[BETA] Fortnightly

Can regional hubs anchored by utilities overcome the liquidity problem of other B2B procurement exchanges?

Electronic commerce , until now, has been limited to use mostly by techno-geeks as a new way to match sellers in Boise with buyers in Bhutan. But some people are realizing that the Internet offers a means for old-line businesses like utilities to make real money in ways they couldn't previously-and right in their own backyards.

Only recently defined by single-seller websites targeted to consumers, the e-commerce landscape is increasingly populated with business-to-business ventures. Early B2B ventures have been vertical, with goods and services targeted to a particular industry, but the latest slice of the market is horizontal, involving buyers across industries. Utilities stand to reap big profits and recast their stock valuations from a variation of these horizontal hubs, the "regional horizontal hub."

The regional hub business model, which was developed by my firm, energyLeader.Com, is a group of buyers within a geographical area banding together to purchase all types of goods and services. It sounds like something that could have been done in the 1920s. And, driven by the potential savings of mass procurement, businesses probably would have made it a common practice if not for the paperwork blizzard generated by multiple ordering, shipping, and billing. What makes the regional hub concept new, and will make it work now, is that all transactions will take place online using customized Internet platforms. The basic platform to be used in these regional hubs is used already in about 100 electronic exchanges.

For suppliers, e-commerce offers a natural advantage over traditional sales because online transactions do not require salesmen, showrooms, or heavy marketing budgets. That is particularly advantageous for small businesses that have less money to invest in facilities, staff, advertising, and expediting payment of receivables.

Another advantage of electronic commerce, for buyers and suppliers alike, would seem to be that it erases geographic limits. A buyer can find the best product and price halfway around the world, and a seller can tap new markets quickly and easily. However, many buyers that have a stake in the strength of the local economy prefer to buy locally. Institutions such as universities and hospitals, state and local governments, and school districts have an interest in buying close to home, especially for services. But marketing clutter in a region can be difficult to overcome even for motivated buyers, so it can be as hard to make the right deal nearby as at a distance. The regional hub will help to cut through that clutter. Local buying also saves time and money in shipping.

Energy utilities are particularly suited to anchor regional hubs. Most have been in business for the better part of a century, and have developed reputations for community service and reliability. Utilities also have believed in buying locally when possible, and have developed good connections with area businesses, both as vendors and energy customers.

Regional hubs may provide one of the new revenue streams that utilities are seeking as competition increases. The unregulated business units most utilities have formed