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Industry Analysis

Which industries will be first to move toward the Internet Exchange paradigm, and toward opportunities created by new, market-driven pricing technologies for Internet commerce? Distribution channels that are inherently inefficient, such as wholesale-retail chains, fragmented utilities markets, and small software publishers, may become re-intermediated by new middlemen with Internet Exchange technology. Keenan Vision estimates that in 1998, 10% of B2B transactions ($3.8 billion) were conducted using Internet Exchanges, and by 2002, that number will rise to 29% ($129 billion).

Financial Firms

Online stockbrokers, such as Schwab and E*TRADE, and online auctioneers and eBay pioneered the Internet Exchange. E*TRADE and Schwab, the new intermediaries, have stepped in and taken the exchange function away from full-service brokers who used to supply the quotes. Middlemen offer a lower cost to a better informed investor.

Automobiles provides a user interface for car buyers to submit a request for bids on cars they want to purchase, and was an industry leader in this field. Processing of bids to sell, including the ancillary services of financing, insurance, and repair services, is propelling the automotive exchange to the number three category on the Internet in terms of dollars spent. In the year 2000 it is expected that over 2% of all automobiles will be purchased using dynamic pricing.


Business travel makes up the majority of travel dollars spent in the industry, and, as B2C sites like have shown, travelers appreciate bargains— and purchasing agents appreciate them even more. Given the time constraints put on business travel, shopping around usually isn't a luxury that time affords. But as intermediaries appear on the horizon with technology and buying power, B2B travel exchanges may arrive sooner rather than later. One specific site, Vacation Point Exchange, charges a membership fee of $169.00 per year that provides full access to an online property directory as well as the ability to arrange stays at any of the member properties worldwide.

Computers, Peripherals, and Software

Strong momentum in this industry, which exceeds $500 billion, continues to make this the number one market sector. Dell and Cisco are moving toward 50% of their total sales generated over the Internet. Both have used extranet technology successfully to maintain top accounts, but the reverse auction model may help computer and parts suppliers liquidate older inventory for smaller businesses, which will undoubtedly be facing more pressure to integrate their business processes using expensive technologies that auctions may put within their reach. In the B2B space, liquidation specialist was purchased by Egghead Software, whose new business model includes purchase of distressed software inventory, especially older versions of popular software. Egghead provides market efficiencies for both software sellers and buyers on commodity software.

Industrial Supplies and Utilities

This category includes semiconductors, other electrical components, and utilities, which together exceeded $585 billion in sales in 1998. These items are often sold as commodities, with market prices determined by non–Internet exchanges.

Telecom Services

Analysts predict that this $233 billion industry will shift a large percentage of its services to Internet exchanges, such as Arbinet. Telecom companies are expected to learn how to provision Quality of Service (QoS) and rapidly adopt the practice of selling guaranteed bandwidth at auction.


Advertising agencies such as AdAuction, also known as OneMediaPlace (now a CMGI company), have created a market for Internet advertising inventories. Given the tight inventories in banner advertising on key sites, as well as the 80% unsold inventories (typically "run-of-site" at large portals), opportunities abound for both buyers and sellers to leverage auction technology for better market efficiency.


The restructuring of the electric power industry is fundamentally altering the methods by which electricity is priced. In place of published tariffs established by utilities and their regulators, restructuring is creating opportunities for suppliers to offer a wide variety of new products to retail electricity consumers. Among them are "dynamic pricing" products, which have retail prices that change rapidly in response to shifts in wholesale market conditions. The Utilities Exchange was conceived, developed, and successfully tested in 1994/95. In its simplest terms, energy buyers and suppliers are linked by computer using specialized software to negotiate contracts with more speed, accuracy, and cost-effectiveness than was previously possible.

Reverse Auction now has a complete B2B section that includes Agriculture, Apparel & Textiles, Arts & Crafts, Autos & Transportation, Business Services, Computers & Electronics, Construction, Food & Beverage, Health & Medical, Industrial Needs, Maintenance/Repair Procurement, Mined Materials, Miscellaneous, Office Needs Packaging, Printing, Processing Equipment, and Publishing & Media. In addition to its B2C offerings, the B2B participation has created an exchange that spans the majority of business verticals in the United States.


Internet Exchange technology is founded on the concept of an auction object, and the auction object is central to the design of the leading commercial auction packages. Successful integration of auction technology into e-commerce applications will require Internet architects to link the auction objects into a robust and manageable network design. Using the n-tier architecture approach, application servers can be linked to distributed databases and integrated into enterprise e-commerce frameworks in order to display prices, conduct price comparisons, and complete transactions. Five leading technology providers include Moai, Tradeum (now VerticalNet), and WebVision with enterprise application solutions, OpenSite (now Siebel) with a complete stand-alone application, and Microsoft SiteServer Commerce Edition 3.0.

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