June 26, 2017

Article 8.18

B2B E-Selling Isnít

E-selling of physical goods through vertical dotcoms of all stripes and through company web order entry systems remains generally unsuccessful. Why? If selling stuff isnít the "B2B killer app" for the internet, then what will and how should we rethink our e-strategies?


WOESí results to date look a lot like bank ATM results. Starting in 1976, banks spent billions putting up proprietary ATM networks with the hopes of stealing customers and closing branches. Today about 30% of all US adults use ATMs just to get cash for over 95% of the transactions. And the branches and tellers are still here doing the rest of the traditional services.

First mover banks may have gotten a few new customers, but the cost of their ATM networks killed their bottom lines. For loss relief, banks first established open ATM standards to share machines and costs with competitors, banks then allowed credit cards to work on the machines and finally they started charging service fees. Some customers and ATM manufacturers won this game, and slow follower banks lost nothing. They just rent ATM services by the transaction as needed, because ATM service slowly did become an expected service.

Until e-content standards for a given vertical industry emerge along with shared-cost, utility service(s) for WOES, the cost-benefit for WOES will be a loser for 95%+ of all B2B-selling firms.


Most B2B exchanges have little to no volume. The few with some volume usually started by trying to get desperate sellers of commodity products to sell to opportunistic price buyers, but then they canít get past this niche. The reverse auction services (e.g. Freemarkets) may succeed initially by targeting end-users that are going through a centralized, cost-cutting phase run by bully bean counters. The initial price savings from the reverse auctions are trumpeted immediately, but there has been no coverage yet of how most of the other (hidden) procurement costs start rising to eventually exceed the price savings.

Every business generation has to learn the bargain price, bargain service lesson again before they start to swing back towards just-in-time, integrated sole supply deals co-created with best service suppliers on a win-win basis. Remember Mr. Lopezís "we win-you lose" attack on GMís supply base in the early Ď90s? Heís back in internet clothes.

The real problem for both exchanges and reverse auctions is that 95%+ of all physical goods channel volume involves bundled services that differentiate the commodities offered by different service vendors. Current channel supply relationships are complex by-products of two driving forces: buyers searching for the lowest, total procurement cost over time - usually on an intuitive, trial-and-error basis; and sellers trying to achieve the lowest, total sales/service cost within a relationship. The resulting deals involve many, often locally executed and flexible services that must continually evolve with both end-user and manufacturerís changing needs. When mistakes are made by all channel players, intermediaries are expected to provide the heroic recovery skills to keep things flowing.

Could some exchanges eventually figure out how to electronically and physically approximate all of the "wrap-around" services that traditional intermediaries do? Maybe Ė in theory. Independent dotcoms will run out of cash and credibility before it happens. And, exchanges backed by manufacturer consortia will most likely be less successful than the grocery industry has been in trying to adopt a continuous replenishment platform that they call "efficient consumer response"(ECR) to keep Wal-Martís SuperCenters from eating them alive.


Why have experts Ė publications, research firms (Forrester, et.al.) and investment bank analysts Ė continued to be way too optimistic about the prospects for e-selling? First, they are heavily conflicted. Hyping huge, unsettling numbers makes people buy more research, consulting, publications and new IPO stocks underwritten by the analystsí firms. The publications have also made an advertising killing from dotcoms spending on "brand development"- hence the upbeat advertorial coverage. Secondly, most "experts" are young people who live in theoretical worlds and donít really understand the dynamic complexity of vertical industry ecosystems.

But, more amazingly, industry intermediaries donít seem to fully understand their value proposition, because many have felt more threatened than they should have. If intermediaries can not define, measure, brilliantly execute and sell the value of the different service sets that they are doing for both vendors and customers, then two things will happen. First, "channel partners" will start to incorrectly think that they can do it all on their own with new, over-hyped internet platforms and tools. Then, intermediaries will not be able to accurately assess which of their traditional service values will be eroded by e-channel applications and what new e-service roles will arise for them to fill.


If selling stuff for less isnít the B2B killer app for the internet, are there other candidates? The net could be turned into a just-in-time information, education and motivation machine. Enormous amounts of vertical industry training will be computer based in about three years when all progressive channel players will have continuous, big, bandwidth connections that will allow multi-media streaming to happen. In the meantime, snail mailing short videos and CD-ROMs with follow-up testing over the web for prize points could suffice.

Partner relationship management (PRM) solutions for manufacturers selling through channel partners offer a number of applications that could make a channel far more agile and responsive than in the past. What vertical dotcoms will figure out how to take these tools and make them available to many, smaller, complementary niche manufacturers that share the same intermediaries?

If just in time education and information services emerge within a channel, then both outside and inside sales support activities will shrink and change significantly. These job transformations will be completed within 3 to 5 years, so it isnít too early to start figuring out how to get from here to there.

Who will be the first to stop being distracted by buying and selling goods for less over the internet? Who will start focusing instead on how to use the net to fix the historically inefficient processes of educating and motivating channel partners to do a better job on niche products, special orders and finding buyers for excess commodities in the fastest, most predictable and least disruptive way? They will be big winners.

Merrifield Consulting Group, Inc., Article # 8.18

D. Bruce Merrifield, Jr., October, 2000