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B2B Exchanges : The Killer Application in the Business-to-Business Internet Revolution

• Electronic Commerce: Strategies and Models for Business-to-Business Trading by Paul Timmers, J. J. Timmers
• The eMarketplace: Strategies for Success in B2B eCommerce by Warren Raisch
• E-Enterprise : Business Models, Architecture and Components (Breakthroughs in Application Development) by Faisal Hoque
• Enterprise E-Commerce by Peter Fingar, et al

From The Industry Standard
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.

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