Efforts to Broaden Reach of The Digital Economy

SAN MATEO (03/27/2000) - The push to make businesses more efficient via trading exchanges is making its way to small and midsize companies, and the effects will be felt throughout the supply chain.

Along with consumer titans Yahoo and America Online, Microsoft this week will throw its weight behind a business-to-business effort for small and midsize companies.

The goal, in part, of these efforts is to create so-called market-to-market opportunities, which promise to give small and midsize businesses the collective weight and influence to realize significant savings in their procurement of goods and services. In some cases, the savings could be greater than those enjoyed by larger companies using similar online conduits.

"I think that the purchasing savings for the smaller companies will actually exceed the kind of savings that the tier-one companies are able to drive because of their size," said Steve Banker, an analyst at ARC Advisory Group, in Dedham, Mass.

Microsoft's bCentral network offers "an on-ramp for these small and midsize companies to join the marketplace," said Becky Kaske, director of manufacturing for the Business Solutions Group at Microsoft.

Through partnerships, the software giant will build on such moves as its recent partnership with VerticalNet to allow its 55 vertical markets to be integrated into bCentral, offering small and midsize companies access to different vertical markets, Kaske said.

Partnerships that will give companies access to a range of trading networks through a single exchange is a harbinger of partnerships and market-to-market strategies to come, analysts said.

"If you have somebody like Chemdex come in and integrate with your back-end systems and allow you to do business with your business rules ... that really locks you in. You don't want to be switched out of that network," ARC's Banker said.

Instead of doing the complex integration involved in switching, participants might put pressure on their current exchange partner to link to related exchanges. For example, a network aimed at small and midsize companies may want to link to vertical exchanges.

"The key will be how AOL negotiates these vertical marketplaces," said Shawn Willett, an analyst at Current Analysis, based in Sterling, Va. "When you're talking about vital goods -- the steel industry, the food industry -- people are not going to turn to AOL."

In spite of the perception of Yahoo as a consumer-oriented portal, the company has been planning a b-to-b strategy from day one, said Brian Fitzgerald, producer of the business-to-business marketplace at Yahoo, based in Santa Clara, Calif. He added that Yahoo's partners in the retailing realm have been urging Yahoo to move into b-to-b due to Yahoo's reach.

"The tool is actually quite useful for those in large organizations," Fitzgerald argued, particularly for price comparisons and due diligence research.

Yahoo's B2B Marketplace directory offers equipment, inventory, and product listings from e-commerce sites.

America Online's b-to-b ploy involves a three-year strategic alliance with PurchasePro.com to co-develop a business exchange for business users across AOL, CompuServe, and Netscape Netcenter.

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More about America OnlineAOLARC Advisory GroupChemdexCompuserveMicrosoftPurchaseProVerticalnetYahoo

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