Huge Market Developing For Direct Internet Sales.

CALL it the Internet's serious side.

It's B2B. Neither sexy nor glamorous, B2B is about as interesting to the average Web surfer as a computer screen full of HTML script.

However, the deceptively simple concept promises to harness the full power of the Internet and, possibly, brighten the L.A. economy in the year 2001.

While last year's forecast of explosive growth in the B2B market was slightly overblown, a skew of companies did rush into the B2B arena, fueling B2B hype and perhaps even contributing to a minor shakeout in that sector.

Still, there's an enormous market to be tapped by savvy B2B companies in L.A.

"B2B is a category for us that's extremely ripe," said Chris Moore, associate with Redpoint Ventures, an L.A. venture capital firm. "It's much more complicated than forecasters thought, so it's taking time to play out. We're only in the second inning of the game."

B2B refers simply to businesses using the Net to sell to other businesses. The software and infrastructure that B2B companies develop and provide enable other firms to purchase supplies, compare prices at various vendors, and in many cases dramatically reduce the time between placing orders and filling them.

Say a company needs to order No. 2 pencils. Instead of paging through a catalog, filling out a form and faxing it to a supplier, the company's buyer can instead visit a Web site, search a compilation of listings for the lowest price, and almost instantly find the cheapest pencil vendor. The pencil supplier, meanwhile, can buy wood and graphite from an online exchange in the same manner. And the company that grew the trees for the wood can use the Net to find the cheapest and most efficient wood mill.

The efficiencies that the B2B market brings to every level of these transactions is forcing corporate management teams to look at the Net as something much more than just an information and entertainment medium.

Nationally, the B2B market is expected to soar from $406 billion this year to $2.7 trillion in 2005, according to Cambridge, Mass.-based Forrester Research Inc. New York-based Jupiter Research puts that figure at a slightly more conservative $2.2 trillion in 2005.

Banking on B2B

In L.A., a wide range of B2B companies is carving out space in the B2B market.

The ones that seem to be most successful are those offering very specific and targeted applications. Recent investments in some of these companies reflect the continuing shift away from business-to-consumer (B2C) commerce and toward B2B.

LA-based CreativePlanet Inc. is bringing a B2B marketplace to an industry that is desperately trying to cut costs: Hollywood. Early this month, the company took in $30 million in funding from British media giant United News Media.

CreativePlanet helps studios and television networks become more efficient, for example, by aiding their search for the cheapest locations and production personnel, thanks to the company's Web platforms, databases and wireless technologies. For an annual subscription that costs around $10,000, studios can have production processes streamlined on the platforms and high-tech devices.

"For project-oriented Hollywood studios, the production process has gone from an inhouse model to an outsource model, which is very complex and inefficient," said CreativePlanet CEO Allen DeBevoise. "We create efficiencies with our B2B tools that put a virtual roof over their outsourced projects."

El Segundo-based B2B player 1GlobaiPlace Inc. also secured funding last month. The company, which helps firms secure, protect and manage intellectual property, got an investment of $5 million from Reuters Venture Capital and TFG Venture Capital.

1GlobalPlace plans to use the capital to create localized Web sites in certain international markets and extend, its existing Web site features. The company will also use the funding to increase its staff, as well as launch international marketing and public relations efforts.

Xdrive Technologies Inc., the Santa Monica-based provider of digital storage space on the Net, is one of the hottest local B2B players. This month, Xdrive landed a total of $50 million from investors Goldman Sachs Group, Wit Soundview Ventures, Mitsibushi Corp. and others. That fourth round of financing brought Xdrive's total financing to around $120 million.

Space for rent

Torrance-based Agribuys, which develops and provides a B2B marketplace for the food industry, soaked up $24 million in funding from Internet Capital Group (ICG) in November.

"The food industry is ripe for a B2B e-commerce solution to streamline the complex process of bringing hundreds of thousands of food products from the farm to the dinner table," said Ron Hovsepian, managing director of ICG. "The potential savings for the industry are in excess of $7 billion per year in the United States alone."

Analysts, however, say smaller B2B plays face a tough challenge from B2B businesses created by larger clicks-and-mortar businesses, like heavily funded and well-publicized efforts from Procter & Gamble Co. (co-founder of Transora) and General Motors Corp. (cofounder of Covisint LLC).

"You're going to see a slew of very large companies getting involved in B2B ventures, and it's going to be very hard for an independent market-maker to get into the business," said Jupiter analyst Mary Cicalese.

Not a slam dunk

Adding to the competition are some other prominent national players that have emerged with the exclusive mission of setting up B2B marketplaces. Those include Dallas-based i2 Technologies Inc., Mountain View-based Ariba Inc., Pleasanton-based Commerce One Inc. and Las Vegas-based PurchasePro.com Inc.

As in other sectors of the Net economy, 2001 may turn out to be the year that L.A.'s smaller B2B companies have to partner up to survive. But that can be a treacherous process.

One B2B company that was trying to position itself for a suitor, Santa Monica-based BizBuyer.com Inc., failed to do so and closed its doors last week. Founder and CEO Bernard Louvat said in a statement that BizBuyer "could not build the liquidity and transaction volume necessary to support an ongoing marketplace, as well as create acceptable returns for our investors in today's financial market environment."

The BizBuyer model allowed small businesses to submit a detailed description of what they wanted, and within hours or days they would receive a series of bids. As of last week, the company had 80,000 registered users and 38 product and service categories.

Louvat said the company will return $35 million in remaining venture money to investment partners, which included Rustic Canyon Ventures and Redpoint Ventures.