The employees at Blockbuy.com playfully call themselves "blockheads." But b-to-b marketers now working with the Seattle-based start-up believe it has devised an inventive model that will help them target niche business buyers.
Blockbuy.com on Wednesday officially launches its first platform, a group purchasing network for the restaurant industry.
"Their thought process matches our dedication to establishing a niche," said Joe Pankus, president of Wurlitzer Jukebox Co., one of about 20 companies now working with Blockbuy, which was founded last year.
Even though about 70% of its sales could be classified as b-to-b, Wurlitzer sells many of its jukeboxes and other vending products one at a time to restaurants, taverns and other small businesses.
"What we do is aggregate demand around specialty products," explained Blockbuy founder Josh Schroeter.
Unlike most Internet plays, Blockbuy doesn't rely on driving traffic to its own site. Instead, it places its private-label technology on sites that presumably are already generating traffic in vertical industries. Blockbuy has launched its networked group purchasing software on several Web sites, such as Foodhunter.net and RestaurantOwner.com, reaching restaurateurs, cafe owners and greasy-spoon proprietors.
On the sites, visitors will find a Blockbuy button for purchasing espresso machines, automatic hand-washing stations and other quintessential restaurant gear. The more orders Blockbuy can aggregate for a particular item from all of the restaurant industry sites on which it appears, the lower the unit price paid by each restaurant owner.
For b-to-b marketers such as Wurlitzer, Blockbuy provides a no-cost marketing channel to reach small and midsize businesses via a range of Web sites.
For smaller-business buyers, Blockbuy offers the chance to pay the discounted prices usually reserved for large companies that buy in bulk.
Each Web site, or "affiliate," gets 2% of the revenue generated by a purchase.
"We were planning to do a service like this ourselves, but then we found that Blockbuy had a similar concept," said Shahzad Rauf, president-CEO of Foodhunter.net.
Scalability will be Blockbuy's biggest hurdle to generating the big-time revenue that will eventually yield profits for its affiliates and itself. Like its affiliates, Blockbuy takes a 2% cut of the revenue generated by its technology.
Blockbuy officials confirm that their business model is a "volume play," a syndication model. The dual challenge for Blockbuy is to convince enough manufacturers to sign on and enough Web sites to install its technology.
"One of the most significant challenges is one of scale," said Marilyn Muller, industry analyst with Summit Strategies Inc. "With each and every product, the price has to be negotiated."
Blockbuy is by no means the first group purchasing company on the Internet. Mercata Inc. is a leader in consumer demand aggregation. PointSpeed Inc. is a b-to-b group purchasing site, and both Shop2gether.com and MobShop Inc. are b-to-b and consumer hybrids. What all of these operations have in common is that they depend on driving customers to their sites where they aggregate demand for commodities such as office equipment and telephone service.
Blockbuy differs, Muller said, by organizing group purchasing around specialty products and through its reliance on media affiliates. (Shop2gether.com has an affiliate program, but it simply asks business customers--not media sites--to link to the Shop2gether Web site and pays for referrals.) Among Blockbuy's challenges will be creating enough volume with noncommodity items, Muller said.
Aware of the importance of developing scale, Blockbuy is currently in negotiations with large Web software providers that could open large markets. Further, the company is talking with various
b-to-b content companies to place its technology on their portals. And Blockbuy plans to quickly expand beyond the restaurant industry into the hospitality, construction, and broadcast and telecommunications industries.
Blockbuy is optimistic about its revenue-generation potential. Although it expects to see less than $1 million in revenues in 2000, the company predicts it will achieve $144.8 million in revenue and $21 million in net income by 2004.