The Evolution of Business to Business Commerce

Electronic business-to-business commerce has progressed through a number of phases of development based upon a series of changes in technology: Electronic Data Interchange, area networks (Value Added Networks), and the Internet.

In the 1960s and 1970s, mainframe solutions focused initially on internal automation and proprietary EDI links with suppliers. EDI has been primarily used in the subcontracting area and has been proven most effective in supporting operational-level applications, mainly due to its limited technical capabilities and the existence of multiple technical standards. In order to support more complex and strategically more important applications and processes, some organizations have maintained dedicated data links between their computer systems by themselves, using various interfaces and communication protocols capable of handling more sophisticated forms of information exchange. While considerable benefits were achieved by those companies that implemented EDI effectively, it tended to be only large companies and their suppliers that applied EDI due to the significant costs associated with implementation. EDI requires significant investments in systems and organizational infrastructure, as well as a large volume of transactions to justify the level of investment. In the 1980s to the mid-1990s, client-server solutions broadened the scope of participants in the supply chain by focusing on applications, such as supply chain management, enterprise resource planning (ERP), and customer relationship management (CRM). These approaches were often very expensive to purchase, difficult to implement, complex to use, and costly to maintain.
Also, these approaches only improved the company’s internal processes while not addressing the needs of the entire supply chain.

In the categories already discussed, all parties involved are predetermined and have agreed to trade or exchange other information electronically. However, in the mid-1990s the advent of the Internet has led to an explosion in connectivity that allows companies of different sizes and resource bases to interact. The Internet is a public network that is connected and routed over gateways. The Internet evolved from a software convention for computer networking developed by the U.S. Army’s Advanced Research Projects Agency - termed the Transmission Control/Internet Protocol (TCP/IP). This open standard was adopted by a wide range of research, education, and public sector organizations. In the late ’80s, a point-and-click hypertext interface was developed for the Internet which was called the World Wide Web.

This development led to the explosion in interest in Internet usage, with organizations and individuals being able to easily access and use the Internet. The Internet has led to the redefinition of economies of scale and scope, and the reduction of transaction costs leading to the emergence of virtual markets. Virtual markets refer to business transactions that are conduced over open networks based on fixed and wireless Internet infrastructure. These markets are characterized by high levels of connectivity, the importance of information products and networks and high reach and richness of information. Reach refers to the number of products and services that are reachable in virtual markets, while richness refers to the depth and detail of information that can be collected, exchanged, and analyzed by the market participants. In fact, information itself becomes a source of competitive advantage in virtual markets.

The connectivity associated with the Internet has the potential to bring an industry’s customers and suppliers in a unified and economically perfect marketplace. For example, an organization offering a range of products and services can now create an electronic catalog on its website in order to achieve global reach. With the advent of Internet-enabled communications, it is now possible for an organization to establish links with other organizations at significantly lower costs than with previous technologies. The emergence of virtual markets clearly provides ways for organizations to create value for customers. An organization’s routines and processes are unique capabilities that allow organizations to make strategic changes that give them the flexibility to operate in dynamic markets. For example, a significant development from innovations in Internet technologies has been the growth of electronic intermediaries. It is now possible to offer an intermediary service, developed around a sophisticated IT platform. The intermediary has a Web front-end, allowing buyers to order from supplier catalogs, participate in auctions, or conduct tendering online. This is significantly different from EDI, which tended to be based on a ‘hub and spoke’ arrangement - with one large company acting as a hub and suppliers trading electronically. In contrast, an electronic intermediary can act as a single gateway to a range of products or services that are provided by a number of suppliers. It is designed to allow a number of suppliers to interact with a number of buyers through one connection.