The landscape is littered with the hundreds of B2B exchanges that have failed in recent months. Even for the survivors, demonstrating success has been far from automatic. Yet several B2B exchanges, such as SkillBay and TexYard, are still operating after several years. In this article, we'll discuss how to take advantage of the opportunities and avoid the pitfalls of this dynamic marketing channel. We'll demonstrate that B2B exchanges or marketplaces provide dramatic opportunities to automate collaborative business processes with customers and suppliers, generate internal efficiencies and reach new markets at minimal cost.

B2B exchanges are online marketplaces for businesses to buy and sell goods and services from other businesses. Automated business-to-business transactions are not an entirely new concept. Even as far back as the early 1990s, large organizations have been using automated systems to exchange transactions with business partners. General Electric's Aircraft Engines division, for example, had a system by which a customer could order a part, initiate the shipping process, be invoiced and pay for the part, all without a single piece of paper and within a span of 45 minutes.

These automated systems, however, needed dedicated, expensive data communication facilities and required significant investments in large, complex software that had to be developed from the ground up before they even started working. It took the Internet to bring down the cost and technological barriers. The Internet is widely and easily accessible, and it requires a communication protocol that can be supported by a wide variety of computers--from the smallest desktop to the largest mainframe.

The simpler business-to-consumer (B2C) model beat B2B to the punch in both availability and visibility. By now, business based on the B2C model, in which the customer browses through an electronic catalog to select items for purchase, is well established. Yet the potential in terms of dollar volume and number of transactions is far higher for B2B than for B2C. This is because behind every product that reaches the consumer there lies a chain of transactions involving material suppliers and service providers. These B2B transactions typically involve long, complex processes, including the search for vendors, requests for quotation (RFQs), evaluation of different proposals, negotiation, supply chain planning, shared product design, document exchange, billing, payment and extensive data analysis.