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Back 2 B2B

Did our B2B utopia die in the dotcom disaster, or can we still do it all better online?

It's easy to look back and debunk most of the dotcom hype. But some ideas are too tantalizing to let go. B2B exchanges were going to change the way we do business. Buyers and suppliers were going to save time and money in online marketplaces. Now, if you can name one B2B exchange, you're in the minority. What happened? Can anything be salvaged?

Of course, exchanges haven't completely disappeared. The auto industry's Covisint (www.covisint. com) is the poster child for B2B survivors. But independent public exchanges-mostly entrepreneurial-went down the tubes at an alarming rate. Where did they go wrong?

Ravi Aron, assistant professor of operations and information management at the Wharton School of the University of Pennsylvania in Philadelphia, points to the lack of value offered by companies that simply took an online catalog approach. The chicken-and-egg problem cropped up as well: Buyers didn't want to join exchanges without a lot of suppliers, and suppliers didn't want to join without plenty of buyers.

Finally, entrepreneurs from outside an industry or market found acceptance by insiders hard to come by. "There aren't many markets that are so fragmented that an unrelated third party can set up a [marketplace] and run it profitably," says Aron. That's one reason Covisint, designed by insiders for insiders, is doing well.

The term may sound outdated, but many of the concepts behind "B2B" aren't. "There are profitable niches entrepreneurs could occupy. Offer services that make the market more efficient, rather than try to take ownership of the market," Aron says. Independent exchanges may have just been a bump on the online commerce highway, but their failure can show entrepreneurs the path to success.

This story appears in the November 2002 issue of Entrepreneur. Subscribe »