Business to business (B2B) e-commerce is simply defined as e-commerce between companies. This is the type of e-commerce that deals with relationships between and among businesses. About 80% of e-commerce is of this type, and most experts predict that B2B e-commerce will continue to grow faster than the business to consumer (B2C) segment. The B2B market has two primary components: e-frastructure and e-markets. E-frastructure is the architecture of B2B, primarily consisting of a number of subcategories:
- Logistics: transportation, warehousing and distribution
- Application service providers: deployment, hosting and management of packaged software from a central facility
- Outsourcing of functions in the process of e-commerce, such as Web-hosting, security and customer care solutions
- Auction solutions software for the operation and maintenance of real-time auctions in the Internet
- Content management software for the facilitation of Web site content management and delivery
- Web-based commerce enablers
E-markets are simply defined as Web sites where buyers and sellers interact with each other and conduct transactions.
The more common B2B examples and best practice models are IBM, Hewlett Packard (HP), Cisco, and Dell. Cisco, for instance, receives over 90% of its product orders over the Internet. Most B2B applications are in the areas of supplier management (especially purchase order processing), inventory management (i.e., managing order-ship-bill cycles), distribution management (especially in the transmission of shipping documents), channel management (i.e., information dissemination on changes in operational conditions), and payment management (e.g., electronic payment systems or EPS).
Impacts of B2B e-commerce on the economy in general are evident in a number of areas:
- Transaction costs: There are three cost areas that are significantly reduced through the conduct of B2B e-commerce. First is the reduction of search costs, as buyers need not go through multiple intermediaries to search for information about suppliers, products, and prices as in a traditional supply chain. In terms of effort, time, and money spent, the Internet is a more efficient information channel than its traditional counterparts. In B2B markets, buyers and sellers are gathered together into a single online trading community, reducing search costs even further. Second is the reduction in the costs of processing transactions (e.g. invoices, purchase orders and payment schemes), as B2B allows for the automation of transaction processes and, therefore, the quick implementation of the same compared to other channels (such as the telephone and fax). Efficiency in trading processes and transactions is also enhanced through the B2B e-market's ability to process sales through online auctions. Third, online processing improves inventory management and logistics.
- Disintermediation: Through B2B e-markets, suppliers are able to interact and transact directly with buyers, thereby eliminating intermediaries and distributors. However, new forms of intermediaries are emerging. For instance, e-markets themselves can be considered intermediaries because they come between suppliers and customers in the supply chain.
- Transparency in pricing: Among the more evident benefits of e-markets is the increase in price transparency. The gathering of a large number of buyers and sellers in a single e-market reveals market price information and transaction processing to participants. The Internet allows for the publication of information on a single purchase or transaction, making the information readily accessible and available to all members of the e-market. Increased price transparency has the effect of pulling down price differentials in the market. In this context, buyers are provided much more time to compare prices and make better buying decisions. Moreover, B2B e-markets expand borders for dynamic and negotiated pricing wherein multiple buyers and sellers collectively participate in price-setting and two-way auctions. In such environments, prices can be set through automatic matching of bids and offers. In the e-marketplace, the requirements of both buyers and sellers are thus aggregated to reach competitive prices, which are lower than those resulting from individual actions.
- Economies of scale and network effects: The rapid growth of B2B e-markets creates traditional supply-side cost-based economies of scale. Furthermore, the bringing together of a significant number of buyers and sellers provides the demand-side economies of scale or network effects. Each additional incremental participant in the e-market creates value for all participants in the demand side. More participants form a critical mass, which is key in attracting more users to an e-market.
B2B E-Commerce
E-commerce has become so prevalent in today's business world that multiple conferences are held each year -- like this one pictured in the UK.