Forbes.com

by Matthew Schifrin

Four years ago, Covisint, an exchange created by DaimlerChrysler (nyse: DCX - news - people ), Ford Motor Co. (nyse: F - news - people ) and General Motors (nyse: GM - news - people ), launched a global online business-to-business marketplace for the car industry. The backers boasted that this Web-based start up would soon generate billions of dollars in business annually as buyers and sellers flocked to its site to transact business with the major auto companies.

But the rush of business never came, and, in June, Covisint was dismantled. Its struggling auction business went to FreeMarkets, an auction site which itself was eventually purchased by Ariba (nasd: ARBA - news - people ). Then Covisint sold the rest of its operations for $7 million to CompuWare (nasd: CPWR - news - people ) in June.

Covisint wasn't alone. Last month, Commerce One—a one-time prominent B2B exchange—announced that it would seek bankruptcy protection. It will likely shut down. Once a high-flying $400 million software firm, Commerce One's (nasd: CMRC - news - people ) applications automated sourcing and procurement operations and allowed companies to collaborate with trading partners in order to make their supply chains more efficient. Despite big name clients such as Hewlett-Packard, Commerce One's sales plummeted as demand weakened.

One reason for the collapse of Covisint was that its partners didn't all share the same objectives for their businesses. But a far more fundamental reason for the company's decline was technical. Corporate customers that wanted to interact with Covisint found that their own enterprise systems couldn't support the commerce applications Covisint offered. To upgrade their networks would have been very costly and time-consuming and it wasn't clear if there would be a payoff.

Believe it or not, the death of these Web-boom poster companies is a good thing for the online B2B market. Ecommerce has gone through a healthy evolution, and for the most part, the once-vaunted independent exchanges have taken a back seat to firmly-established technology companies. You will thus notice that giants like SAP (nyse: SAP - news - people ), Oracle (nasd: ORCL - news - people ), IBM (nyse: IBM - news - people ) and Microsoft (nasd: MSFT - news - people ) are present in multiple categories in this year's Best of the Web's B2B Guide. The key is that these technology companies have long standing established client relationships. Now they act as one-stop shops for their clients or as gatekeepers. Through strategic alliances they offer customers an array of specialty software-based services, from supply chain and CRM to procurement and human resources.

Those e-commerce applications that many companies lacked, preventing them from efficiently working with the once-hot independent exchanges, are now built-in to software from companies such as SAP and IBM. Another big trend affecting every aspect of online B2B has been consolidation. Big- and medium-sized firms are getting bigger because they are buying out smaller rivals. Tech stock multiples are no longer as prohibitively expensive as they were just a few years ago. Cisco (nasd: CSCO - news - people ) for example, scooped up seven start-ups so far this year.

On the whole, business-to-business e-commerce has made a strong comeback in 2004. In the U.S., according to IDC, B2B e-commerce spending will increase an estimated 50% to $870 billion in 2004 and it should continue at a 50% growth rate through 2007.

The real proof, of course, is evident when you track investor money. Web-company IPOs are back in investors' good graces. At the forefront is online advertising giant, Google (nasd: GOOG - news - people ), which raised $1.67 billion and has appreciated more than 50% since its offering. CRM leaders such as RightNow Technologies (nasd: RNOW - news - people ) gained nearly 80% and Salesforce.com (nyse: CRM - news - people ) is up 42% since they went public.

The list goes on: Kanbay International (nasd: KBAY - news - people ), a financial services B2B, is up 64%; Blackbaud (nasd: BLKB - news - people ), a Web services firm devoted to the non-profit world, up 23%; in B2B marketing, Marchex (nasd: MCHX - news - people ) gained 91%, and Greenfield Online (nasd: SRVY - news - people ) climbed 56%; Navteq Corp (nyse: NVT - news - people ), a digital mapping and navigation software firm, has risen 62%.

Most importantly, these new B2B stocks—unlike the rush of IPOs of the late 1990's—are virtually all firmly in the black. Even Sand Hill Road is buzzing again. According to VentureWire, overall VC investment is up nearly 20% year-to-date over 2003. At least 89 VC firms are raising money now or planning to in the next 12 months, and it is estimated that an additional $20 billion will be raised in the second half of 2004. In the second-quarter, venture capitalists spent over $3 billion on information technology start ups, the highest amount since the third quarter of 2002.

Businesses and Wall Street are clearly rediscovering what they once loved about Web technologies and businesses. Only this time, instead of a gooey-eyed crush, they are approaching every transaction and relationship as soberly as a once-burned lover back from the rebound.

The original article can be veiwed at: http://www.forbes.com/best/2004/1004/001_print.html