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2B is the latest technology hotspot, so new, in fact, that many of its elements are still emerging. Of course, businesses have been doing business with other businesses for centuries, yet the Silicon Valley hype machine has managed to infuse it with such a technological twist that companies feel B2B is a vital part of their future.

2B is the latest technology hotspot, so new, in fact, that many of its elements are still emerging. Of course, businesses have been doing business with other businesses for centuries, yet the Silicon Valley hype machine has managed to infuse it with such a technological twist that companies feel B2B is a vital part of their future.

IT analyst groups such as Gartner and Forrester Research have attempted to clarify the fundamental principles behind B2B through the use of new terminology such as collaborative commerce and commerce change. They argue that the key distinguishing feature of B2B is the new collaborative style of working that it introduces into relationships between companies. This collaboration is enabled, and cost-justified, through electronic net-based relationships.

At first, B2B commerce focused on the creation of large, centralised trading exchanges. The most famous of these is possibly Covisint, the result of collaboration between the giant auto-makers such as GM, Ford, DaimlerChrysler and Renault. Covisint acts as an aggregator, bringing together a group of dispersed trading partners in a single virtual marketplace. It also facilitates electronic relationships by providing software tools and protocols that allow businesses to exchange information, create auctions for buying and selling goods, process payments, and so on.

B2B via trading exchanges is a powerful idea, and has attracted venture capital funding, attention from corporates and a tidal wave of press coverage. Technology companies that have exploited the trading exchange model of B2B, such as Ariba, Commerce One and Clarus, are the new children of the internet era.

However, the almost un-noticed flaw in online auctions and marketplaces was that most of the trading exchanges had no economic basis for being in business. Their business models stank.

One of the most successful was Chemdex - an early pioneer in setting up an electronic marketplace for the chemical industry - which sank late last year. In its last year before shutting down, it produced $28m (£19m) in revenues, but made wafer-thin margins on that revenue, which could not stem cash-burn that was reaching around $70m annually.

The lack of business sustainability highlighted other flaws in the B2B model. The key value proposition of an exchange is that it enables buyers to find the lowest prices. While it sounds exciting for managers to think they can reduce the amount they have to spend by using an exchange, best practice in buyer-seller relationships shows it is not in the buyer's interest to focus on low prices. More important are issues such as quality, customisation and deliveries.

When the auto-makers were rushing into exchanges, Toyota chose to go the other way. It argued that the only real benefit of B2B was to enable it to have electronic relationships with companies it already traded with.

So what does the future of B2B look like now? A better model is emerging in which all companies will be able to locate trading partners and carry out transactions swiftly and securely, without the need for a trading exchange playing aggregator or facilitator.

As yet, these peer-to-peer technologies are not robust enough to handle complex B2B transactions. But don't wait for them to mature before starting to prepare for their arrival. Already, businesses need to build an electronic infrastructure that will enable them to conduct all their transactions and relationships in an electronic manner. To accomplish this will require the integrated working of many back-end systems already in place. It's nice to think that all the money companies have poured into their IT implementations will be the secret of their B2B success.

* This column is provided by TBC Research, an events, publishing and research group. Contact www.tbcresearch.com

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