B2B Commerce Flocks to Electronic Trading Exchanges

March 1, 2000

Never mind chat rooms, music downloads and book buying. The true potential of the internet lies in the exchange of money, information, services and goods between companies.

According to Forrester Research, the value of business-to-consumer (B2C) electronic commerce will grow from $9bn in 1998 to $108bn in 2003. Compare that with the business-to-business (B2B) sector, which should expand from $43bn to a minimum of $1.3tr during the same period.

At the heart of the B2B revolution is the concept of the trading exchange. Ideally, a trading exchange turns the internet into a massive marketplace where companies share sales forecasts, purchase raw materials, manage inventory, sequence parts and product flow, arrange for physical distribution and consummate transactions. Like most applications surrounding the internet, however, the trading exchange is in its infancy. Few sites handle much traffic today, and of those that do, activities are confined to relatively simple tasks such as product catalogs and auctioning. Complicating matters is a raft of competing strategies, providers and hype. For companies looking for the best solution, the dust is far from settled.

The notion behind trading exchanges is nothing new. Vendors and manufacturers have been collaborating closely for years, often through electronic data interchange (EDI). Retailers have placed new demands on suppliers for the management, even elimination, of inventory. And vendor-managed inventory (VMI) programs, requiring superior information links, are at least a decade old.

But no medium is better suited to real-time business collaboration than the internet. Partners can swap information faster, more cheaply, and with greater flexibility than with EDI, says Karen Peterson, research director of GartnerGroup in Stamford, Conn.

Not surprisingly, software vendors are rushing to capitalize on the trend. Recent months have seen a wave of new-product announcements, if not actual working networks. Brand names seem to change overnight, as providers struggle to define themselves.

The challenge for business is to select the right model, and there are many from which to choose. What they have in common at present is immaturity. Trading exchanges may be designed to handle multiple transactions, says Scott Latham, senior analyst with AMR Research in Boston, "but the reality is that most haven't processed transaction one."

Even those exchanges that support online sales lack the integration features that are essential to an efficient supply chain, says Latham. A complete trading exchange allows for instant verification of inventory, shipment tracking and secure payment, among other things. Partners using an exchange today are likely to initiate the transaction over the internet, then consummate it offline. Full participation requires something of a leap of faith by both parties.

More Than Meets the Eye
The definition of a trading exchange - "a place on the web that brings buyers and sellers together," in AMR's words - couldn't be simpler. The reality is a good deal more complex.

Exchanges can be either public or private. The first brings together multiple manufacturers at one end, and suppliers at the other. The second exists to fulfill the needs of a particular company, usually a multinational giant like General Motors, which can link up with all of its suppliers and customers at one site.
Each approach has its advantages. Public exchanges are best suited for the purchase of non-strategic, price-sensitive materials, says Larry Lapide, vice president and service director of AMR, in a recent report.

Private exchanges involve tighter links between established partners and, as such, are the place for true business-community integration. In private exchanges, service might take precedence over price.

"No purchasing directors or product engineers worth their salt are going to purchase everything from a public exchange unless they want to lose their jobs," says Lapide.

AMR further divides the universe of trading exchanges into four distinct categories, separated by the complexity of the product and the competitive dynamics of the industry in question. The first is the Disintermediated On-Line Exchange, so called because a manufacturer communicates directly with its suppliers and consumers, without the aid of a third party. It is most appropriate for industries controlled by a handful of players and with a relatively low level of product complexity. The personal computer industry, which has embraced the direct sales model and is dominated by industry leaders like Dell, Compaq and Apple, is well suited to such a strategy.

Houston, Texas-based Compaq, for example, has launched its own supplier extranet. Launched in March 1999, the private exchange now includes around 100 suppliers, accounting for more than 80 percent of Compaq's total expenditures on the manufacturing end, says Cynthia Whitworth, manager of corporate procurement and e-business contracts.

The company is in discussion with technology vendors i2 Technologies Inc. and Oracle Corp. for creation of an electronic link with suppliers on the non-production side. This project will include catalog requisitioning for Compaq employees, Whitworth says.

Compaq also is venturing into the brand new field of web-based supplier relationship management (SRM), the flip side of the more developed application of customer relationship management. With SRM - for which off-the-shelf software is not yet available - the user can meld design requirements with parts availability, price quotations and cost management.

"It's very important to figure out how to collaborate in a web environment," says Whitworth.
Yet another Compaq pilot involves the management of bills of materials (BOMs) over the web. Focused on manufacturing subcontractors, the effort will allow the company to conduct "BOM scrubbing" - a detailed cost analysis of bills containing multiple part numbers.

