FTC tiptoes into e-commerce

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Don't worry about the federal officials overregulating b-to-b e-commerce--at least not yet. They're still trying to figure out what it all means.

Whether that admitted ignorance is good or bad for the industry remains to be seen. But at a two-day summit last week featuring vendors, end users and b-to-b analysts, Federal Trade Commission officials seemed very interested in involving industry voices in the regulatory process. And they pledged a cautious approach.

"We in the government, whatever we might be prone to do, we'd better get it right," FTC Commissioner Orson Swindle said. "If we screw it up, we will have caused terrible damage."

The FTC has been very active in the business-to-consumer arena, especially regarding consumer privacy, in large part because the industry wasn't responsive enough to early calls to self-regulate its activities.

Being low on the b-to-b learning curve has stopped the FTC from pressing its influence in the early development of b-to-b exchanges. For instance, auto industry exchange Covisint this month submitted a wide range of documents to the agency to aid the review of its pending exchange.

"We know that some of these marketplaces could give rise to antitrust concerns," said FTC Chairman Robert Pitofsky, who added that the agency was still in the stage of identifying key b-to-b trends and understanding their positive influence on U.S. industry.

To that end, vendors such as Commerce One, PurchasePro and FreeMarkets gave demonstrations of online procurement and auction systems. The FreeMarkets presentation in particular struck a chord, as Sam Kinney, FreeMarkets co-founder and exec VP, demonstrated several real-world auctions on an overhead screen, with prices ticking down as suppliers fought to win a buyer's business.

Kinney stressed that b-to-b mechanisms such as the reverse auctions at the core of FreeMarkets don't alter business relationships, they just makethem more efficient. "Auctions don't change the structure of the market," he said. "All we do is enable price discovery."

They also have the potential to enable massive cost savings for buyers. Kinney detailed how United Technologies used a FreeMarkets auction to buy 165 custom-designed circuit boards--and saved 42% off the expected cost.

Wielding undue influence?

Overall, discussion focused on a few key issues: Could emerging industry buying consortia wield undue market influence? How are marketplace business rules established, and how do they ensure that all parties are treated equally? Who owns the transaction data marketplaces generate, and how could such data be misused?

Common sense and conventional business practices can do more to ease such concerns than regulation, many industry panelists stressed. "B-to-b has taken off so quickly that people are blowing right by the fact that they have to run their [b-to-b] business like a real business," said Patrick Stewart, president-CEO of metals marketplace MetalSite.

MetalSite has taken the unusual step of having Arthur Andersen audit all its business practices and post the results right on its Web site, in large part to allay concerns among its marketplace customers, Stewart said.

Indeed, the FTC understands that "the underlying technology in b-to-b can make markets more competitive, not less competitive," said policy planning director Susan DeSanti.

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