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"Free" Extends into the B2B Space


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May 1, 2000 *3,700 subscribers* Volume 2, Issue 5
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Free B2B
by Mitchell Levy
Executive Producer, ECMgt.com


Just three short years after the introduction of free e-mail and free web hosting, the latest wave of free applications has been extended from the B2C market to the lucrative B2B market. The newest wave of free services targets businesses, and it includes e-commerce, messaging services, organizing applications, networking and storage services, and even vertical business portals supporting B2B auctions and providing complete portal management services.

While the "Free" model in the B2C space is based on building membership and accumulating knowledge of user profiles that can be leveraged for advertising, the business model for free B2B is not as clear. We'll examine a dozen entrants in the Free B2B space, propose a new model called "process share", and discuss up-selling business customers to premium services with recurring revenue as the Free B2B driver. An even more interesting model is developing where consumers and businesses both share benefits from portals that integrate community, content, and business processes.

Let's start with a quick tour of business productivity and infrastructure services, then move to B2B and market-to-market portal offerings, finishing with e-commerce and financial services.













Microsoft bCentral
















Cardservice International












In the messaging arena, businesses can benefit from free long distance, voice mail, faxing, and paging services. Given that the annual bill for faxes alone in the United States approaches 95 million dollars annually it's no surprise that use of free fax applications is growing nearly as fast as the Internet itself.  The two most popular offerings, efax.com and jfax.com, offer a free universal fax number for receiving, and reasonable rates for enhanced premium delivery services to private fax numbers. We see the opportunity for a merging of "LAN Fax" with "free fax" or "fax over IP" as this business grows and most likely consolidates.

Free messaging services extend to voice, where firms phonefree.com and dialpad.com offer unlimited free long-distance phone calls to anyone in the United States. DialPad.com, which claims over 5 million users, has formed an alliance with eVoice to combine free VoiceMail with long distance calling. Onebox.com offers free voice-mail, e-mail, and fax, and has been recently acquired by Phone.com, indicating interest by service providers with global reach.

Related office productivity tools include WebEx, which offers a business exchange service to locate peers and a range of business service providers, as well as an on-line office forum in which to conduct on-line meetings. Following the premium-upsell model, they also offer a pay-per-use plan with enhanced office collaboration tools.

For businesses using press releases as marketing tools, WebWire offers PR professionals and corporate communicators a "free for a lifetime" tool to post press releases using the WebWire service. WebRelease makes press releases instantly available to conventional and emerging media.

Office supply procurement, a big expense for businesses of any size, has been made simpler by free Internet services from tradeout.com and onsale.com (a former business exchange specializing in liquidation). Both firms serve businesses shopping for bargains, and provide a perfect solution for firms needing to liquidate stock or hard goods.

Two services that provide direct marketing over the Internet for small merchants include ELetter and Microsoft bCentral. ELetter (www.eletter.com), an integrated direct mail solution managed via the Web, allows users to build a targeted mailing list, create a mailing piece, and generate Internet postage in one transaction. Microsoft's bCentral is an all-in-one business portal with free and low-cost premium services for banner and e-mail advertising. Microsoft does an excellent job of attracting users to the free services, and of promoting effective low-cost services following the premium-upsell model.

PayPal (www.paypal.com), is an interesting entrant, claiming to be the Internet's largest instant payment network, offering wire services over the Internet. While not a pure B2B play, it does appear to be positioned to enter the Internet escrow field, which appeals to merchants and hobbyists unable to acquire a conventional merchant account for processing credit cards.

Network Services, an expensive, time-consuming, and technically involved undertaking for any business, is the domain of x-drive.com and intranets.com. x-drive.com provides 100 Mbytes of free network disk storage, valued at $50 per month. Intranets.com offers free secure network storage of business content viewable by employee browsers. Access is controlled through passwords and I.P. addresses, ensuring security.

Vertical business portals focused on high-spending markets include PlasticsNet and Web MD. While PlasticsNET is a vertical business portal, Web MD merges the space of B2C and B2B, providing consumers access to medical content and physician information. The interesting approach of Web MD is the introduction of workflow; moving business documents among doctors, HMOs and insurance firms, a complicated task involving high dollar volumes. The introduction of transactive business processes to a portal with market share provides immediate value to customers and valuation to investors.

