To b2b or not 2b: that is the procurement question

If you thought Lastminute.com had cooled the passions of dotcom investors, think again. The latest hotspot is not as glamourous as Martha Lane Fox's consumer travel booking service for the disorganised romantics. Now the words that make the punters giddy with excitement are business-to-business purchasing, aka b2b.

But what is it in b2b that turns on investors? Perhaps they think they've found their new heaven, safe from the volatility of the Internet consumer stocks but with the added fizz of using new media technology.

At first glance, the attractions of b2b procurement are clear. Corporate purchasing can be improved by eliminating the paper-based processes of sign-offs, authorisation levels and bureaucracy that cuts efficiency.

There are also a lot of knowledgeable mid-management procurement guys around who know their niche industry well and could easily set up new b2b companies. They are bursting with ideas on how to source materials better, aggregate suppliers to increase choice and do it all without wasting tons of paper. They are also Net-savvy and therefore should have the ability to develop good b2b sites to suit their particular niches.

They also make the venture capital chaps warm and comfortable, as there is an aura of experience around procurement men, inspiring investors' confidence and trust. That's in stark contrast to the business-to-consumer Internet companies, where management experience is often acquired on the job, and the average age is still under 28, or, God forbid, the management teams are female.

Yet, despite all these good points, my concerns about b2b persist. Why? Well, On a recent flying visit to a b2b conference I spied the long-forgotten booths of PricewaterhouseCoopers, Deloitte, Anderson Consulting and the other usual suspects.

The speed of development of the business-to-consumer Internet market meant that the consultants were kept out of the loop as the Amazons and Lastminute.coms of the world solved their problems with their own teams. With b2b e-commerce, though, there are many technical, commercial and logistical issues that pose difficult challenges for the big companies. So for better or worse, the consultants will feed off that particular gravy train for at least a few years to come.

What is for sure is that any business that needs consultants will need a long, long time to analyse, create and implement the solutions necessary for e-procurement. Those of us who remember the predecessor of b2b procurement, called Electronic Data Interchange (EDI), remember that the average implementation cycle was in years if not decades, and that it never really worked. That should serve as a warning flag to both the venture capital community and to those considering a career switch.

In the United States, the switch to buying supplies online by the corporates has been extremely slow. The reasons why consumer sites like Amazon or eBay have grown like crazy is that the decision to buy or not to buy is in the hands of the individual.

You or I can sit in front of our standard computer, with our standard browser and if we need to buy flowers for Mother's Day we simply click on egarden.co.uk. Then we connect, type in credit card details and everything works, as our standard home Internet set-up is compatible with egarden software that processes orders and payments.

But corporate procurement is an entirely different animal where many months must pass and bills must mount before any employee will be allowed to buy as much as a pencil online, and only then through a three-layer deep authorisation process.

The issue of the compatibility of e-commerce software with the internal company network is another big obstacle, just as it was with the old-fashioned EDI. The security issues are suddenly much more important, as denial-of-service attacks on, for example, a big online medical supplies business, could have grave consequences.

The competition in this area is also a lot more intense than in retail e-commerce. This is mainly because not only traditional aggregators in niche areas are involved, but also retail portals like Yahoo, AOL or eBay, which are busy setting up their b2b purchasing exchanges.

In the US, a handful of large companies including GE, General Motors, Ford and Johnson & Johnson have taken the lead and forced their suppliers to adopt a standard software, thus succeeding in creating effective business exchanges in their areas. In the UK, Diageo has taken a similar lead, but is an exception on our shores. The other big players, who could drive the adoption of standards through, are still only halfway through implementing their gigantic intranets, and not at all ready to look yet at e-procurement.

So before you invest or take a job in one of those pre-IPO b2b beauties, consider that however they dress them up, they are really EDI with new clothes on - but without the rapid growth prospects of consumer e-commerce. It will be great if it works, but it will take years, not months, to grow a business exchange to the scale of Amazon or eBay. This then is a sport for those with marathon stamina.

eva@never.com

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