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B2B: Is there life out there?

The hype surrounding B2B a few years ago was matched only by the silence that followed the concept`s spectacular implosion. Has B2B expired, or are the remaining players just quietly getting on with the job?
Read time 13min 40sec

Following the descent of the dot-com boom into "dot-bomb", the early promise of business-to-business (B2B) marketplaces looked likely to remain unrealised, with the concept being dogged by technology problems and a lack of interest from suspicious clients.

Despite this, a number of high profile marketplaces sprang up, eager to capitalise on the new idea - just as so many online companies emerged during the heady days of the Internet boom.

Of course, quite a number of these businesses learnt the hard way that being in at the beginning of a technology revolution costs vast amounts of money, with cash having to be poured in while bugs are ironed out and there is little in the way of return on investment.

Because of the number of bugs in both the technology and the business models, a lot of these companies failed, and the B2B front went quiet for a long time, leading many to think that it was yet another failed concept.

However, the B2B arena is still ticking over for those businesses that were strong enough and wealthy enough to struggle through the bad times, and it is those organisations that are driving the second wave of B2B.

When B2B first raised its head, around 1999, there was a lot of talk about "the next big thing", but, as with the fuss surrounding the dot-com bubble, this proved to be little more than hype, says Gartner analyst Andy Kyte.

"It created a picture of a massive performance increase and heaps of cost savings for organisations, thanks to the power of the Net," says Kyte.

"Back then, companies did not really understand where they were going or what they were trying to achieve with B2B. Ultimately, they needed to realise that the goal was not actually B2B, the goal was better business performance."

Badly made bed

Paul Marcellin, MD of PhiBlue Technologies, agrees, saying outlandish claims of efficiency and cost saving were made without any real consideration of the process and change-management issues.

The technology was oversold, undersupplied and unable to do what it promised.

Brandon Spear, regional VP, Quadrem

"A bed made without sheets remains deficient and semi-useful, no matter how good it may look," he says.

Quadrem, which is a marketplace for 19 of the world`s biggest mining houses, was one of the early adopters of B2B, and struggled for a number of reasons.

"One of our biggest problems was with the technology we used at the beginning," says Brandon Spear, the company`s regional vice-president.

"It was oversold, undersupplied and unable to do what it promised, so even though we managed to survive the initial tough times, Quadrem certainly bears a number of battle scars."

Another problem lay in the integration issues involved in getting the B2B technology to fit in with back-end systems that were often quite archaic.

According to Francois Naud'e, CEO of TradeWorld, another of the survivors from the early days of B2B, when the concept was first mooted, it became something of a "land grab", with everyone trying to get in on the action, whatever the cost.

"The initial perception was that if you hooked the large buyers, the suppliers would come of their own accord, but it actually proved a lot more difficult to get the suppliers on board. And then when the bubble burst, people became very sceptical about the whole concept," says Naud'e.

Judging the pace

"It has taken us two years to get past the perceptions that were dented by the unrealistic hype and get some reasonable uptake. That said, the pace of B2B growth is far more realistic now - it started out too fast, then moved far too slow for a period, but now it`s about right."

Although the B2B arena was originally dominated by large marketplaces promising to revolutionise the way business was done, it soon became apparent that such a model was untenable.

"When B2B first started, the common view was that `it is either e-business or out of business`, which is why so many companies got burned initially," says Andreij Horn, CEO of M-Web`s Commercezone.

"In the beginning, there were too many people focusing on the concept of the world market - where they were promising to be everything to everyone. This was just a pipe dream."

Horn says that, unlike some of its competitors, Commercezone didn`t see B2B as some kind of magic wand. Instead, it was just another tool to help the business.

"Once the decision had been taken to adopt a procurement strategy across the entire corporate group - in this instance the Naspers Group - there were four key factors that we had to get right to be successful; namely business processes, change management, strategic sourcing and systems integration," he says.

