Updated from 1:43 p.m. EDT

Internet business incubator

Safeguard Scientifics

(SFE) - Get Report

said Monday that it had shifted its primary focus away from developing business-to-business Internet commerce companies, a move that comes just as Wall Street is becoming noticeably more skeptical of the sector's potential.

Safeguard, which has built a majority of its recent partnerships and holdings in business to business, will now focus its attention on developing companies involved with Internet infrastructure, software, hardware and services that allow businesses to integrate the Internet into their business practices.

Over the past year, Safeguard says it has invested in 25 Infrastructure companies.

Safeguard Scientifics' shares closed down 1 9/16, or 3% at 57 15/16 Monday.

Until recently, most business-to-business companies had been Wall Street darlings, commanding lofty stock valuations as investors banked on the promise of exchanges where businesses could vie for each others' business.

Venture capitalists such as Safeguard and its 14%-owned

Internet Capital Group

(ICGE)

have aggressively fertilized the sector, investing in companies forming business-to-business exchanges in such diverse areas as auto parts, paper goods and trash.

But the business-to-business startup sector has suffered recently as investors have started to become wary about business-to-business concerns, fearing that there are too many companies crowding the playing field. In addition, many large industrial companies have found that they apply a combination of their own procurement expertise with one-size-fits-all technology, rather than use a third-party exchange. One recent example is an auto parts exchange set up by

Oracle

(ORCL) - Get Report

,

Cisco Systems

(CSCO) - Get Report

and

EMC Corp.

(EMC)

with the three major U.S. automakers.

Safeguard's change of direction reflects a rethinking of the business-to-business sector that has come fast and furious in recent weeks. In particular, Internet Capital Group, which is very closely tied to business-to-business startups, has seen its shares plunge about 70% since January. Other recent plunges in business-to-business stocks include

Commerce One

(CMRC)

, which has seen its stock fall about 61% from its high in early March and

VerticalNet

(VERT)

, which has fallen about 60% since early March.

"The big question with a lot of these models is where the profits will come from," said David Sotebier, senior industry analyst at

Banc Of America Capital Management

.

Sotebier says that many of the business-to-business Internet startups to date have been based on a model in which companies would operate exchanges and collect a portion of each transaction. However, most manufacturers already operate on razor-thin margins for their products and are unlikely to support exchanges that try to bite into those margins.

"Most of these companies don't have much to give away in terms of excess profits," added Sotebier.

Safeguard said it didn't plan to sell its stake in Internet Capital or other business-to-business companies in which it had previously invested. The company will likely use its $375 million of proceeds from a stock offering last week to increase its infrastructure investments over the next year.