Small companies in manufacturing and distribution are the next great frontier for business-to-business e-commerce. Small businesses have much to gain by leveraging their entrepreneurial strengths with the Web’s tremendous distribution power.

Forrester Research estimates that business-to-business e-commerce will rise to $1.3 trillion by 2003. Also, a survey of CFOs conducted by the Financial Executives Institute and Duke University indicates the proportion of U.S. companies that sell their products over the Internet will jump from 24% to 56% by the end of 2000.

E-Commerce: The Great Leveler

Marketing and distribution costs are often a major weakness for small manufacturers. Although product quality may be comparable to or higher than that of larger companies, these companies may lack the resources they need to develop brand names and product image or perception. E-commerce can help eliminate this inherent market inefficiency.

Business-to-business Web portals that offer the ability to buy and sell products generally eschew the marketing and distribution glitz that larger companies have used to quash smaller competitors. The current television commercial depicting an "out of the garage" seller getting a massive contract on a business-to-business e-commerce site isn’t an outrageous example.

Buying and Selling Over the Internet

Any company can purchase over the Web. According to a recent article in USA Today, "companies say that e-purchasing will slash 10% to 20% off what they buy from each other." As efficiencies are gained in the procurement process for business goods and supplies, benefits will find their way to business-to-business e-commerce.

Even if a Web storefront is out of your financial range, this doesn’t mean you can’t enjoy the benefits of electronic commerce. A whole new breed of intermediaries has developed over the Web to allow businesses to sell without the need for their own storefront. These companies typically have decided that part of their core competence is not installation and maintenance of a Web storefront. The use of business-to-business intermediaries allows these companies to participate in electronic commerce at a much lower price.

There are three types of intermediaries:

• Aggregators create a business community. Aggregators pool supplier content to create a searchable one-stop shopping mall with predefined prices for buyers within a business community. These cyber-stores help geographically dispersed buyers and sellers find each other fast. Examples include Petrocosm Marketplace (for suppliers of drilling equipment), Chematch.com (for the buying/selling of chemicals), and Yet2.com (for the buying/selling of intelligence on research and development.)
• Auctions create markets and reduce sellers’ losses. Auctions pit buyers against each other to purchase seller surplus. On the Web, sellers and buyers can participate in multiple, real-time auctions simultaneously without accruing physical search and travel costs.
• Exchanges create stable online trading markets. These are similar to stock exchanges that provide participants with a trading venue defined by clear rules, industry-wide pricing, and open market information. An online industry spot market can operate at a fraction of the cost of a bricks and mortar market.
• Electronic commerce is poised to revolutionize how manufacturers conduct business. Long-standing inefficiencies in the economy will be swept away by the capabilities of the Internet to match buyers and sellers.