"And we had to make sure we had it all worked out properly before we instituted it across the entire group; because, of course, if you have inefficient B2B processes, you`ll still be losing money, but it`ll be happening at digital speed."

According to Gartner analyst Kyte, there is no complete B2B service, since connectivity is related to a variety of technologies, dependant on the task that needs to be performed.

"These days, organisations look more at their business needs, and are thus able to create opportunities to improve business through specific targeting, rather than through a single catch-all technology platform," he says.

Customise is always right

Roger Trummer, a sales director at solutions provider 3Fifteen, agrees. "The trend is very much to buy `out-of-the-box` functionality and then customise it to suit the company`s needs. The idea is to use the stuff that`s out there already.

If you have inefficient processes in B2B, not only will you still be losing money, but it`ll be happening at digital speed.

Andreij Horn, CEO, M-Web Commercezone

"Also evolving in B2B today is the understanding that it is necessary to reach agreement on processes and standards, because when you are looking at a fully automated process, the machines that are talking to one another need to be `reading off the same page`, so to speak," he says.

However, it is not only about better technology, says Deirdre Strydom, strategic marketing executive at B2BAfrica, an e-logistics company that has a number of high-level clients, including the parastatal Transnet.

"As B2B evolves, it has become more about supporting a specific business process. True B2B requires business skills that one might not find in a normal infrastructure provider.

"At B2BAfrica we have found the `sweet spot`. We have reached a stage where we understand the architecture of the companies we are working with, which means we can now take the technology pains away from our clients," says Strydom.

According to Alison Vorster, GM of Internet Solutions` Business Gateway, another factor in the ongoing evolution of the B2B arena has been a huge improvement in user education, which has meant that clients now understand the processes and limitations of the technology far better.

"People have recognised the need to be able to communicate faster and easier, and since B2B facilitates this, it has been necessary for them to become more educated in this regard," says Vorster.

"It certainly has evolved from being a concept devoted to improving a company`s bottom line to being one that takes communicating with one`s customers to a higher level," agrees Migal van As, CEO of Intervate, an IT solutions provider.

"In one sense, B2B is actually being driven by the customers, as it has become part of the type of package they expect. They can already perform so many important functions online - such as their banking - that the urge to do more and more business electronically is forcing suppliers to integrate their systems."

Ready to receive?

"In terms of the South African B2B environment, the key question is: can we successfully implement a First World technology in a Third World environment?" asks Semela Tseka, CEO of Choice Technologies.

"Personally, I don`t feel the market is properly receptive to B2B just yet, as too many people were burnt when the bubble burst initially."

He says another key issue still facing B2B is protection of a business`s competitive advantage.

"We cannot have suppliers themselves trying to be B2B players, because then the competitive advantage issue raises its head. The only way forward is to have a trustworthy third-party controlling the logistics," says Tseka.

Another problem affecting B2B in SA is the lack of bandwidth that is part and parcel of life in the Third World.

"It is definitely a problem, as it slows down the execution of the business process," says B2BAfrica`s Strydom. "Until we reach a bandwidth level on a par with the US, this will always have an effect on players in the B2B arena."

Yet another matter hampering growth of B2B is security.

"It is imperative to have strong security if you plan on operating in a space where you are using the Internet as the backbone for your process," comments Strydom.

Quadrem`s Spear says that while much has been made of the concept of "interoperability", this remains nothing more than a dream at present, although not for technology reasons.

"It is actually business reasons that affect interoperability, since there are too many varied business models out there at the moment, so we are going to need people to distil it all down and settle on which models are best. This is a major challenge for the future," says Spear.

Keep it tidy

Spear believes differing standards are also a huge problem to be overcome.

The key question is: can we successfully implement a First World technology in a Third World environment?

Semela Tseka, CEO, Choice Technologies

"There needs to be a set of consistent standards - such as a standard way of describing catalogues - because if you are dealing with a process that is completely automated, a machine that receives information it does not comprehend will simply reject that order.