Compaq is looking to achieve a balance between private and public exchanges, at least for now. Eventually, says Whitworth, it might fully embrace the public model. But neither the functionality nor the standards are yet in place to make public exchanges sufficient for a manufacturer of the size and scope of Compaq.

Power to the Web
With its first web site dating back to 1994, National Semiconductor Corp. is an early adapter to the internet. Based in Santa Clara, Calif., the $2.2bn company is an industry leader in the production of analog devices such as amplifiers and power regulators for integrated circuits.

In October 1999, National introduced a new site targeted at power-supply designers. The site known as power.national.com allows engineers to describe their requirements, conduct design simulations, order product and create a bill of materials - all in a single web session, and without the need to load special software. The interactive tools that guide engineers through the process are known collectively as Webench.
Power.national.com features research, product information, news, tutorials, chat boards and application support. Initially, it supports 184 products, about 25 percent of National's total offering in the power-regulating sector.

The browser-based simulator greatly speeds up the design engineer's task. "The process used to take weeks, even months, of an engineer's time," says Phil Gibson, vice president of web business and sales automation with National. "Now it's a session in the morning of less than an hour."

Other National web sites include buy.national.com, an extranet linked to the company's sales channel partners. It allows for the on-line ordering of stock both direct from National and from its many distributors.

The Transportation Factor

Transportation providers also see tremendous potential to market their services via trading exchanges and a rush is on to provide a "killer" site.

One of the more interesting entries is logistics.com, Burlington, Mass., which launched in January. Logistics.com is headed by MIT professor and consultant Yossi M. Sheffi, who acquired the logistics business unit of Sabre Inc. as the basis for the new company. Actually, re-acquired is more accurate, since in 1996 Sabre had purchased from Sheffi a company called PTCG, which became the core of its logistics operations.

Sabre was basically a carrier decision-support system, handling functions like load assignment, dispatch optimization and fuel optimization. These services will continue as one aspect of logistics.com. Another is a shipper decision-support tool to help optimize transportation decisions.

The exchange part of the business is unique, according to Sheffi, because it accommodates contract arrangements as well as spot pricing. For example, the exchange might first contact a shipper's primary carrier, with which it has contracted for a certain volume of freight, but if that carrier couldn't make a pickup within the requested time frame, the exchange would then automatically submit that request for auction. "We will be integrating annual contracts with real time pricing in the spot market," says Sheffi. Additionally, the user may set rules that determine when a load is tendered for auction and how it is tendered. "It may go for a fixed time, for the best price or with a target price and the first carrier that gives that price gets the load," says Sheffi. "And all this can be done automatically."

E-Transport Inc., Pittsburgh, Pa., is a shipping industry exchange. Modules include PriceNet, allowing shippers to specify terms and conditions in rate and contract negotiations, and FreightView, managing shipment information from electronic booking through tracking and rating of bills of lading.

E-Transport does business with more than 85 percent of the world's ocean carriers, and 18 of the top 20, says Ed Ryan, vice president of sales. Within the next two years, the company hopes to be serving all four modes - rail, truck, air and ocean.

Large software providers, such as SAP AG and i2 Technologies, aren't necessarily competitors, says Ryan. He envisions a series of alliances whereby E-Transport offers support to numerous trading exchanges. "We don't think they want to get into the specifics of transportation," he says.

FreightWise, a joint project of Burlington Northern Santa Fe Corp. and Manugistics, also plans to implement a multi-modal approach to its exchange. FreightWise will combine a digital marketplace for transportation services with Manugistics' netWORKS suite of logistics software.

Celarix.com, based in Boston, is another exchange designed to bring ocean carriers and shippers together. It launched last fall with more than 70 shippers and 10 shipping lines actively posting live cargo and available space. Celarix also offers web-hosted software to manage the logistics process.

The National Transportation Exchange has evolved from a computerized broker of excess less-than-truckload capacity to an online service. Founded in 1993, it provides a real-time link between shippers and truckers, figuring in such criteria as shipment size, distance, routing, service level, market pricing and equipment availability. The average shipment is committed within three hours of being posted on the exchange, NTE claims.

Based in Downers Grove, IL, NTE presently has a membership of more than 500 shippers, carriers, and third parties, with carriers operating a total of 100,000 vehicles. Having begun in the dry-van sector, the company is now venturing into temperature-controlled shipments.

