B2B and B2C—the two sides of e-commerce

B2B and B2C—the two sides of e-commerce

E-commerce can be broken down into two broad categories—business-to-business (B2B) and business-to-consumer (B2C). As their names suggest, B2B e-commerce sites sell to businesses or organizations, whereas B2C sites sell to individual consumers. Both the B2B and B2C e-commerce models have developed their own particular ways of promoting and selling goods and services to their target audiences.

Business-to-consumer e-commerce

The B2C e-commerce model is characterized by low-volume sales with higher price margins

Perhaps the best-known web sites are those that conduct their business by selling to individual consumers. Prominent examples are bookseller BarnesandNoble.com and music retailer CDNow.com. Such B2C web sites typically feature a catalog of products or services from which shoppers can choose, a virtual shopping cart, which allows browsing shoppers to store the items they want, and an online ordering and credit card acceptance facility. The B2C e-commerce model is characterized by low-volume sales with higher price margins. An example of this is a consumer buying a CD or book costing over $20.

An increasingly common feature of many B2C web sites is customization, which allows an online store to tailor its response to each specific customer. By requesting users to reveal some of their personal details when they first log onto its web site, an online store can respond by creating a page that is tailored to each individual. Web pages can also be customized on the basis of a user's past purchases. For example, the CDNow web site makes personalized recommendations to users based on their musical tastes.

The ability to customize a web site to suit each particular user enables an online store to cross-sell or up-sell products or services. Cross-selling is the process of selling the buyer of a particular item accessories and other products related to that item. For example, an online provider of computer hardware might present the buyer of a PC with a compatible printer and other peripherals. Up-selling involves the process of encouraging a buyer who wishes to purchase a particular product to buy another, more profitable version of that product. For example, an online consumer electronics store might present a person thinking of buying a particular stereo system with a more feature-rich model.

Some online stores engaging in B2C e-commerce have taken the concept of customization a step further by providing visitors with live online customer support. Recognizing the need to strike a balance between automation and human-to-human contact, a live customer support capability enables customers browsing a site to receive real-time information or advice from customer service representatives by means of live text chat or voice chat technology.

"Clicks-and-mortar" B2C

The trend toward closing the gap between the virtual and the more traditional bricks-and-mortar storefront has given rise to another B2C e-commerce solution in the form of the web kiosk. The idea behind web kiosks is to provide consumers with access to the Web in the physical retail environment. This represents the latest development in the B2C e-commerce arena, where the failure of many pure-play online ventures has pointed to the continued importance of shopping in the physical space.

Although only in its initial stages, the trend toward integration of the physical and the virtual in B2C e-commerce will eventually lead to web-based solutions that will seamlessly link the consumer's shopping experience with the store's operations.

Business-to-business e-commerce

The B2B model is characterized by high volume and lower price margins

B2B e-commerce, which involves the transfer of goods or services between two business corporations, covers a wide range of applications that enable a business to form electronic relationships with its distributors, resellers, suppliers, and other partners. The B2B model is characterized by high volume and lower price margins—for example, a company will purchase stationery in bulk from an office supplier at a reduced price.

In order to engage in B2B e-commerce, a business must abandon the notion that it is a free-standing entity and enter into a more collaborative relationship with its partners, suppliers, and customers. Previously, companies made significant investments in automating their internal processes. Many companies implemented Enterprise Resource Planning (ERP) systems, which are enterprise-wide application software solutions that integrate all internal core business processes, such as production, distribution, and sales, into a smoothly functioning whole. With the explosion of the Internet, the challenge lies in integrating these internal IT systems with web-based technologies so that information can be exchanged between partners and customers in the supply and demand chains.

B2B models

Since the explosion of the Internet, numerous B2B models have emerged. Although these models are constantly evolving, some have become particularly prevalent. Among these are

• electronic billboards

• virtual communities

• commerce portals

• e-marketplaces

Electronic billboards

The most basic type of B2B web site is the electronic billboard. This type of site is used by a company to provide information to its suppliers, partners, and customers without any direct involvement with business processes or commercial transactions. The main drawback of this type of B2B site is that any action stimulated by the information presented involves the customer leaving the site.

Virtual communities

A more sophisticated type of B2B web site is the virtual community. These B2B online communities operate on the same principle as other types of Internet communities, such as newsgroups, bulletin boards, and chat rooms. They provide an online meeting place for information seekers, buyers, and sellers in a particular segment of the business marketplace. An example of a B2B community is Office.com, which serves a broad range of industry sectors, including advertising, marketing, public relations, biotechnology, manufacturing, and financial services.

Commerce portals

Another prominent B2B model is the commerce portal. Commerce portals are the electronic equivalent of traditional bricks-and-mortar retailers or resellers that sell goods or services in a particular industry or business area at a profit. For example, OrderZone.com is a commerce portal that sells a wide variety of industrial products, including office supplies and equipment, safety supplies, and electronic components.

E-marketplaces

In addition to virtual communities and commerce portals, a B2B model that is increasing in prominence is the e-marketplace. E-marketplaces are industry-specific web sites or hubs that form virtual open markets in which buyers and sellers can gather to do business. Examples of e-marketplaces are online auctions and exchanges, such as e-Chemicals.com and CheMatch.com, which provide an arena for trading goods and services.

According to Forrester Research, the future of e-business lies in a consolidation of the emerging e-marketplace models, which will increase buyer reach and seller access. A study by GartnerGroup also identifies e-marketplaces as the model that will drive B2B online purchasing in the future. This study predicts that, by 2004, e-markets will be responsible for $2.71 trillion in e-commerce sales transactions worldwide, representing 37 percent of the B2B market and 2.6 percent of global sales transactions.

The future—B2B or B2C?

Although business-to-consumer web sites have dominated the headlines to date, many experts predict that business-to-business e-commerce will soon overshadow the retail market. According to Forrester Research, for example, B2B e-commerce will reach $1.3 trillion by 2003, compared to $108 billion for B2C e-commerce. There are two explanations for this—B2B spending in the economy is far larger than consumer spending and businesses are more willing and able to use the Internet than individual consumers.

The collapse of many B2C online retailers in recent months, however, does not signal the end of the business-to-consumer concept. Many experts believe that, in the future, B2C companies will be required to have a more sustainable business model and that the most successful B2C companies will be those with an established bricks-and-mortar retailer behind them.