Reviewed by Pawan Vora

@ the reviewer

Pawan Vora is the Director of Information Architecture group at XOR.

If you're keeping up with what's happening in the e-business world, I don't have to tell you that business-to-business (B2B) exchanges are quite a rage. To some, the reasons are quite obvious. B2B exchanges help bring together fragmented buyers and sellers, afford more efficient price discovery, reduce costs of opertation, offer dynamic price setting mechanism, and many others. If you are wondering what that means, what all the hype is about, and why B2B exchanges will change the way we do business now, I'd recommend this book to you. The authors, Arthur B. Sculley and W. William A. Woods, both involved in creating the fully-electronic Bermuda stock exchange, provide an excellent overview of this growing e-business area. Although I must warn you that if you're looking for a very detailed or technical treatment to the area of B2B exchanges, this book is not for you.

The authors have organized the book into four parts:

Defining the B2B Market Space

Anatomy of a B2B Exchange

Seven Secrets for Success for B2B Exchanges

Future of B2B

In Part I, the focus is on answering two questions: "What are B2B Exchanges?" and "Why should we care about B2B Exchanges?" The authors first outline the types transactions happening in the e-commerce world (Ch. 1), which are: business-to-consumer (B2C), consumer-to-consumer (C2C), consumer-to-business (C2B), and of course, business-to-business (B2B). (For those interested, there are more: business-to-employees [B2E], business-to-government [B2G], business-to-business-to-consumer [B2B2C], and perhaps more). Analysts expect that B2B Internet commerce is going to be in trillions of US Dollars in just a few years (Ch. 2). Forrester estimates it to be USD1.3 trillion in 2003, whereas Goldman Sachs estimates it to be USD 1.5 trillion in 2004. There are a variety of business models that's going to contribute to this significant dollar amount. The authors describe 5 unique B2B business models (Ch. 3): aggregators, trading hubs, post and browse markets, auction markets, and fully-automated exchanges. Many of these business models afford dynamic pricing through comeptitive bidding for either a buyer's or a seller's business. It is this dynamic pricing feature is that the authors consider the "killer app" of B2B Internet commerce. You may feel that to make B2B commerce happen will be a huge technological undertaking. Maybe so. But it's not the technology that's going to make B2B commerce or exchanges successful, but rather a keen understanding of the business domain and specific business processes (Ch. 4); most importantly, being able to create liquidity will be far more important to the success of the exchange.

In Part II, the authors get into the details of creating and running a B2B exchange. First, they discuss a variety of membership and ownership models (Ch. 5). These include closed and open membership models, ownership by one or multiple groups of users, and ownership by the government. The authors advise against closed membership models as they encourage restrictive and anti-competetive practices; they favor open and more inclusive models that promote liquidity in the marketplace. As they assert, for B2B exchanges, liquidity is king. The authors then outline the B2B Exchange trading models such as catalog aggregators, one-on-one negotiations, auction markets, and fully-automated exchanges (Ch. 6). They also outline success characteristics of each. For example, catalog aggregators are successful in markets with low-priced commodity items where exchange's neutrality is of prime importance. The authors believe that auction-based marketplaces -- both buyer- and seller-driven -- have a brighter future because they offer buyers increased selection, more conveneince and the opportunity to pay less and at the same time they offer sellers a larger market and the opportunity to charge more.

In Ch. 7, the authors underscore the importance of strategic partnership with key suppliers, commerce communities, and information providers at the start up of a new exchange to scale up quickly and establish credibility. The authors end Part II with the revenue sources for B2B exchanges (Ch. 8): transaction fees, % of cost savings, posting fees, membership fees, listing fees, information selling fees, information licensing fees, advertising and sponsorship fees, revenue sharing, and software licensing fees. The authors suggest reducing or waiving some of these fees during the start up stages of an exchange to encourage users to trade through the exchange to establish relationship with them and to increase liquidity.

In Part III, the authors describe the following seven secrets for success for B2B exchanges and emphasize that building successful B2B exchanges require that you capitalize on your deep vertical knowledge, establish industry credibility, and focus on growing liquidity.:

Stay focused -- specialize on a vertical

Target a specific industry in which you have strong expertise and then specialize in a vertical within that industry.

Play to win -- the need to dominate

Specialization (#1) and being "first to market" enables you to dominate your chosen space quickly, which creates mind share and liquidity and helps you scale up quickly.

Maintain commercial neutrality

Stay independent. Do not allow the exchange's trading rules favor or be controlled by any single participant or participant group (e.g., buyers, sellers, or brokers ).

Ensure transparency and integrity

To establish a fair market, ensure full disclosure and price transparency.

Add value by building a virtual community

Allow exchnage participants to network efectively and to access all the business information they require in one place.

Make the right strategic partnerships

Choose strategic partners early to create liquidity quickly, which allows you to scale up quickly and create a dominant position in the market (#2). Concentrate on your core competency and outsource the rest.

Operate as a virtual corporation

Create flexible corporate structures which can "morph" their business plans and innovate in real-time.

In Part IV, the authors answer the question: 2B or not 2B online? As one would expect, the answer is in affirmative. The authors justify their answer based on their belief that at least 40% of the trade value (approx. $600 billion) will be captured by B2B exchanges by 2004. It is also based on their belief that the Internet has created a "once in a lifetime shift in power" from the sellers to the buyers and that B2B exchangges are the killer app in this Internet revolution as they help lower acquisition and procurement costs, reduce inventory levels, and ensure more on-time deliveries.

Finally, in Appendix A, the authors profile the following exchanges: Catex, Chemdex, CreditTrade, e-Chemicals, Elinex, e-STEEL, MetalSite, National Transportation Exchange, PaperExchange, PlasticsNet, and TechEx. I enjoyed reading this section because it not only gave the overview, history, and market opportunity for each of the exchange, but also it outlined the exchange's membership model, trading model, revenue model, and its market entry strategy.

So, is this book for you? As I indicated before, if you're new to the area of B2B exchanges and would like to understand what the hype is all about, then this book is for you. This book is written in a simple, straightforward manner and concepts are explained very well. There are some exaggerations in the book that you want to be careful about; for example, the authors assert that "All ERP systesm are now designed to be fully EDI compliant and XML capable..." [emphasis added]. Also, you will find more coverage on securities trading (i.e., stock exchanges), but that's expected considering the authors' background in building Bermuda Stock Exchange.

This book's companion Web site is at http://www.B2Bexchanges.com/. What I found useful at the site was B2B Exchanges Database, which is available under B2B Exchanges: Member Services. It provides an alphabetized list of B2B Exchanges and for each exchange it offers information such as Internet Address, Vertical Market, Business Description, and so forth. However, I am not sure if it's really kept up-to-date. On some pages, I did see a note such as "? unfound as of 11-7-99."