Gregory S. Rocque, president of NTE, has said that truck capacity nationwide may be underutilized by as much as 50 percent with a cost to shippers and carriers of at least $31bn a year.

Gologistics.com, Plymouth, Mass., also is focused on filling empty space in the trailers of less-than-truckload carriers. Under its program, carriers looking to fill partially loaded trailers enter discounts they are willing to accept for specific lanes. Shippers enter discounts they seek for specific shipment tenders. The system makes matches based on business rules defined by both parties.

Russ Aborn, who developed the plan for Gologistics.com, says shippers should be able to save as much as 20 percent in transportation costs over standard discounted rates by using the service.

On the vendor side, National doesn't generate enough buying power to justify a private exchange, says Gibson. It uses Ariba.com, an online network operated by Mountain View, Calif.-based Ariba Inc. for commodity purchases and non-production materials. For manufacturing procurement, it is examining several public exchanges.

Hewlett-Packard Co. of Palo Alto, Calif., is an enthusiastic convert to the internet in general, and trading exchanges in particular. It is working with i2 to develop a trading community for electronics distributors. In addition, it has been running a series of test auctions with suppliers, while examining web-based applications for its marketing services organization.

The growth of multiple B2B applications over the internet has been slowed by a fixation on price, as in the case of auction sites, says Mike Weber, a strategic marketing consultant with HP. As exchanges generate more traffic, they are likely to expand their menus to include value-added services, including support for longtime supply-chain partners.

"Once you get away from price," says Weber, "it's going to blow the doors open."
AMR's second category is the Hub-Based Online Exchange, for industries with few major players but high product complexity. Instead of the disintermediated online approach, which supports direct links between a buyer and seller, this model features a "channel master" that links an entire community of trading partners.

Prime examples are the automotive and aerospace industries, both of which involve thousands of suppliers from around the world. General Motors Corp. has launched an entire business unit, dubbed eGM, for this very purpose. GM provides the infrastructure by which suppliers, dealers and consumers can link with the automaker. Once again, no independent third party is required to manage the chain.

GM is neck and neck with one of its biggest rivals, Ford Motor Co., in creation of web-based "virtual marketplaces." GM's is dubbed TradeXchange, in partnership with Commerce One Inc. of Walnut Creek, Calif. Set to debut in the first quarter of 2000, it will operate on Commerce One's global trading platform known as MarketSite.net. Everything from ordering to payment will become centralized and automated.

Ford has teamed up with Redwood Shores, Calif.-based Oracle Corp. for an electronic marketplace that will include auctioning capability, among other features. Known as AutoExchange, it too will open for business this year. Eventually, the two automakers hope to use the internet to receive orders and deliver a customized automobile within a matter of days. From an internal standpoint, the sites will provide a means of controlling both cost and inventory levels all along the supply chain.

How the concept of hub-based exchanges will play out remains to be seen. A recent AMR report casts doubt on the GM and Ford models, speculating that their networks will only reach back to Tier 1 suppliers, who may object to the lack of connectivity between exchanges.

The Affiliated Model
AMR's third category, and one of the most crowded with competitors, is the Affiliated-Based Online Exchange. Tied to a single network or software provider, it will prosper in industries with a large number of providers and low product complexity, the consultant says.

Typically, the model cuts across industries, delivering value in the form of centralized transactions and real-time links to customers. Yet some have created industry-specific sites to complement their horizontal offerings - or to hedge their bets.

Affiliated exchanges can spring from a number of sources. Some are online network providers such as Ariba Inc. and Commerce One. They may be horizontally focused auction sites such as TradeOut.com, which deals in obsolete or excess inventory from multiple industries. Or they may be offerings from big software vendors - SAP AG, Oracle, i2 Technologies and Manugistics, to name a few - looking to broaden their product offerings.

Hong Kong's Global Sources claims to be the world's first B2B electronic commerce hub focused exclusively on international trade. Formerly known as Asian Sources, the site provides retailers with access to multiple suppliers, many too small to be found elsewhere with ease. It includes a full range of back-office functions, including order management, purchase orders, invoicing, letter of credit applications and shipping information.

Enabling Many-to-Many Connections

The connected economy means that supply chains must become less sequential and more web-like, enabling communications and transactions that are one-to-many, many-to-one, or many-to-many.

That structure, which is perhaps most evident in trading exchanges, generally requires the support of a technology known as Enterprise Application Interface (EAI).

