Ken Register needed help. Almost a year ago, the president of Heart-O-Dixie Animal Nutrition, a small chicken-feed maker in Montgomery, Ala., was looking to replace his long-distance carrier with a cheaper alternative. Otherwise, his phone bills would soon start to peck away at his bottom line. But with just two employees, Register couldn't afford to pull them from their day-to-day jobs to spend time calling carriers, requesting quotes and handling negotiations. "Phone service is one of the worst things to shop for," he says. "You have to read the fine print on everything."
Almost by accident, though, Register discovered he could find the answer without even picking up the phone. While browsing the Net one day, he clicked on a banner ad that directed him to Demandline, a digital marketplace where small businesses can get quotes for free on a wide variety of services from a network of suppliers. Register simply typed in a list of what he needed from a long-distance carrier, including two phone lines, a fax line and a toll-free number. Within a week, Demandline had auctioned his request to numerous suppliers, including AT&T and Qwest, and received a competitive bid from Cable & Wireless, which Register accepted. Just two weeks after placing his bid, Register saw results. "I've been saving about $200 a month with the new plan," he says. "That's substantial for a small company like ours."
For thousands of other entrepreneurs who are just making a go of it, that's not chicken feed either. Heart-O-Dixie is but one of a growing number of small businesses, from insurance companies to carpenters, that are turning to business-to-business (B2B) exchanges, or e-marketplaces, as a way to save money and gain leverage against large companies. In the past couple of years, dozens of websites have appeared that pool requests by small businesses and help them strike better deals with suppliers of products and services. Along with greater convenience, exchanges offer prices 15% to 25% lower than a small business can negotiate on its own. Whether for buying office supplies or looking for payroll processing, the Internet is helping level the playing field for small businesses.
Websites are bringing buyers and sellers together in a variety of ways, including cooperative purchasing and catalog buying. Some of the more popular exchanges use so-called reverse auctions to play matchmaker. Here's how they work: a prospective buyer completes a request-for-quote form, the exchange matches it with prequalified suppliers, and they submit a quote. Some exchanges let vendors see other bids while the auction is under way, and others reveal the winning bid to vendors only after the auction. Either way, buyers can choose the quote that best suits their needs.