Crónica 2

Business-to-Business on the Internet:
Back for Round Two

By Mary J. Cronin, Ph.D.
Professor of Management
Boston College
Strategic adviser of Mainspring Communications USA
Edition for portuguese EXPRESSO/Copyright Expresso/XXI translation
Translation published 4 October 1997 suplement XXI
Edition on line Copyright Janela na Web

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Long before analyst reports and electronic commerce surveys started predicting a multi-billion dollar bonanza of business-to-business transactions on the Web, back even before the Web was commonplace, savvy network managers knew that you could save time and sometimes make money by communicating with vendors and customers on the Internet. If you worked in a big company, the Net provided a fast, economical e-mail channel to systems and support services, software upgrades and bug fixes. If your small company was trying to sell its services, using an Internet connection for customer support could put you in the same ball park as the major league players. No one expected these connections to replace EDI one day, and they didn't have a catchy name like "extranet" but they did facilitate lots of nitty gritty commercial interactions.

Now that the Internet has elbowed its way into marketing, sales, internal information management, and every other aspect of business, higher expectations for explicit cost savings and growth opportunities in the business-to-business space are clearly in order. The current wave of enthusiasm for setting up extranets reflects the maturation of Internet technology and security solutions on the one hand and the momentum of applications that yield a significant return on investment on the other. Consumer readiness for buying on the Web is still in question, but many companies are ready to embrace electronic commerce primarily to streamline their interactions with each other. A quick look at the numbers makes it obvious that this is not a passing fad. Forecast of consumer-based Web commerce by the year 2000 range from $4 billion to $10 billion in transaction value, while business-to-business Web commerce projections range all the way up to a hefty $150 billion according to a May 1997 Economist Survey of Electronic Commerce. Clearly buying books and cds online will be a pretty small tail on the extranet dog for years to come.

Market size aside, there are compelling reasons for companies to take extranet development seriously. As it has from the start, the Internet provides multiple opportunities for driving down the cost of doing business while improving the speed, flexibility, and quality of commercial interactions. Extranet deployment today tends to fall into a variety of categories:

Suppliers and vendors consolidating transactions and customer relationships by using the Web infrastructure to develop customized, secure procurement systems
On-line bidding and industry focused Web sites, often developed by third parties, to facilitate efficiencies and broader competition in soliciting contracts and obtaining goods.
Vertical industry malls
Web support for outsourcing manufacture of components and assembly and collaboration with contractors through closer integration of fulfillment and inventory control systems
Digital distribution support, ranging from direct to use of new online intermediaries

Few companies are using all of these applications simultaneously, but more and more are finding that the Web will eventually play some role in almost all of their business-to-business interactions.

But strategic Internet planning is required to ensure that multiple extranet projects end up saving money instead of squandering it. A quick review of current extranet developments at many large companies reveals that most are still at the pilot project stage, awaiting answers about how these applications can be integrated within the company itself, or how easy it is to shift some fundamental business practices that have evolved over many years to support traditional supply and distribution methods.

Electronic commerce, it seems, is starting to create problems and issues of its own, and companies are just beginning to come to terms with some of these extranet growing pains. Digital distribution, for example, raises questions about the role of traditional resellers and intermediaries and can easily create short term confusion and channel conflict. A drive toward supply chain consolidation and streamlining of relationships with vendors via customized Web purchasing systems can vie with opportunities to expand the range of vendors and reduce costs through online bidding on the Web. Vertical online malls may save on costs for certain types of material, but fall short on providing the support services that technical and product development staff have come to rely on.

Tracking the development of extranet applications in more detail helps to shed some light on the best solutions, the lessons that have been learned to date, and the way in which business may have to change yet again to get the most from the next stage of Internet development. Companies that expect to increase their efficiency and also save money by moving supply chain management or product distribution to the Web need to pay special attention to the implications for overall management strategy and the impact on their current business partners. It's time to apply the lessons from the successes-and the failures-of business-to-business Internet programs instead of just repeating them.