In the supply-chain arena, the leading EAI vendor is Viewlocity, formerly known as Frontec AB. Atlanta-based Viewlocity's core product AMTrix is installed at more than 3,200 sites worldwide, with many of these supporting trading communities or advanced logistics solutions that require integration among various applications.

AMTrix essentially provides the means by which different applications talk to one another, as well as the message brokering that enables users' bi-directional communications. Users can write business rules that establish when messages are automatically sent and to whom.

"AMTrix is very event-driven," says Jeff Cashman, senior vice president of global marketing and alliances. "So when an event occurs, such as an order, that triggers a series of other events to ensure delivery. And whenever an event occurs, AMTrix passes that information on to other applications, which may do some processing and then pass it back. That's what we provide - the ability to message in a many-to-many environment, between different applications, in real time."

Many-to-many environments can consist of multiple trading partners or multiple trading exchanges, says Cashman. It works like a hub and spoke, he says. Hubs are attached to the spokes and the spokes can be attached to any number of other spokes with other hubs.

Viewlocity initially relied solely on EDI as a means of communications but now supports the internet's extensible markup language, or XML, as well. "Many of our customers have spent a lot of money on EDI and we don't want to force them to leave it," says Cashman. "We can integrate to it very easily. Ours is a migration strategy. We want customers to leverage their existing assets and to add on new technologies when they are ready."

Global Sources supports more than 70,000 products from 73,000 suppliers scattered throughout Asia, selling to 170,000 active buyers. Customers include major retailers such as Kmart, Ace Hardware, Home Depot, Toys R Us, and Walt Disney, and manufacturers such as Compaq, Dell, Philips and Samsung.

A select group of users, primarily the largest retailers, have access to private buyer catalogs. The site also features a series of community pages arranged by industry, for a more vertical approach to electronic trading. Currently the provider offers access to eight communities, including fashion, computers, telecommunications, and consumer electronics.

Global Sources has been playing matchmaker between suppliers and buyers for more than a decade, long before the explosion of business over the internet. Early users relied on electronic data interchange and a value-added network (VAN) provider to relay messages. The company launched its web site in 1995, and this year will see the release of a web-enabled version that removes the need for a server at the client site, says Chief Operating Officer Craig Pepples.

Trade exchanges are attacking the collaboration issue from both ends of the supply chain. Comergent Technologies of Belmont, Calif., is aiming at the link between the end customer and distributor or reseller. It's an area ripe for enhancement; according to Forrester Research, manufacturers expect resellers to account for 84 percent of their sales over the next two years.

Comergent's Distributed E-Business Solution (DEBS) lets all of the partners involved in assembling a complete product share the information needed "to deliver a unified sales experience." Customers may be buying from multiple sources, Comergent says, but they want to deal with a single seller.

Among Comergent's users is San Jose, Calif.-based Cisco Systems Inc. The world's leading supplier of internet networking components, Cisco does 70 percent of its business through indirect channels. By bringing the demand side onto the internet, it can respond more quickly to market trends, says Shelley Symonds, Comergent's vice president of corporate marketing.

Supply-chain and enterprise software providers are determined not to be left off the trading-exchange bandwagon. i2, one of the leading purveyors of supply-chain optimization software, shook up the industry late last year with the unveiling of TradeMatrix.com. This new "super portal" cuts across industries to offer a full menu of products from multiple sources.

Initially, TradeMatrix will be geared toward B2B commerce. It will support a number of back-end functions, including periodic activity reports, order fulfillment, and freight consolidation. As of January, the site was still in the testing stage, but was slated to go live in the early part of the year.

i2 isn't stopping with a horizontal model for trading exchanges; it is also targeting specific industries in a B2B environment. The site known as HighTechMatrix.com is an "intelligent business exchange" for semiconductor makers and other high-technology companies, according to Duncan Cameron, director of applications and technical relations for i2.

Similar industry-specific sites, possibly in the consumer- goods area, could follow. Logistics requirements will be supported by yet another horizontal exchange, FreightMatrix.com.

Not to be outdone, i2 rival Manugistics of Rockville, Md., is plunging into the B2B marketplace with WebWORKS. Its offering consists of three distinct models: an enterprise exchange for big companies dealing with multiple vendors, vertical exchanges for multiple buyers and sellers within a particular industry and horizontal exchanges for business processes, such as logistics, common to all industries.

The new products were announced at Manugistics' press and analysts' day in January. The first industry-specific exchange will be consumerstreamz.com, for the consumer goods industry. Canadian Tire, a long-time Manugistics customer, will be the first to use the hosted, private exchage. Canadian Tire will initially collaborate and share information with 10 of its top suppliers and has plans to roll out to others.
Manugistics also is launching FreightWise, an multi-modal transportation exchange, in partnership with Burlington Northern Santa Fe Corp.

