[From iSource Business, May 2001] On the Internet, (as we know from the now-famous The New Yorker cartoon), no one can tell if you're a person or a dog. Nor, for that matter, can they tell whether you are a legitimate corporate customer or supplier, which makes e-commerce a risky proposition. But a few solution providers are working to take the risk out of online B2B transactions by providing tools to verify the identity of potential e-business partners.
Trust No One
Risk has been a component of every business transaction since trading began, and wise businesspeople have typically assessed their risk before consummating any deal. Since this type of risk assessment slows down business, merchants have relied on relationships with their partners as one way to mitigate the hazards of commerce. Before the digital age, the face-to-face, the eye contact and the handshake kept business personal and fostered a sense of trust. But now, e-procurement and the Internet have influenced that dynamic.
Of course, trust was not an issue in the early days of e-procurement, back when e-commerce meant using Electronic Data Interchange (EDI) to connect to your existing supply base. Companies were generally just hardwiring links to partners they had known and traded with for years. After all, EDI was such an expensive, complex process that it made sense only when the relationship and trust was already established.
Nor was trust a key issue when the e-marketplaces first made their debut in the late 1990s. Many if not most of the serious B2B exchanges did pre-qualify their participants, but in those heady days the talk was of exposing buyers to vast pools of potential suppliers and vice versa. Many-to-many and fat butterfly were the rallying cries of the Net marketers, and in their rush to gain liquidity (and profitability), the e-markets focused on building transaction volume by attracting a critical mass of buying and selling clients.
Ironically, the Net markets' own value proposition expanding the potential customer and supplier bases brought the trust issue back to the top of the agenda for would-be e-commerce participants. A lot of companies are finding a whole universe of potential partners out there they didn't even know existed, explains Emmanuel Sodbinow, a senior consultant with the Patricia Seybold Group, a consulting firm headquartered in Boston, Mass. To the degree that those companies want to develop some kind of relationship, they need some way to be sure that the companies they are going to start working with are viable enough and reliable enough to provide supplies or services appropriately, or to pay up when they receive those supplies or services.
Brad Hansen, vice president and chief technology officer for BidBuyBuild, agrees with that view. BidBuyBuild is an online exchange for the construction industry, acting as a matchmaker between subcontractors and manufacturers. You have a lot of people doing business or having the potential to do business with each other who have never done so in the past, Hansen says. What was important for BidBuyBuild was to find a way to break down some of the hesitation to doing business with people whom you don't know and have only met online.
Recognition of the trust issue as a potential stumbling block on the way to marketplace liquidity has been spreading among the exchanges. In an October 2000 Ernst & Young survey of executives involved in online B2B exchanges, 37 percent of the respondents said that verifying the identity, creditworthiness and trustworthiness of e-market participants would be a critical success factor for the marketplace exchanges.
Trust, but Verify