(FORTUNE Magazine) – Love is lovelier, the second time around,/ Just as wonderful, with both feet on the ground. --"The Second Time Around" The first time around, electronic commerce was a market under the influence of the past. Companies have long used technology to lower the cost of traditional sales processes. Billions were invested in such things as point-of-sale systems and terminals for clearing credit card transactions. Even as commerce moved onto the Web, the pull of the past held strong. Consider not only how we've named things so far--Web Malls, Digital Cash--but also how we've organized online advertising. Companies that advertise on high-volume sites are charged according to the CPM (cost per thousand views), a concept stolen from yesterday's advertising model. The medium has changed, but the game remains the same.

All that's about to change. Technology is driving a second wave of E-commerce, and this time the software aids the buyer--not the seller. This shift from seller-centric to buyer-centric technology is likely to have three phases. First, a few large buyers will adopt the technology to lower their costs and improve the accuracy of their purchases. Second, a few nimble sellers will rush to this new E-market as a way to break in. Third, slow-footed market-leading sellers will capitulate, but only after debunking the trend as an unsafe, immature market. A few companies like Dell and Cisco, which already sell billions of dollars of products via the Web, will take such an innovative role that they will be ahead of this buyer-focused trend. Most sellers, however, will be dragged into E-commerce by their customers. And they won't like it.

There are four distinct models emerging for doing business on the Web, each focused on the buyer. Each helps purchasers establish a marketplace for goods and services, where buyers and sellers clear transactions at the lowest possible price. These new markets will be similar to today's stock market or, more aptly, the commodity futures market. Of our four models, the first two are primarily business-to-business; the second two are primarily for consumer-to-businesses.

AUTOMATED PURCHASING

Large companies are about to implement elaborate client-server software systems that automate the purchasing of nonproduction goods and services. Employees will use browsers to request goods such as pencils and services such as travel. The systems will ensure the employee is qualified and will route his request for approval. Companies using these systems will be less exposed to errors and to clever employees who skirt corporate policy. The cost savings should be dramatic.

Small companies like Ariba--which makes software focused on maintenance, repair, and operations purchasing--and Extensity, which makes software that streamlines travel-expense management, are pushing this trend. (My venture capital firm, Hummer Winblad, owns stock in Extensity.) Once several FORTUNE 100 companies implement these systems, suppliers will have to play along or sacrifice sales. They will have to package their catalogues in a format dictated by the software provider, obviously not the best way for a seller to differentiate its wares. Don't forget that EDI (electronic data interchange) emerged in a similar way. Wal-Mart's suppliers did not request EDI; Wal-Mart insisted that its suppliers comply. A similar but broader trend is at hand. One purchasing manager I spoke to is considering teaming up with other companies in his industry that use the same software to jointly request bids from suppliers. Ouch.

THE ANONYMOUS EXCHANGE

In highly structured markets (such as insurance, mortgages, and even electronic parts), the product is relatively homogeneous. As such, qualified buyers and sellers don't need to know the identity of the other party. This allows for an anonymous market, which is unbiased by old-school selling techniques such as relationships and wining and dining. Internet technology will soon allow for the creation of competitive, anonymous markets for many industries. In these electronic arenas, buyers and sellers will converge; competition will push prices to near optimal levels. Decisions will be based on information, not identity, and transactions will be cleared in a lean, efficient manner. Two startups pushing this model are IMX, in mortgages, and FastParts, in integrated circuits. (Hummer Winblad owns shares of IMX.) IMX links mortgage brokers with lenders; FastParts allows electronics companies to exchange components.

Such exchanges should ultimately result in lower prices for the customer and lower margins for the seller. In the past, the difficulty of obtaining key data could prevent buyers from finding the best price. With these new exchanges, a company looking to make a purchase can enter a priceless offer and wait for multiple parties to bid. That's good news for the purchaser, and bad news for large organizations that counted on an informationally inefficient market. Advertising also will be neutralized, since brand awareness means nothing in an anonymous market. Lean selling organizations will gain share and prosper.

THE CONTENT SITE

There are piles of unsuccessful content sites on the Web, and many have no clue about how to turn the eyeballs they attract into a profit. Recently, however, a few have discovered two ways to get a cut of E-commerce. The first is known as the online associate model. Booksellers Barnes & Noble and Amazon.com pay content sites to send customers their way. Sometimes they even pay a percentage of future sales from a customer who finds them via a particular site. This creates a profitable auxiliary revenue stream for content sites.

Then there's the offline associate model, in which a Website provides data that help consumers make product decisions and offers links to providers who close the transaction. Microsoft's CarPoint gives auto buyers such data and links, and Yahoo has a new shopping site that works similarly. If these sites attract lots of people, providers will pay for a link, just as local businesses purchase Yellow Pages entries. By the end of 1998, these kinds of sites will pop up all over the Web, making it the place to go for comparison shopping. Once again, pressure is put on the seller, who is forced to advertise in a market controlled by someone else.

THE CONSUMER EXCHANGE

Creating an exchange for consumers that works as efficiently as a business exchange may seem absurd. The Web is vast, consumers are scattered, and "intelligent agents," which would theoretically run around retrieving info for consumers, are just a concept. But a buyer-focused market may emerge, simply by allowing consumers to advertise.

Let's say a consumer broadcasts on the Web that she wants to buy a mountain bike with titanium handlebars for $800 or less. Sounds like a classified ad in a local newspaper, right? Wrong. Companies can easily aggregate digital ads, sort through them, and determine whether to serve that particular customer. Companies like AOL, Yahoo, and CUC International are in a position to get this market rolling. The key will be to get so many consumer ads online that suppliers will be tempted by the sheer size of the market. CUC already wins discounts from providers who want to sell to its millions of subscribers. AOL and Yahoo get such high volumes of traffic that they too could demand discounts for people who log on to their sites regularly.

Some cutting-edge companies will find ways to leverage this new buyer-centric environment to their advantage. By leading the revolution, they can help set the ground rules. However, most established companies will enter the game only after someone else has penned the rules. For these laggards the Internet will be a great neutralizer, and the only victor will be the consumer. After all, look at how competitive markets such as online trading and bookselling already are. Seller, beware.

J. WILLIAM GURLEY is a partner with Hummer Winblad, a venture capital firm. The partnership owns shares of Extensity and IMX. To receive an expanded version of Above the Crowd, visit www.news.com, or to subscribe to the E-mail distribution list, please send E-mail to listserv@dispatch.cnet.com with the following in the message body: subscribe atc-dispatch. If you have feedback, send it to atc@humwin.com