The basic idea behind exchanges is to permit the real-time sharing of production requirements, enabling manufacturers to build to order, says Chad Quinn, Manugistics' vice president of e-business solutions. "This is where it's all going to go. The level and rate of adoption is mind-boggling."

SAP AG, the German giant that made its name in enterprise resource planning (ERP) software, has created mySAP.com, a catch-all term for a growing series of online marketplaces that engage in collaborative planning and execution. Having gone live last October, SAP's internet portal now comprises 26 business communities in varying stages of development, according to Prashanth Narasimha, a director of corporate marketing in the Walldorf, Germany headquarters.

Like its rivals, SAP seems to have a chip on every square. Its marketplaces fall into horizontal, vertical, regional and product-specific categories.

Recent announcements have focused on particular industries. Neoforma.com, a provider of electronic commerce services in the medical supplies field, has agreed to use mySAP.com as the basis for an online marketplace serving the healthcare industry. SAP plans to offer additional exchanges for the pharmaceuticals and chemicals sectors. In cooperation with Statoil, said to be the world's second-largest crude oil supplier, it will create the first open online marketplace for the oil and gas industry.

The Independent Exchange
AMR's fourth and final category is Independent Trading Exchanges (ITEs), which take a vertical approach to industry segments yet are not controlled by any one software provider or manufacturer. They support industries with both high fragmentation and product complexity, in a "many-to-many" environment.

PlasticsNet.Com, one of the first vertical electronic marketplaces, was founded in 1995 by Chicago-based Commerx Inc. It boasts more than 90,000 users, including 30,000 registered buyers and members, in the $370bn plastics industry.

Features include the ability to compare products and prices across vendors, customize catalogs, streamline and consolidate orders, and track the progress of orders on-line. "We're giving plastics processors what they need to run the business," says Chris Lane, vice president of operations.

Commerx has addressed the logistics issue through an alliance with Green Bay, Wis.-based Schneider National Inc. Users clicking on a "ship now" button will be connected to the trucking and logistics services of Schneider. After they enter freight and shipment information, Schneider shows them a set of options, "or we can simply say here is the shipping price," says Chris Lofgren, chief information and logistics officer at Schneider. "They have the choice or arranging shipping between themselves, so our challenge is to offer the lowest cost and the highest service options we can."

Schneider has a similar arrangement with iMark.com, an exchange for used
equipment.

Chemdex Corp., headquartered in Mountain View, Calif. was formed in 1997 as an electronic marketplace for buyers and sellers of life-science products. Its customers are private companies in the pharmaceutical and biotechnology sectors, along with government and academic institutions.

To reach enough users, Chemdex has partnered with BWR Scientific Products, a $1.5bn distributor. More recently, it entered into an alliance with Santa Barbara, Calif.-based Tenet Healthcare Corp. to launch a trading exchange for medical products.

Martha Greer, Chemdex's vice president of marketing, says the company has reduced the cost of processing a purchase order from more than $100 to less than $20. "It's all about creating a critical mass," she says.

Consumer electronics is the chosen market sector of Advanced Manufacturing Online, now based in Redwood Shores, Calif. Launched in Asia two years ago under the brand name of ECnet, it was first employed by Sony and Matsushita to connect various plants and suppliers. Subsequent users include JVC, Motorola, NEC, Philips and Siemens Nixdorf.

AMO chose high-tech because of the industry's large volumes, technical requirements and innovative nature. "Our whole business model is based on analyzing what manufacturers need," says James Hatcher, senior vice president of global sales and marketing. "This is not a field of dreams."

Credit Checks at e-Speed

With internet trading exchanges, or with any kind of business-to-business commerce, transactions can be worth millions, and a risk profile of a potential customer is imperative. In the e-world, where many feel that everything has to be instantaneous, that function now can be done at the point of sale while an order is being taken. In the view of some, anything less means chasing business away.

"I think [buyers'] expectations are changing with the web," says Kelly Cundiff, director of market management for Fortune 2000 companies at eCredit.com, a market maker for financing and credit on the internet. "They go online and they expect the turnaround will be real-time simply because it's e-business enabled."

But what B2B customers ready to place a hefty order often get is more of the traditional approach: manual processes and days of waiting for a credit check to be done. It's frustrating and unnecessary given the technology that exists, Cundiff says. And it's ironic since so many other areas of a business are state-of-the-art.

