Trading Places

The B2B Business Exchange Model

Because most B2B exchanges automate a lot of the paperwork, buyers are often able to reduce their purchasing costs. But there's another benefit that online exchanges provide--introducing buyers to suppliers they probably wouldn't have met going through traditional channels.

The system has certainly worked for WineryExchange.com: The company provides buyers of winery and vineyard supplies with a Web-based procurement system, greater access to a supplier base and lower transaction costs. It also offers sellers extended marketing reach, direct customer feedback, reduced selling costs and up-to-date market data.

For instance, at WineryExchange.com--the only exchange catering to the entire B2B wine market--winegrowers list their grapes and sell them to the highest bidder. But wineries benefit, too: They can negotiate trades in bulk wines and grapes, and purchase supplies, such as bottles, corks, labels, capsules and winery equipment--doing it all online. And thanks to the centralized site, suppliers can keep up on news and information about the wine industry.

WineryExchange.com makes money through commissions of between 2 and 4 percent based on transactions sellers make. But the system takes a lot of participants to work. Says Byck, "Because [of the] nature of the exchange, you're taking a small commission--so you need a lot of players to make a profit."

Experts insist the future lies in the B2B-exchange business model. Because the Internet is secure and open to the worldwide community, companies can work more efficiently via faster and less expensive business processes.

Melissa Campanelli is a technology writer in Brooklyn, New York, who has covered technology for Mobile Computing & Communications and Sales & Marketing Management magazines. You can reach her at mcampanelli@earthlink.net.

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This article was originally published in the November 2000 print edition of Entrepreneur with the headline: Trading Places.

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