March 6, 2000 12:50 PM PST
Regulation of B2B market sparks debate
Industry analysts and at least one member of Congress are already debating whether the Federal Trade Commission should establish some form of oversight of business-to-business marketplaces, such as the recently announced agreement among Ford Motor, General Motors and DaimlerChrysler. The venture will create a single automotive-parts exchange for their thousands of suppliers and dealers.
Those in favor of regulation argue that the expected size of the market requires some guidelines be established to prevent collusion or other anti-competitive practices. However, any oversight legislation would meet with certain resistance from the technology industry, which has vociferously opposed government regulation. Such a move could also be difficult to achieve in an election year when the high-tech industry is driving the economic growth of the nation, if not the world.
Its sheer size and the number of powerful participants have drawn attention to what appeared to be a relatively bland area, at least in comparison with many high-profile consumer Internet companies. Leading research firms estimate that the business-to-business market will be worth between $2.7 trillion and $7.3 trillion by 2004.
"There have to be some sort of guidelines," said Kevin Prouty, an analyst with AMR Research. "There has to be some distance kept between the corporate structure and from the trading exchanges. Not just auto; a lot of the exchanges have big players from all over the economy. This should spark the government to set informal guidelines."
Such business-to-business exchanges typically deal in nuts and bolts--literally--and other industrial and commercial items. The arrangements match buyers with sellers for commodities such as paper and chemicals. Firms participating in online exchanges hope to decrease the cost of doing business drastically through volume buying, thereby increasing profits and making new, more economically sound ventures possible.
In particular, concern has centered on Web alliances involving industries that have long faced government scrutiny offline. Recent fears of collusion in the airline industry, for example, caused travel agents to call for a federal investigation of a new Web site, announced last month by 27 airlines, that would sell low-cost tickets. The American Society of Travel Agents said the Web site would lead to price-fixing and cause consumers to stop buying tickets through travel agents.
Online exchanges are emerging as a new link between regulated industries and other businesses that have been relatively free of government oversight, such as consumer retail companies. Along with the Big Three U.S. carmakers--GM, Ford and DaimlerChrysler--Toyota Motor, General Electric and even retailer Sears Roebuck have announced plans to build or take part in online exchanges.
Analysts say the worst-case scenario would be if Ford, GM and DaimlerChrysler executives use their collective clout to set a pricing structure for their suppliers, thus fixing prices for the marketplace.
Automakers have downplayed antitrust concerns. Sources involved with the GM, Ford and DaimlerChrysler exchange said the new company should not run afoul of antitrust laws because it is open to other manufacturers.
Although the federal government has not issued any official guidelines to govern business-to-business marketplaces, a spokesperson for the FTC did say the commission is examining the market. The agency is focusing on the recent automaker deals and a new venture involving Sears, database software maker Oracle and French retailer Carrefour to build an online marketplace serving the retail industry.
"The commission is currently reviewing the structure of these business ventures," the FTC spokesperson said. "We're looking at the areas of competition and privacy. It's too early now to say what will be done," the spokesperson said, but comment on the matter could come as soon as the end of the year.
Any talk of regulation raises red flags for many in the high-tech industry that contend existing laws are sufficient to prevent improper business practices.
"Let the free market work its way out of any problems that arise," said Ken Vollmer, an analyst with Giga Information Group. "There are already collusion rules out there. You don't need the government to make any more (laws) just because of these new marketplaces."
During the past few months several megadeals have been announced to bring traditional competitors together behind one marketplace. The exchange proposed by GM, Ford and DaimlerChrysler is expected to generate huge revenues from handling $240 billion worth of trade a year between the Big Three car companies and their car parts suppliers. The automakers also intend to set up an independent company with plans for an initial public stock offering.
Forrester Research analysts concluded in a recent report that marketplace trade will create a higher level of cooperation among industry players but will also push the envelope on today's definitions of anti-competitive practices. The report recommends that the government publish guidelines by the end of the year for e-commerce marketplaces, regarding "how much information competing suppliers can share before it is considered collusion" and what practices by marketplaces will constitute restraint on trade.
"There are going to be questions out there about branding and about sharing information," Forrester analyst Steven Kafka said. "Some of the little guys might wonder if they're getting the right prices," as the larger companies join together and launch these marketplaces.
Although Congress has not yet addressed the issue, discourse on establishing some sort of policy on business-to-business trade practices is taking place between Capitol Hill and the White House. In a letter last month to President Clinton, House Commerce Committee Chairman Tom Bliley (R-Va.) asked the administration to establish some form of global policy for the business-to-business market.
"Efforts of the administration relating to the trade aspects of electronic commerce need to be broad and visionary, rather than narrow and technical," Bliley wrote. "This is too important an area for the United States not to be in the lead with a comprehensive, dynamic and forward-looking agenda."