"What we are seeing in B2B is a lot of investment dollars going into front-end and back-end systems, in their configurators, order-fulfillment systems, their ERP, logistics and shipping systems, but not necessarily investing dollars in automation for credit-analysis components," she says.

If anything, credit-and-collection may be the last bastion of "non-automation" in many enterprises, even those up and running with sophisticated web sites.

"When the customer is online, in the web environment, and expecting rapid turnaround on the order confirmation and approval for dollar amounts above their purchasing card spending limit, they are being told, 'Well, you're a new customer and we'll get back with you in a couple of days.'"

Pressed by the need to move on those sales, most businesses are falling into what Cundiff terms the "ship-and-chase mentality." Expectations both inside a company and among investors outside may be that a certain level of sales have to be brought in. "They just ship it out the door and then they say we'll worry about collecting the money later," she says. "And what's happening is you have tremendously large receivables balances. In most cases the largest asset on your balance sheet is your receivables - and good luck trying to collect on some of that."

In November, the Westwood, Mass.-based company launched Global Financing Network, what it says is the first mechanism to electronically connect manufacturers, buyers and financing vendors. Through it, credit applications are filled out at the same time that orders are being placed with manufacturers who have implemented the eCredit.com software. The system triggers automatic draws on such credit and information bureaus as Dun & Bradstreet, Equifax and Experian. That information, coupled with precise credit-risk policies of the manufacturer, leads to an assessment in real time, Cundiff says.

If a customer's creditworthiness is greater than the amount of the order, eCredit.com may engage in a little selling in behalf of the client. "What we're doing for Gateway is we're able to return a credit line on a customer while they are still in the online environment that allows Gateway to up-sell: 'You've been approved for a $5,000 credit line, but you've only ordered $900 worth of products, would you like to add a color printer?' That kind of thing."

Following the analysis, it's the seller's call whether to proceed with the sale. Not surprisingly, many companies are either completely risk-averse and won't extend credit or are unwilling to go beyond certain levels. At that point, the Global Financing Network brings potential lenders into the picture, Cundiff says.

"If a business in not interested in assuming any risk - 'we don't want any outstanding receivables' - they forward [the facts of the potential sale] to our portfolio of lenders," she says. "There may be one that specializes in that particular type of risk and be able to return a decision that says, 'Yes, through MBNA, we're going to finance this particular purchase, your interest rates are X and your due dates are X, Y and Z. If you would like to accept these terms, go ahead and click X.'"

MBNA, Fleet Leasing and Associates Commerce are among eCredit.com's portfolio of participating lenders.

Two factors can seriously interfere with the real-time decision making that is targeted: a client's software and risk thresholds. "Sometimes things depend on the complexity of the logic that a business is using in its decision rules. So, if it is using multi-tiered, multi-embedded scorecards, the longer it will take longer to process," says Cundiff. And thresholds? "Even though the technology has done its job and come out with the right answer, when you start talking about multimillion-dollar orders, most likely there will be some human review at most companies, even if it's just a quick OK."

Taking a more sweeping approach to trading communities is VerticalNet, an operator of some 53 industry-specific web sites with headquarters in Horsham, Pa. In addition to online commerce, it offers research papers, product information, directories, and job listings for each industry.

Other vertically oriented ITEs in various stages of development include CheMatch and ChemConnect in chemicals, SciQuest in life sciences, MetalSite and e-STEEL in metals, NetBuy and QuestLink in electronic components, and Autovia in the automotive aftermarket.

Experts predict that tens of thousands of web-driven communities will spring up in years to come, creating a wealth of options along with even greater confusion. Only a fraction of that number will survive. AMR's Latham expects each industry to support no more than two ITEs - one for forging an integrated supply chain among committed partners, and another for spot buys and excess or obsolete inventory.

Affiliated exchanges, with their scattershot approach, may have trouble defining themselves in the minds of customers. AMR warns software vendors against competing directly with public exchanges. Few "will possess the domain knowledge needed to make public exchanges work," says Lapide.

AMR believes a variety of trading-exchange models will be necessary to support B2B commerce over the internet. They range from public exchanges handling low-value commodities, to private networks for strategic suppliers. EDI links will continue to be of value, despite the development of Extensible Markup Language (XML) standards for transferring data between computers. The success of a given model will depend on the characteristics of the industry to which it is devoted.

"We don't know all the answers," says SAP's Narasimha. "People who say they do don't even know the questions."