RealTime IT News

To Be or B2B?

Have entrepreneurs, analysts, and investors given business-to-business (B2B) e-commerce a bad name? Increasingly, Internet companies are classifying themselves as B2B plays in order to raise private market money (pre-IPO) or to attain sky-high Internet market value (post-IPO).

Analysts at large financial institutions such as Goldman Sachs aren't helping the situation as they support and pump up the B2B components of the companies they cover and have in many cases underwritten. Investors often hear the B2B buzz words on CNBC, initiate due-diligence following these analysts, and then invest in any Net play that is declaring "we're B2B!"

The real problem may not be how the acronym B2B is being applied however, but it may be its definition or classification to date. So I would say that when something is so broadly defined, chances are it will be broadly applied. In this case, the application means the creation and destruction of billions of dollars in market value and worth; companies and investors are either riding the wave or getting crushed. Many are riding the wave and then getting crushed.

Take for instance the recent IPO of Snowball.com (SNOW), an online network that provides content and e-commerce offerings to the "Internet Generation" (13-30 yr. olds). Snowball is attempting to be a niche Yahoo! (YHOO) or Lycos (LCOS).

Surprisingly enough though, our favorite acronym B2B, was being thrown around by the company's CEO, Mark Jung, prior to and on the day of Snowball's IPO. Jung likes to believe his company is a B2B play because of its ability to aggregate a solid base of users (6 million) and then monetize those users through advertising and e-commerce sponsorships. Now, Snowball is a well-organized and run company with a promising future, but its current model does not support a B2B e-commerce initiative or channel. The stock climbed from $11 to $15-5/16 in its opening day and reached as high as 20. A week later, shares now trade at $11. Another casualty of the B2B buzz?

Rick Neely, interim CEO and CFO at Beyond.com (BYND) recently told me "the major impacts of B2C companies trying to front as B2B companies are more confusion for investors and it also becomes harder for true B2B companies to get their message heard."

Neely uses a key question to try and differentiate between just selling to businesses vs. being a true B2B player: "What does your service or product do that enables businesses to do what they fundamentally could not do before, how do you quantify that value?" Beyond.com recently announced a change in its business model, focusing on the emerging B2B e-commerce market instead of exclusively catering to software consumers. The move comes at a time when Beyond.com's stock is slumping and investor optimism in the B2C sector has diminished. Still, Beyond.com has strong B2B potential and is one of the few legitimate Web companies which have successfully and honestly scaled their model to include B2B e-commerce.

So how do we define and classify B2B e-commerce companies? I define B2B e-commerce companies as Web based infrastructure providers (software/services) or market makers (hubs) that help other companies do business with one another. The sticking point is that the B2B company must play a third party role. Either one of the two B's in B-2-B can not be represented by a B2B e-commerce company. This is the whole idea of an "infomediary," becoming the point of aggregation or