Business-to-business e-commerce; value creation, value capture and valuation

This paper presents a framework to analyze the potential changes in transaction costs due to the introduction of e-commerce on transactions between businesses. It then illustrates and applies this framework using internal data from an Internet-based firm to measure process improvements, marketplace benefits, and motivation costs. We find that process improvements and marketplace benefits are potentially large, while little evidence exists of increases in motivation costs. Finally, we use the framework to help discuss why valuations of Internet companies were so high at the end of 1999 and why they have declined so precipitously since then.