The E-Trade Stampede

Like his daddy before him, Ben Zaitz knew he was going to grow up to be a cowman. And until four years ago, he was--moving 2,000 to 3,000 head of cattle a year between his farm in North Carolina and his farm in Minnesota. But in 1995, Zaitz, then 40, got dissatisfied. His customers were disappearing as hard times hammered the dairy business, especially in the Southeast. And his "profit margins were going to nothing," he says. "I just couldn't see much future in what I was doing." But Zaitz could see a future on the Internet, to which he'd been introduced a few months earlier. He had a vision of creating "a complete marketplace for all participants in agriculture," he says, "where crop producers and livestock farmers could come together and do business without having to step a foot off their farms."

Zaitz traded in his farm boots for a laptop and developed COW, the Cattle Offerings Worldwide website. In its first incarnation, COW was basically online classified ads for cattle. "There were not very many farmers on the Internet back then," says Zaitz. "In fact, it was mildly embarrassing. I'd be at cattle sales, conferences and dairy shows, and people would come up to me and say, 'Hey, Ben, how's that Internet thing going?' and they'd slap me on the back with a smirk."

Eventually the farmers caught up with Zaitz's vision, helped along by new technology. In just the few years since Zaitz bought his first modem, analysts estimate that close to 35% of the nation's 3 million farmers have gone online. COW has evolved into , one of the first e-business sites to support real-time farm auctions. Farmers who visit the site can buy and sell entire lots of cattle via digital video feeds and still images. They can also get chemicals, grain and feed commodities online. On average, says Zaitz, has more than 40,000 unique visitors a month. During the past year, the site has held in excess of $2 million worth of auctions of livestock and commodities. Zaitz, who has invested more than $1 million of his own money in his venture, expects revenues to increase tenfold this year.

Zaitz's story is not unique. From farming to food to microprocessors; from solid-waste control to plastics to such traditional Rust Belt goods as steel, virtually every American industry is represented online by at least one entrepreneur who has set up shop to cement business-to-business commerce. Meanwhile, large corporations are using the Internet to build bridges between themselves and their strategic partners. Each member of the online biz-to-biz (B2B) brigade is hoping to use the Net's instantaneous global reach to build digital marketplaces where buyers and sellers who may never have met in the off-line world can gather daily to move huge and growing amounts of the nation's basic goods.

Experts who follow this emerging business-to-business electronic-commerce market call it frictionless, because no faxes, phone calls or paper trails snake back and forth to clog the communications channel between buyer and seller. That is just one aspect of these new wholesale channels that has analysts salivating. B2B companies "are going to reshape the entire economy," says Charles Finnie of Volpe Brown Whelan & Co., an investment-banking firm based in San Francisco. "It's not unlikely that Mr. Greenspan will be sitting in front of Congress in the next couple of years saying one of the main reasons inflation is dead is the B2B Internet companies."

Forrester Research of Cambridge, Mass., a leading Internet analyst, agrees. Its report, Resizing Online Business Trade, predicts that B2B e-commerce will hit a total of $1.3 trillion by 2003, accounting for 9.4% of total U.S. business sales. Varda Lief (see the box, following), a senior analyst at Forrester specializing in e-commerce, says business-to-business transactions will far surpass business-to- consumer deals and dwarf giants like eBay and in revenue and sales. "Business-to-business is the stuff that makes everything run," says Lief.

If B2B is so basic, how come most of us are about as familiar with it as we are with life on Mars? Steve Jurvetson, a partner in Silicon Valley venture-capital firm Draper Fisher Jurvetson who has invested in FastParts, an electronics trading exchange, and Sonnet Financial, an online foreign exchange, calls B2B "the iceberg waiting to emerge." "Most people," Jurvetson says, "understand the business-to-consumer market because they are consumers themselves. It's kind of like the Beardstown Ladies' investment protocol: use a product, come to understand it and then invest in it. With business-to-business, though, unless you are entrenched in that industry and really understand that market segment, you are not going to appreciate how it's revolutionizing that business."

But sometimes numbers alone can paint a pretty clear picture. Take , a vertical e-market based in Palo Alto, Calif., developed for the pharmaceutical and biotech industry in 1997. Chemdex is reducing sales and distribution costs industrywide by 20%--more than $4 billion of the total $20 billion global life-sciences research-products market, according to Volpe Brown analyst Finnie. "In effect," he says, "Chemdex is turning around to the chemical producers, and it is saying, 'Congratulations! This is your lucky day. You just won the lottery. Here's a check for $4 billion.' These guys have not seen their costs structure improved like this ever. It's a tectonic shift."