Net giants target business e-commerce

But whether Yahoo, AOL and eBay are in the business e-commerce market for the long haul, or the short profit, remains to be seen, analysts say.

This week, Yahoo said it created an e-business portal aimed at small businesses, providing links to marketplaces that connect buyers and sellers for commercial supplies and industrial goods. Meanwhile, AOL said it is partnering with business-to-business specialist PurchasePro.com to help small businesses build marketplaces or join existing ones.

Add those to eBay's move last week; the online auctioneer said it, too, would target the business market with a service called eBay Business Exchange. And less than a month ago, Priceline.com said it would offer business services.

What's not clear is whether these companies--better known for online chat, dial-up services and auctioning collectibles--will seriously compete in the business e-commerce world against established players and the multitude of new marketplaces being launched daily.

Whether recently announced plans amount to marketing fluff or a strategic shift, one thing is certain, analysts say: The business-to-business market may never be the same.

"Now that you have consumer companies jumping into this space, it is the pinnacle, the peak of the B2B hype," said Alan Mak, an analyst at Argus Research. "With these big firms buying into it, it could even help squash (the smaller players) in the sector."

Firms selling specialized software and offering online exchanges promise to drastically decrease the cost of doing business.

The allure of the business-to-business e-commerce market for online merchants and technology providers comes down to this: Research firms predict the market for global business e-commerce is worth between $2.7 trillion to $7.3 trillion by 2004.

Commerce One, Ariba and i2 Technologies, which supply e-commerce software, have seen their market valuations soar as large and small companies have begun flocking to the Web to set up industrial marketplaces.

Now, as Wall Street begins to cool toward consumer e-commerce businesses, big players such eBay and Priceline are eyeing business-oriented services.

"It does look very much like a 'me too' play because everyone seems to be setting up B2B exchanges these days," Mak said. "I really don't know how successful they'll actually be."

Some investors, however, are waiting to see if business e-commerce gains any momentum for consumer-oriented Net firms.

"I am wary of how big of an impact it will have on these companies," said Darren Chervitz, a senior analyst at the Jacob Internet Fund. "I definitely won't be incorporating any of those added businesses into the (companies' performance) models."

Susan White, an analyst at JP Morgan Securities, wrote in a recent report that Yahoo is "smartly focusing on small to medium-size businesses. This is a fragmented group of buyers and sellers and represents a rapidly growing market. Existing B2B marketplaces have been focused on the exchange of goods between large businesses."

AOL is steering clear of Ariba, Commerce One and i2 Technologies, which are focused on winning the large fortune 500 enterprises, analysts noted.

"What AOL is trying to do is to leverage some existing assets, which are its business customers," said Youssef Squali, an analyst at ING Barrings. "I would be very surprised to see AOL going after medium to large companies."

AOL and Yahoo face another growing obstacle: They are entering an industry that is increasingly fragmented with copycat marketplaces sprouting almost daily. The proliferation of nearly identical exchanges promises to hinder efforts to build the needed momentum to draw enough buyers and sellers.

Take the example of the food and beverage industry. Less than a week ago, Ariba said it was helping food and agricultural conglomerate Cargill to build Novopoint.com, which will link food and beverage manufacturers to their suppliers and partners over the Internet. Earlier this week, Ariba said it was helping Inc2inc.com create an identical exchange.

With its alliance with PurchasePro, AOL will have a hand in creating a growing number of identical marketplaces, which will fragment the industry even further, some analysts say.

"It doesn't really make sense because as buyers you want to go where there is the biggest catalog, and as a seller you want to go where there are the largest number of customers," Mak said. "If there are so many fragmented marketplaces, you won't be able to get the critical mass needed for them to succeed."

The rapid rise and popularity of the business-to-business sector has also obscured the fact that the industry faces serious hurdles. Some have voiced concerns about the potential need for government regulation over new marketplaces that concentrate tremendous purchasing clout among a handful of large companies, opening up the possibility of collusion. Others have noted that despite the tremendous attention the sector is receiving from investors, there are several pitfalls that need to be surmounted, including security and standards issues.