Why B2B exchanges failed...

Putting the Horse First - NET GAINS - CIO Magazine May 15,2002: If you don't have a critical mass of buyers, how do you attract suppliers? And if you don't have most of the suppliers, why would buyers participate? Most B2B exchanges failed because they could not get past that first hurdle. Suppliers resisted joining the exchanges because they feared direct comparison with competitors would erode their margins. And buyers as well as sellers were loath to pay transaction fees for what they felt was a simple matchmaking function.

But the struggle for liquidity is merely a symptom of the real problem, which is that the creation of exchanges to match buyers and sellers preceded the creation of software and services that would make exchanges truly useful.

This article goes on to identify the root cause, that presents another chicken and egg scenario; unless you have users (buyers/sellers) it is very hard to invent the useful services that they want. It is only through the evolution of the service that we can best know how it can add value.

This solution is to build e-services out of existing inter-enterprise business processes, first automating and then transforming to bring real efficiencies.
The lesson of failed B2B makes good sense for any product development strategy, make one customer happy then the next, then the next.


The future of B2B e-commerce lies not in exchanges but in software and solutions that bring real efficiencies to specific business processes. The business of trading exchanges populated by anonymous buyers and sellers is best left to financial exchanges and commodities traders because only pure commodities can be bought and sold in marketplaces. As the founder of Dean whither used to say, "We build success one investor at a time." Similarly, B2B companies will build their business one customer at a time, instead of building marketplaces with no customers



In the context of an exchange that facilities the transfer of working systems intellectual property(WSIP), this begs the question, could WSIP be a commodity?

Probably not until there is tremendous settling in the market or regulation, possibly SBO would provide the impetus!