AOL to set up 10 B2B exchanges

Siobhan Kennedy

NEW YORK: America Online Inc., pushing more aggressively into online

business, said on Wednesday that it has set up 10 business-to-business exchanges

and was committing millions of dollars in a bid to get more firms into buying

and selling goods online.

AOL, the Internet service business of AOL Time Warner, said the joint effort

with software partner PurchasePro Inc. was part of its initiative to bring small

business together to buy and sell goods over the Web. AOL said it was putting

200 of its sales staff into the effort.

AOL sees a huge opportunity to go after small businesses, said AOL

Interactive Services’ vice president Fred Singer. "Most efforts are

focused on large enterprises, with companies building expensive and isolated

commerce solutions," Singer said, citing software vendors such as Commerce

One Inc. and Ariba Inc. as players in this market. "But that's missing the

thousands of secondary suppliers and businesses who are not connected."

AOL and PurchasePro said 10 companies, including Hewlett-Packard Co.,

Homestore.com and Spherion Corp., had licensed PurchasePro's

business-to-business online exchange software to set up private marketplaces

that would link to AOL's own exchange, Netbusiness Marketplace, for the mass

buying and selling of goods.

AOL and PurchasePro got together last year, when AOL said it would use

PurchasePro's exchange software to set up its own electronic trading exchange.

At that time, AOL also said it would market and resell the software to

businesses, including medium-and large-sized firms, wanting to set up their own

marketplaces.

"AOL has supercharged PurchasePro's ability to sell its private-labeled

marketplaces," said Kneko Burney, an analyst with industry research firm

Cahners In-Stat. "The key thing to watch is how well they can execute,

given the tough economic conditions."

Burney said while there was a lot of talk about business-to-business

electronic commerce, right now, most of the buying was still being done by

consumers. "It will be interesting to see if businesses really starts to

embrace the Internet in the same way," Burney said.

In addition, AOL's efforts could be hampered by the slower-than-expected

acceptance of online exchanges generally. Analysts have said that a slowing US

economy, lack of venture capital investment and buyers' and sellers' reluctance

to bring their partnerships online are the main reasons for lot of the exchanges

being forced to close down.

Of the 1,500 or so exchanges started up in the last two years, analyst firm

International Data Corp estimates that only 200 to 300 are actually doing any

business. Singer cited industry research firms which said that small businesses

- of which there are 25 million in the United States - were expected to spend

$120 billion in electronic commerce transactions over the Web this year.

Singer said AOL and PurchasePro were ideally positioned to capture the small

and medium business market by bringing together PurchasePro's strengths in the

B2B software sector, including its 290 online exchanges, with AOL's extensive

business-to-consumer experience with its online services. AOL has several online

services such as Shop@AOL, Netscape YellowPages and AOL, CompuServe and Netscape

Classifieds.

"Small businesses in particular are going to want to jump around between

B2B and B2C services. So there's lots of overlap for us here," Singer said.

Burney said she agreed that PurchasePro's business model, which enables

companies to rent its software over the Web, favors small and medium sized

companies that can't afford to spend millions setting up their own exchanges.

However, she warned AOL and PurchasePro shouldn't expect those companies to

rush to sign up overnight. "Less than 50 per cent of the small businesses

we talked to for our research said they wanted to use the Internet to connect to

their buyers and suppliers."

(C) Reuters Limited 2001.