B2B Firms Tone Down Their Pitch to Antitrust-Wary Regulators

WASHINGTON -- So much for all that talk about being revolutionary.

At the Federal Trade Commission Thursday, business-to-business e-commerce executives played down the notion that their technologies make business radically different. The reason for this shift: They don't want new regulations of their online exchanges.

"I don't know how many rules are necessary for online exchanges," Christopher Cogan, chairman and CEO of supply chain automation firm GoCo-op, said during a panel here. "Personally, I think there are enough rules already."

As one B2B exchange after another has been created in recent months, government officials have become increasingly concerned with the antitrust issues they potentially raise. The FTC already is investigating the antitrust implications of Covisant, the online exchange that's being built by Ford(F - Cramer's Take - Stockpickr), General Motors (GM - Cramer's Take - Stockpickr) and DaimlerChrysler(DCX - Cramer's Take - Stockpickr). And the Justice Department has reportedly queried airlines on a joint venture being formed in that industry as well.

There's plenty at stake in whether these regulators decide to clamp down on B2B exchanges. It could affect who owns and controls the online exchanges, through which huge amounts of money are forecast to flow.

This is How it Works

Cogan's remarks followed product demonstrations by Commerce One (CMRC - Cramer's Take - Stockpickr) and FreeMarkets(FMKT - Cramer's Take - Stockpickr) at this two-day workshop held to examine competitive issues raised by B2B exchanges.

The B2B execs compared this new way of doing business -- spurred largely by the technologies they've developed -- to established processes that companies have used for years. In their most basic forms, online exchanges allow companies to buy and sell supplies to each other over the Internet, a process that can lead to greater efficiencies in the business process.

Sam Kinney, co-founder of FreeMarkets, which aids online auctions for direct goods that companies use in manufacturing, gave an online presentation of how his site works that was impressive in both its substance and splash. But he compared the "sealed Internet bids" that go through his site to common in-the-envelope bids companies traditionally use to win business from each other.

"The rules of how you run these things really are common sense," he said. "You've got to let people know that this is valid business going on here to maintain the credibility of the market."

He demonstrated how buyers using the FreeMarket site can mask incoming bids so that auction participants can't see how much their competitors are willing to sell a product for. One type of auction only lets a bidder know where he ranks with regard to the lowest price.

Limiting Feedback

"After all, the buyer wants to keep suppliers from knowing too much about what he'll pay so that they can't signal each other in the future," Kinney said. "We can limit the feedback the bidders get enough to prevent that."

Along those same lines, Robert Tarkoff, Commerce One's senior vice president of corporate development, compared the process of procurement through his company's platform to retail shopping over the Internet, an area with little regulation so far. While showing a mock demonstration of how companies could order laboratory hot plates over his site, he stressed how similar the process was to buying, say, books online.

But it's not as simple: He and several others at the conference did note that business procurement is a lot more complex than ordering a book from Amazon.com(AMZN - Cramer's Take - Stockpickr).

So is the FTC looking to draft new rules to apply to the new world of B2B?

"I don't really want to get into that at this point," said FTC Commissioner Mozelle Thompson. "There are clearly competitive issues involved in this area that technology has a substantial effect on. But I think what we're trying to understand first is how these things work and how current antitrust laws work in that context."

It's All About Education

FTC Chairman Robert Pitofski made it clear at the beginning of Thursday's session that Uncle Sam isn't lining up its crosshairs on B2B's surging belly. "This is not a program designed to identify enforcement targets," he said, stressing that the workshop's main objective was to help the government learn more about the growing industry.

But B2B executives are realistic about the prospects for regulation. Dale Boeth, PurchasePro.com's (PPRO - Cramer's Take - Stockpickr) vice president of strategic development and a participant at the workshop, said regulation is sure to come, just as it has with so many other industries. He stressed at the conference that exchanges will need "neutramediators" to keep a comfortable distance between competitors in joint ventures.

"But I think it's pretty early to draw a line in the sand at this point," he said. "That said, there probably will be rules, like there are for any economic-centric issues in any industry, whether online or off-line."

Which means that for all its new-world promise, B2B might not be that different after all.