eBay taps business-to-business boom

The San Jose, Calif.-based company announced today it is launching its eBay Business Exchange service to target the small business market. The company first began testing business-to-business (B2B) trading in Germany last fall.

Analysts also noted that small businesses were already busy using eBay to purchase computer products and office supplies, and today's announcement merely makes B2B an official eBay strategy.

"eBay created a marketplace, and people chose to use it differently," said Daniel Ries, an analyst at C.E. Unterberg, Towbin, an investment banking firm. "Now, eBay is putting their own marketing might behind the B2B effort."

For eBay, the move into the U.S. business-to-business market seemed inevitable. The company is expected to use its brand reach in the consumer e-commerce market to help jump-start its business-to-business push. Nearly every sector on the Internet and offline--from automakers to payment systems services and enterprise software providers--is trying to cash in on the e-business explosion.

The use of online exchanges, in which companies buy and sell to each other directly on the Net, is predicted to generate huge savings and profits for suppliers as well as manufacturers.

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. In comparison, Forrester Research projects business-to-consumer spending will reach $184.5 billion in 2004, up from $20.3 billion last year.

Suddenly, business exchanges are popping up almost daily. On Monday, Dell Computer joined forces with business-to-business software maker Ariba to create a marketplace for Dell's small and medium-sized customers. In recent months, automakers General Motors, Ford, Toyota and others have announced plans for exchanges. Database company Oracle has teamed up with retailers Sears and Carrefour for an exchange targeting the retail industry. The list goes on.

eBay's exchange offers 34 business-related categories, including computer hardware, software, electronics, industrial equipment, office equipment and professional tools.

"The fastest growing areas on eBay over the last year have been computer equipment sales," Ries said. "This is great for the company since (computer equipment) is pretty high-priced stuff, and eBay's fee is related to the price of the goods being sold."

eBay said it expects to drive traffic to its business exchange with targeted banner advertising on business-related sites and from its existing marketing relationships, including its deal with America Online.

"Business Exchange is a natural evolution of the eBay business model," said Brian Swette, eBay's chief operating officer.

The company said it doesn't plan to license its B2B trading platform to bank on some of the growing enthusiasm for companies that help set up exchanges.

"We are focused on the markets that we are directly running and controlling," Swette said during a conference call with analysts and reporters. "That will be our approach for the foreseeable future."

Despite announcing its foray into the business-to-business sector, shares of eBay fell neary $10 or about 5 percent, to $201 in morning trading. The stock was pushed lower on speculation that discussions with Yahoo about an alliance or possible merger had fallen through. The stock has traded as high as $234 and as low as $70.25 during the past 52 weeks.