AOL joins business e-commerce rush

The two companies, hoping to capture some of the enthusiasm for business e-commerce, agreed to a three-year alliance that lets business users on several AOL Internet properties set up shop on business marketplaces built by PurchasePro. The companies also agreed to co-develop technologies to make their business exchanges more efficient.

Business-to-business marketplaces are all the rage in the evolving Internet sector. These exchanges provide a place for companies of different sizes to negotiate and bid for industrial and commercial goods with several suppliers.

Manufacturers hope to cut costs and increase sales by offering lower prices to suppliers, while makers of commercial and industrial goods hope to increase sales by reaching a wider range of potential customers through the Web.

The business e-commerce sector is expected to dwarf the business-to-consumer market, prompting many companies to venture into the business arena. Until recently the business-to-consumer industry was grabbing all the headlines, helping to make companies like Amazon.com, AOL and eBay household names with their products and services targeted for non-business consumers.

Forrester Research projects that business-to-consumer spending will reach $184.5 billion in 2004, up from $20.3 billion last year. In comparison, the leading research firms have the business-to-business market pegged between $2.7 trillion and $7.3 trillion by 2004 from about $131 billion in 1999.

AOL's move comes the same day as Yahoo's foray into e-business and just a few days after online auctioneer eBay officially began a business-to-business trading site. In recent months, Internet retailers Priceline.com and Beyond.com have also announced business-to-business strategies.

Although AOL already offered services aimed at small businesses, today's deal signals a redoubling of its efforts in the business sector. AOL allows small businesses to buy stamps online and offers printing and payroll services. With its Sun Microsystems alliance, iPlanet, the company helps develop software and servers for e-commerce.

AOL and PurchasePro said they will co-develop a business exchange for the millions of business users across the AOL proprietary service, AOL.com, CompuServe and Netscape Netcenter. The companies plan to create an interactive marketplace where people can bid, negotiate, buy and sell their products and services across multiple business markets.

Under the agreement, PurchasePro and AOL will share advertising and transaction revenue, and AOL will have the opportunity to earn performance-based warrants, the companies said.

For AOL to receive warrants to buy 2 million shares of PurchasePro, the partnership has to pull in $10 million per month in revenue or $120 million over 12 months, according to PurchasePro chief executive Charles Johnson.

"They can't write a check to buy these shares," said Johnson, adding that only $25 million of the $120 million can be generated by AOL through advertising. "We wanted to ensure that the revenue was transaction-based or subscription-based."

The exchange interfaces will be tailored specifically to the size and type of each business. The co-branded AOL/PurchasePro business marketplace is expected to launch by the end of the second quarter of 2000.