Issue #420 Business in Vancouver

The High Tech Office: Business to business selling on the Net poised to take off
by Alan Zisman Nov 11 1997

While many have been focussing on the growth of direct sales over the Internet, commerce between companies over the Net may be poised to take off. According to a recent report, ?The total value of goods and services traded between companies over the Internet will reach $8 billion this year and $327 billion in the year 2002,? according to Cambridge, MA Forrester Research (
Their recent survey of  150 companies found that 63 were already actively conducting business over the Net, and that for those companies,  Net-based business-to-business activities had tripled compared to last year. Companies report that they?ve reduced order-processing time and costs and improved information flow. One distributor, for example, reported that it was two-thirds less expensive to process an order over the Net compared to using phone-based salespeople. Another business reported that by distributing information on-line, costs of printing and shipping were reduced, while customers received the information immediately.

The job of salespeople changes? they become account managers rather than order-takers. Customers spend less time on hold, by being able to access the company Web site seven days a week, 24 hours a day.

While it?s a relatively simple process to place product information and catalogues on-line, building a complete commerce-ready system is more difficult; many businesses are implementing such sites in stages?eventually adding secure mechanisms to receive and confirm payment, to allow customers to track orders, and even, where feasible, to deliver product.

Unlike the ?Field of Dreams? cliché, ?Build it and they will come?, it?s not enough to simply create a Net-based commerce site. It takes time to get clients to move from a personal relationship with a salesperson to an Internet-based system. Companies that were successful actively pointed out the lower prices and better information that could be obtained on-line.

Three groups of businesses are in the lead in this growth of business-to-business sales. Companies involved range in size from industry giants to smaller firms.

¨ Manufacturers: Durable goods producers will account for over a third of the Internet business trade this year, with the electronics and aerospace industries particularly making use of this channel. Apparel, business forms, and other non-durable producers are lagging behind. Forrester expects annual durable goods sales over the Net to jump to $99 billion over the next five years.
¨ Distributors are making increasing use of the Internet channel, which is seeing activity ranging from computer suppliers like MicroAge to office supplies distributors like Boise Cascade. On-line auctions are connecting buyers and sellers.
¨ Services and Utilities: $2 billion of crude oil and natural gas will be traded over the Net this year, though Forrester predicts relatively slow growth in on-line sales by the energy sector. Not surprising, software sales over the Net is growing, with predictions that 50% of all such sales will take place on-line within a few years. Despite increased use of the Net by courier firms like FedEx, the transportation area in general, however, will account for only a tiny fraction of on-line sales. Service industries in general can be expected to increasingly provide information on-line, but will rarely be using this channel to generate sales.

As sales continue to increase, Forrester expects that companies will see generally higher profits, but that increased Net-based competition will result in at least some of these profits plowed back to customers as lower prices. Increased on-line competition will also require better on-line services. Expect to need to eventually provide on-line order and payment verification, inventory status, and shipping date confirmation.

As well, expect a blurring between wholesaler and retailer, as each uses the Net to move into the other?s turf. Computer distributor Ingram Micro, for example, lets end-users compare features and prices for 10,000 products from 100 manufacturers, all on-line.

Dell Computers has been cited as a model; they are currently receiving about $1 million worth of business from home and small office customers over the Net each day. This represents only a fraction of last year?s $8.7 billion in sales for the company, but they expect their on-line sales to jump dramatically when they begin to offer a way for larger businesses to place orders for custom configurations and pricing.

Another model is FastParts. They are one of several on-line auction enterprises, in this case, specializing in semiconductors. Over 300 client firms use their services to anonymously buy and sell to one another, with transactions that range from North America to Europe to Hong Kong. FastParts reports that arranging the sale is easy?the tough part is fulfilling the order. They arrange shipment of the goods, then hold the payment for five days to allow for buyer inspection.

Just as e-mail accounts for an increasing proportion of business communication, expect the Net to provide an increasingly dynamic and profitable channel for business-to-business sales. Ignore it at your company?s peril.

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Alan Zisman is a Vancouver educator, writer, and computer specialist. He can be reached at E-mail Alan