These "Business-to-Business" (or B2B) transactions are increasingly being done over Internet based net markets or "B2B Exchanges".
These B2B Exchanges resemble stock exchanges in many ways, including the way they are set up and organized and the trading methods they employ - but they are trading physical commodities such as paper, chemicals and steel or financial services like insurance and credit derivatives, rather that stocks and bonds.
In this ground breaking new book, Arthur Sculley and William Woods analyze the nature of the revolution that is occurring in B2B transactions as a result of the recent acceptance of the Internet by corporations. The authors make the startling claim that "the Internet changes everything in B2B" and that most corporations will have to re-invent themselves over the next five years to remain competitive in the New Economy. Customers are becoming far more demanding as the Internet has created a once in a lifetime shift of power from the seller to the buyer. B2B exchanges, which are developing at Internet speed, are catalysts for this change and represent a tectonic shift in the way that businesses buy and sell from each other. In B2B Exchanges the authors explain the development of these new exchanges and why B2B exchanges are the "Killer Application" in the B2B Internet Revolution.
Goldman Sachs Investment Research estimates the value of transactions conducted on-line between companies will reach $1.5 trillion by 2004. In B2B Exchanges the authors reveal that transactions on B2B exchanges, in the US alone, could exceed $600 billion in annual value and generate annual revenue for the exchanges in excess of $3 billion by 2004. B2B Exchanges describes the anatomy of a model B2B exchange, using practical examples throughout, which are drawn from existing successful B2B exchanges. This book also sets out a clear definition of a B2B exchange, which includes a discussion of Electronic Communications Networks (ECNs), and distinguishes B2B exchanges from standard B2B E-commerce companies.
Based on their combined total of 20 years experience with stock exchanges and 4 years of investing in B2B exchanges, the authors analyze the key issues in building a successful, credible and effective B2B exchange.
B2B Exchanges describes the anatomy of a model B2B exchange, using practical examples throughout, which are drawn from existing successful B2B exchanges.
Editorials
Stock exchanges are often revered as bastions of free markets, but the reality is that virtually all of them have been adept at squashing competition from anyone who would challenge their privileged position. Ever since the first stock exchange was founded in Amsterdam in 1611, these bodies have been owned by brokers who control the trading on the floor and make sure their interests are taken care of first.
For a taste of the clubby collusion that defines this world, consider the agreement that formally created the New York Stock Exchange in 1792. The brokers solemnly pledged that "we will not buy or sell from this day on for any persons whatsoever any kind of public stock at less rate than one-quarter percent commission." They also promised they would give preference to each other in negotiations.
Most other stock exchanges around the world have similarly operated as exclusive clubs of and for their members. Not until the mid-1970s did the New York and London stock exchanges relinquish their treasured fixed commissions, and only then because they were prodded to do so by the regulators overseeing them.
The chummy world of brokerage-owned exchanges is now being challenged like never before, as Internet technologies make it easier than ever to bypass the middlemen. The old ownership model for exchanges is no longer tenable in the Internet Economy, a point persuasively made by Arthur Sculley and W. William Woods in their book B2B Exchanges.
That truth has not been lost on the hundreds of entrepreneurs who are forming the new marketplaces on the Web that are at the core of the b-to-b phenomenon. Armed to the teeth with high-powered venture capital, they're creating independently owned online exchanges for every conceivable product, from cashews to industrial chemicals.
While these markets are wildly diverse, they operate on some common principles. For instance, most industries will accommodate no more than one Internet exchange. Whether plastics or medical supplies, this game is winner take most, if not all.
But to do that, an Internet exchange will need to have a neutral ownership structure that resists control by the industry giants. This is an imperative that runs contrary to exchanges in autos, steel and other markets that are currently dominated by large players.
Sculley and Woods' book clearly and comprehensively lays out the models for various types of Web exchanges. It's a confusing landscape, even for people who are immersed in it. B2B Exchanges offers an easy entry point for those in need of a primer, and it's a useful attempt at offering a deeper understanding of the exchanges at the heart of the b-to-b craze.
But the book has a few flaws. It doesn't offer any penetrating new insights into Internet exchanges, and it fails to adequately discuss the obstacles faced by the new generation of exchanges. A section on the impact of b-to-b exchanges, for example, fails to note that they make commodities out of products, a phenomenon that's creating great skepticism among many producers.
That reticence by suppliers, in turn, is one reason that b-to-b exchanges are struggling to achieve liquidity, or a critical mass of deal flow. Obtaining liquidity is probably the single biggest problem facing all Internet exchanges. But while this book recognizes that "liquidity is king," it doesn't address the topic in adequate detail.
Internet exchanges still have to prove they can deliver on their great promise for creating a more efficient interaction of buyers and sellers. It's a pretty good bet that at least some of them will get there.