Business Corner: Internet Revolutionizes Business Relation

By Dr. Jamal Barmi
Islam Online, Washington

The "Internet economy" is now a reality. The rapid growth in Net-based buying, selling and customer service operations has radically altered traditional buyer-seller relationships. Consumers now shop the world, enjoying unprecedented opportunities for price and product comparison, often completely bypassing the local storefront retailers who once defined their shopping horizons.

But despite the grand size of these developments, they pale in comparison to the even larger impact the Internet has had on business-to-business commercial operations. Many enterprises are embracing the "Internet Marketplace" model because they sense the potential for streamlining and automating product information transfer, price negotiations, order entry, shipping data and billing and collection cycles.

The "Internet Marketplace" model calls for the aggregation of catalogs and other buy/sell information at a central online location, with open access to all enrolled users via the Internet. Many enterprises that are embracing this new marketplace model include Global 2000 companies, large distributors, franchises, trade associations and third-party service providers.

In a February, 1999 report, Forester Research estimated that the value of Internet sales will be $1.3 trillion by 2003, out of which $800 billion will stem directly from business-to-business interaction.

Recent Information Technology Trends

e-engineering internal business processes, using client/server technologies

Integrated ERP systems to streamline back-office operations

Y2K activities

The Internet economy

Today's challenge is to understand the competitive changes that will occur within the Internet economy. Businesses must understand how buyers and sellers will come together in new ways via "Internet marketplaces" and exchanges. Many e-commerce enterprises (both buyers and sellers) have experimented with a variety of new business-to-business commerce models such as:

Online supplier catalogs

Buyer-hosted e-procurement front-ends

Push technologies

HTML parsing tools

As a result, a growing demand for new standards to facilitate the exchange of information, catalog content and transactions between buyers and sellers has been building. The underlying goal of the standards was to bring buyers and sellers together with an automated flow of information and transactions, while still supporting individual business and contractual relationships between trading partners.

Sell-side and buy-side models have fallen short of buyers and sellers together. These models did not take into consideration how to bring buyers and sellers together. This view of the commerce process has usually resulted in one participant (the buyer or seller) inappropriately dictating proprietary solutions or standards to the other. As a result, this strategy did not scale. Perhaps the best way to understand the need for "Internet Marketplaces" is to examine the latest developments in Internet e-commerce solutions, namely, sell-side, buyer side, and "Internet Exchange" models.

Sell-Side Models

Suppliers created sell-side solutions to lower the cost of sales by automating the order entry and fulfillment process. These solutions aimed to create an online "storefront" which stayed open 24 hours a day, offered the latest inventory and enabled self-service ordering and tracking. In other words, suppliers tried to capitalize on the Internet's potential by bringing their existing business relationships and processes online.

Unfortunately, suppliers soon discovered that most corporate procurement organizations were unwilling to permit shopping across different supplier websites without regard to vendor relationships, pricing or pre-negotiated company contracts. On the other hand, customized supplier sites often required customers to learn unique passwords and procedures and other proprietary methods. However, corporate buyers recognized the power of this model and began to explore new ways of applying similar techniques, utilizing their corporate Intranets.

Buy-Side Models

By focusing on cutting costs within a single enterprise, buy-side e-procurement applications operated as a browser-based front-end for back-office ERP and legacy purchasing systems. They allowed corporate procurement organizations to combine multiple supplier catalogs into a "universal" enterprise catalog and to deploy self-service requisitioning and order processing to the user desktop. Unlike supplier-hosted catalogs, these solutions allowed companies to deploy their proprietary processes and procedures while aggregating enterprise-wide expenditures across a consistent supplier and product portfolio.

The success of early buy-side procurement adopters demonstrated the dramatic cost savings that can be realized with online solutions. By using a buy-side procurement application, Raytheon, for example, has reduced their cost per purchase order from more than $100 to less than $3. Organizations using buy-side e-procurement applications reduced their processing costs by an average of 70% per order. However, implementing e-procurement solutions requires a detailed understanding of many new technologies, such as network application architectures, catalog content management strategies, ERP integration methods, XML, CORBA, DCOM, dynamic data interchange standards and other technologies.

Unfortunately, the resources and expertise to implement these systems are not within the reach of many medium-sized and small businesses. So, while the implementation of stand-alone buy-side solutions may work for today's largest and most technically sophisticated companies, it does not meet the needs of the other 95% of buyers along the commerce chain. These companies cannot afford to aggregate catalog content, to link to individual suppliers or to develop comprehensive Internet commerce applications themselves. Instead, they need a third-party "hosted" marketplace that brings together their suppliers and other similar buyers into an organized trading community.

Internet Marketplace Models

Internet Marketplaces" and exchanges offer the next generation of Internet commerce solutions. Unlike single-sided solutions, they are specifically designed to enable multi-buyer/multi-seller interaction and collaboration. They provide a common trading hub, where multiple buyers and sellers can come together and conduct commerce without compromising individual processes and relationships among the participants. Marketplaces can be created or "hosted" at any point along the commerce chain. By 2001, 70% of distributors who operate online are expected get more than 80% of their sales through online marketplaces.

It is clear that the formation of these shared marketplaces is necessary for Internet commerce to reach its full potential. A useful analogy can be drawn between Internet commerce and other, more mature services, such as electrical power and water utilities. There was a time when, if you wanted water, you drilled your own well. Water eventually moved to a shared network model, where a number of providers tapped a major water supply and delivered it to end users through a common network and delivery mechanism. A similar model is developing within electronic commerce, where many different distributors, buying groups and new service providers are developing shared marketplaces, or portals, that deliver online commerce services to customers through the Internet and browser.

The creation of "Internet marketplaces" enables innovative new methods of dynamic exchange. Many sell-side models are little more than web front-ends for traditional business applications and have done little to advance e-commerce to the new Internet paradigm. On the other hand, Internet marketplaces create entirely new methods of commerce, such as online sourcing, auctions and negotiations that enable sellers and buyers to exchange information and knowledge in much easier and better ways