"Obviously agreeing on these standards is a very complex issue. If you have issues such as different languages or different measurement systems, like metric and imperial, they can cause real headaches when you`re dealing with millions of transactions," observes Spear.

Trummer concurs that reaching agreement on data standards, processes and functionality is a key factor in taking B2B to the next level, but adds that integrating the back-end systems of enterprise level organisations is another challenge to be faced.

"Technology education is still a problem for B2B as a whole," says Internet Solutions` Vorster. "There are lots of potential clients still sitting with old technology and the big issue for B2B players is managing the migration process to the newer technology.

"I do believe that once we get to the point where the technologies are integrated we will see the second stage of B2B maturity being reached, and when this happens, there will be a renewed uptake of B2B."

Into the future

While problems still beset B2B, they are, generally speaking, nowhere near as daunting as those that led to the B2B bubble bursting initially. More importantly, the players that survived those initial setbacks are predicting a rosy future.

The two trends most foresee in the near to medium term are consolidation and maturation.

"I certainly think there is still space in the South African market for about 25% more consolidation, so I`d expect to see two or three of the bigger players merging at some point. But the remaining players will be strong and in control of the field," says TradeWorld`s Naud'e.

"There will also be a significant upturn in the next 18 months or so, although, as saturation sets in it`ll slow down. This second boom will occur, albeit at a flatter pace, and will likely be facilitated by a merger between some of the players."

Spear agrees there will be more consolidation, but also foresees growth.

"Quadrem is expecting to double its revenue to $3 billion this coming year. We are getting close to the stage where everyone will need to know how to plug into a B2B marketplace, because it will become the only way of doing business."

Something else that lies in B2B`s future is enhanced workflow and process management, according to Vorster.

"Things will become simpler, and more and more time will be saved by the B2B process. If efficiencies for the business are increased, it means more money coming in, because it will speed up the transactive workflow," she says.

B2BAfrica`s Strydom is a little more pragmatic, although she too is optimistic.

"I think the future for B2B will pretty much be more of the same. The true value will come in a connected e-logistics environment, which will drive the economy forward. The future is definitely bright, we`ve only just touched the tip of the iceberg."

Getting mobile

Another potential future driver for the industry is that of mobile communications, according to Intervate`s Van As.

Once the hype dies down, that`s when the real business starts.

Francois Naud'e, CEO, TradeWorld

"I think we may well see a future where organisations start to move away from the concept of communicating in a large-enterprise-to-large-enterprise manner and instead begin to focus on that of large-enterprise-to-individual communication, which is where mobile will play a big role."

TradeWorld`s Naud'e sees another driver playing a role in the next wave of B2B adoption - one that is unique to SA.

"I believe black economic empowerment (BEE) will play a big role in the next wave of adoption," he says.

"There is a strong understanding that BEE is the key to SA`s future and there is a big willingness among the players to take it to heart. Not only that but, because it is a driver unique to SA, it could conceivably help to accelerate growth," says Naud'e.

"B2B is very much alive and there is a newly vibrant feel to the industry. It is much more realistic though, and being done in a far quieter manner. After all, there is a saying that goes: `Once the hype dies down, that`s when the real business starts`."

Changing society forever

Larry Paslovski, GM of enterprise solutions at Tiscali, reflects that certain technologies come along and change society forever, like the railway, the steam engine and the telephone. "And B2B certainly has the potential to do just that," he says.

"Access to information is what drives technology development, and businesses are beginning to adopt the B2B technology because they see its value in these terms."

Paslovski says B2B is moving towards a more mature market level.

"While I am sure new people will come along with new ideas, the players who have hung on through the bad times are certainly the ones who have created the market in which these ideas can develop.

"The bigger picture for B2B is awesome, and there will be plenty of growth in the future. For a technology to be successful it needs to be easy, reliable and efficient - this is a combination that is a winning formula, and this is where B2B is heading," states Paslovski.

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