One of the most exciting areas in the business arena is the introduction of free electronic commerce functions, including complete web store building and hosting. In addition, complete e-commerce portal building tools are available to vertical industry leaders, communities  and geographical portals. Market entrants here include Bigstep, eCongo, FreeMerchant, and more recently, JustWebIt. Each of these firms offers a WYSIWYG store builder, including searchable catalogs, product display functions, and integrated shopping carts and payment services.

Of course, nothing if free, and they do so by offering  credit card processing services at a nominal rate. As merchants become successful, additional marketing and financial services are offered as premium upsells. Cardservice International, which offers credit card processing, and Smarton-line and OneCore, providing financial services, are examples of business services which migrate "free" merchants into recurring revenue opportunities.

The free commerce business model is extended to large aggregators of merchants, where revenue splitting of premium services is shared between portal builders and web store hosting services. Large firms building these portals include InfoUSA (consisting of over 150 ISPs with over 200,000 merchant members), and communities of interest such as The Black World Today

The most lucrative field in the B2B space is Financial Services, which serves traditional brick-and-mortar business as well as web-based business. One key entrant is SmartOnline.com, an Application Service Provider that provides a suite of services including legal and administrative, sales and marketing, finance and business, and human resources services. Onecore.com also offers a complete range of business services covering financial analytics, cash management, bill payment, payroll services, merchant services, leasing, and small business loans. As a Business Service Provider (BSP), Onecore follows the free / premium service model. BigCharts (www.bigcharts.com) is a free, professional-level, interactive graphical comparison tool that helps users create customized on-line financial content.

For B2C e-commerce sites, BizRate.com  helps merchants understand how buyers rate their sites and on-line shopping experiences.  BizRate.com provides access to 60% of all customers making on-line retail transactions.  NetRatings.com offers a free weekly e-mail newsletter called the Nielsen/NetRatings Reporter, which highlights headline news, top 25 weekly properties, top 10 advertisers, top 10 banners, and Web average use statistics.

So what is the business model for Free B2B?  Offering something for free is a technique for opening up markets and driving the "hockey stick", the inflection point where services like e-mail (Hotmail), web hosting (GeoCities), and e-commerce suddenly explode. Many users of new free services would not have tried a business service if it weren't free, and a substantial proportion will graduate to premium services that generate monthly recurring revenue for the provider.

But how are the free B2B services to be valued, and what is their future? We believe that a new model we call "process share" -- the intersection of market share with business process transactions -- is the new metric for valuation. Witness the valuation of phone.com, which developed and licenses a Web browser operating system for wireless phones, which are expected to become the initiation point for over 50% of stock trades within 3 years. 

Each of the free services mentioned above is a virtual market maker in a vertical market or a horizontal application, has a growing member base that is "transactive", and is pursuing an opportunity to garner a small fraction of a very large number of business transactions. Whether or not free is the motive and transactions are the reward, it is clear that "free" has entered the B2B space, with businesses of all sizes as the beneficiaries.

Let me leave you with a few of my favorite quotes this month:

The fact of the matter is that "free" works. 
(G.M., San Jose, California, USA)

Yes, giveaways help provided they bring in additional business. Like in the case of mobile phone operators, or the ISPs wherein they register customers for 3-5 years usage plans

Large scale give-aways would not be that useful in B2B.  Tailored give-aways make sense. e.g. we offer a free ROI examination for Siebel implementations as a way of showcasing our Seibel talent to potential clients.


I hope you enjoy this eZine.

See you in cyberspace,

 Mitchell Levy

Executive Producer, ECMgt.com <http://ECMgt.com>
President, ECnow.com <http://ecnow.com>
Founder and Coordinator, SJSU-PD ECM Certificate Program <http://ecmtraining.com/sjsu>
Chair, ECMsym.com ECM Symposium (Oct 4-5, 2000) <http://ecmsym.com>

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