With the emergence of the Internet as a new way of doing business came a flood of entrepreneurs with big ideas for the future. Many of these entrepreneurs decided to invest in the idea of the B2B Exchange. Essentially, these exchanges were simply web sites where many businesses came together to buy from and sell to one another. The basic idea was that the B2B Exchange would make it easier for these companies to find the goods they needed, to complete transactions, and to save money through the added competition or large amount of goods being sold or bought. The B2B Exchange idea was so hot that in 2001 there were more than 1500 of these sites on the Internet. In just two years that number dropped to less than several hundred. As a result of the sudden decline, many people were left to wonder what went wrong.
Two main reasons can be given for the failure of the majority of these B2B Exchanges. The first reason is that the Internet entrepreneurs did not understand their place in the overall market. What they were offering to businesses was something that already existed. Companies have always done business with other businesses, and most of those businesses negotiate to lower their prices. Adapting those existing processes to an Internet format did not create anything that was new or different in the field. Unfortunately, many companies felt that switching to Internet-based sites controlled by third-parties was a much riskier bet than staying with their current methods of hooking up with vendors.
Another reason is that the entrepreneurs behind most B2B Exchanges didn't really understand what their customers wanted. Their primary selling point was lower costs and while cutting expenses always has some appeal to businesses, it simply wasn't what the majority of them were looking for. At the time, companies wanted better customer service, better quality, and increased reliability from their vendors, and they were actually willing to pay a little more to get those things.
Obviously, not all of the B2B Exchanges failed. Those that succeeded did so by finding their niche in the market and by changing to meet the needs of their customers. These companies realized early on that they could not compete with the big leaders in the field, so they had to focus on something different. Many of these B2B Exchanges switched their focus from large manufacturers to smaller businesses, another segment that received a tremendous boost from the Internet. These small businesses lacked the resources and connections to get good deals from local vendors, so they could go online to a B2B Exchange, get the goods or services they needed, and save money. Other B2B Exchanges succeeded by becoming focused on only one industry, so they were able to keep track of the needs of their primary customers.
Despite the fact that many B2B Exchanges fell to the wayside during the Internet boom, there are still ways for new entrepreneurs to get into the field and to prosper. They simply need to keep in mind a few main points. For example, they should never overestimate their economic potential when developing a business plan. Many B2B Exchanges thought they would easily generate in excess of $7 billion in sales, but that simply wasn't a realistic estimate. Anything less than $7 billion was consequently viewed as a disappointment by the management, the stockholders, and the business media. Another guideline for new entrepreneurs is that one failure does not mean the end of an idea. The golden rule of business is that most attempts will be failures but that each of those failures teaches the individual something that can help improve the odds for the next business. In the case of many B2B Exchanges, they could have been saved had they taken the time to readjust their focus and re-examine their market position.
Some B2B Exchanges that survived had connections with industry leaders or were formed by a collection of companies with leading positions in the industry and could drive the growth of the exchange with heir large purchasing volume. Clearly any new B2B exchange has take into account these strategic considerations.