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B2B business boom
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January 11, 2000: 3:00 p.m. ET
Companies organizing on-line auctions for businesses are hot stocks for new century
By Staff Writer Hope Hamashige
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NEW YORK (CNNfn) - Well into the 20th century, buying and selling goods between companies remained the most hopelessly old-fashioned of procedures.
The process generally went something like this: Company A needed to buy 1 million screws. The first thing Company A did was draw up specifications for the screws and identify a handful of potential suppliers. Next, it sent invitations to bid, via the United States Postal Service, to potential sellers. When the bids were returned, Company A would eliminate some of the possible screw manufacturers and begin a new round of bidding in the hope of securing a better price.
It is a time-consuming and tedious process and until recently, there was no way around it.
That was until a handful of clever companies discovered a way, following the model of other Internet auction companies, to connect buyers and sellers through the Internet. By holding online auctions that reduce the bidding process to hours from weeks, companies like FreeMarkets Inc. (FMKT), Internet Capital Group (ICGE) and Commerce One (CMRC) believe they are going to make American businesses sleeker and more productive by cutting down on the time it takes to make or fill a purchase order.
And although most people are not as familiar with these companies as their consumer-oriented counterparts like eBay Inc. (EBAY) and eToys Inc. (ETYS), they too are among the high-flying tech stocks that have played a part in propelling markets in recent weeks.
In its first day of trading, shares of Pittsburgh-based Freemarkets surged to 262 on the Nasdaq stock exchange from its offering price of 48. Freemarkets was trading at 239 in afternoon trading on Tuesday.
On the day of its July IPO, shares of Walnut Creek, Calif.-based Commerce One Inc. quickly rose to 61 from its offering price of 21. It was trading at 191 a share on the Nasdaq exchange on Tuesday afternoon.
Internet Capital Group, a holding company for 47 business-to-business Net outfits, has grown in the five months since its initial public offering to become the third-largest Internet company in the stock market, behind America Online (AOL) and Yahoo! (YHOO), with a market value of $48 billion. Internet Capital, based in Wayne, Pa., was trading at 152-9/16 on Tuesday afternoon.
Many of the business-to-business e-commerce companies have yet to turn a profit. Still, they are among the sought-after stocks on the market because investors are betting on the future. Many analysts are predicting that online retail selling will slow down, while business-to-business sales are poised for a major boom.
Wall Street agrees that the future is bright for the business-to-business e-commerce business. In September, Goldman Sachs & Co. predicted $1.5 trillion in annual sales for the business-to-business e-commerce industry by the year 2004.
Henry Blodget, an analyst at Merrill Lynch in New York, said the same frenzy about Internet retailers is now fueling the sky-high prices of the business-to-business sector.
"Everyone wants in and there are very few companies you can buy, which creates an imbalance of supply and demand," Blodget said. He added that the excitement of the sector is going to heat up because many business-to-business e-commerce companies are going to go public in the months to come.
About two years ago Delphi Automotive Systems (DPH) started buying parts for its auto parts through auctions organized by FreeMarkets. It used to take the Troy, Mich.-based company anywhere from 12 to 24 weeks to buy products like circuit boards or wires.
These days, rather than wait for bids to arrive with the mail or by fax, Delphi buyers watch them appear on a computer screen, by way of a secure phone line, each one lower than the last until the bidders cannot take the price down any further. The auction, which takes only a matter of hours, reduces the total bidding process from months to just a couple of weeks and saved the company an estimated $58 million in 1999, according to spokeswoman Jennifer Zajac.
Kit Robinson, spokesman for Commerce One, said businesses and investors alike will continue to profit because business-to-business e-commerce represents nothing short of revolution.
"It is just going to get bigger. It is really going to change the way companies do business and it is really going to change the global economy," he said. 
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