Just two years ago, business-to-business trading exchanges were the rage. Experts, including myself, waxed eloquent about the potential of B2B exchanges to act as hubs, connecting buyers and sellers in electronic marketplaces. Of course, we were all very wrong. The B2B boom quickly went bust as investors started asking inconvenient questions about the viability of the business model. Now, most B2B exchanges are either dead or on life support. One might conclude from the evidence that the idea of a B2B exchange is fundamentally flawed. However, it's not the concept of the exchange that is flawed but the execution of that concept. At the root of the failure of B2B exchanges is the fact that their founders put the cart before the horse. Their logic seemed elegant: create marketplaces that would match buyers and sellers, bringing improved liquidity, efficiency and transparency to B2B transactions, and make money through transaction fees from the trades. Once the buyers and sellers were on board to conduct transactions, the exchanges could augment that core functionality with value-added services such as logistics management, credit and settlement, and supplier verification.
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