Location is the key to retailing, whether you're downtown or on the Internet.

The basic message you'll hear from exhibiting Internet service firms: e-commerce offers the solutions you need to overcome shrinking margins, an isolated market area and/or major changes in traditional ag marketing channels.

All it takes, they say, is changing a few of the fundamental ways you buy and sell. Or expressed another way, if you adapt your business strategies to the rapidly shifting buying habits of producers, opportunities will abound.

Are they right? What conclusions should you be drawing about e-commerce?

There are no easy answers. But one thing is certain: ag e-commerce is not going away. “Without doubt, the browser will become the interface for agricultural business-to-business, or B2B, transactions,” says Dr. Brian Buhr, University of Minnesota associate professor and director of the Minnesota Center of Agricultural Information Systems and Structural Change.

Industry forecasts clearly support this view. Fortune magazine recently cited a study by AMR Research, a leading e-business analyst firm, predicting $5.7 trillion in e-business transactions by 2004. What percentage of the approximately $80 billion U.S. ag marketplace will move to e-commerce remains to be seen, but the report warned that “companies that do not take an aggressive approach to B2B e-commerce and prepare for digital marketplaces will lose customers and ultimately fail.”

Buhr advises ag retailers not to jump into the e-commerce arena, however, unless or until they have written clearly defined core business strategies. “Ask yourself this question: If I were going into business today, how would I go about building my company now, whether the Internet was there or not? That's what should drive your Internet strategy. Technology alone won't solve business problems,” he warns.

Exchanges. XSAg.com currently lists products for about 1,000 sellers of agricultural chemicals, seed, parts and equipment and animal health products, says president Fulton Breen. The exchange, one of several currently promoting Internet bidding and buying, went online in 1999, operating much like the NASDAQ. “We don't own any of the products, and we don't care about the price. We focus on executing transactions, and we get a 3 percent fee for doing it,” he says.

Many retailers at first saw exchange sites like XSAg.com as an enemy that encouraged producers to go around them to buy crop inputs, Breen recalls. He says attitudes change quickly, however, when retailers see the marketing opportunities offered by the Internet. “In fact, about four out of every five of our suppliers and about 40 percent of our buyers are currently ag retailers,” he explains.

Suppose you're a dealer in a five-county area of Iowa or Illinois with about $1 million in assets, the enthusiastic Breen suggests. You're already covering your market area pretty well, so additional cash flow is hard to generate. But then you decide to extend your market reach by going online and assigning a pallet or two of product on the Internet site.

“This instantly shifts your company's market reach from regional to national, growing your sales area from five to all 3,110 U.S. counties. There is no credit risk, no additional investment and no fee to pay until you sell. Even then, the average transaction value of $7,000 on the site costs only $210. And if you wish, you can exclude growers in your five-county home area from having access to your online offering,” he adds.

Orders are processed with the Nterline exchange platform, which takes into account regulatory restrictions and hazardous materials logistics, real-time freight transportation quotes and customer service support. Breen says XS Inc. is going global this year by jointly marketing Nterline with Farmpartner.com, a European online exchange with offices in Germany and France.

e-Business centers. That's what the managers of Rooster.com, which went online in May 2000, call their Internet storefront platforms. This “click and mortar” marketplace, expected to be fully operational this spring, was developed with investments from Cenex Harvest States, Cargill, DuPont, ADM, IMC Global, The Andersons, Bunge and Louis Dreyfus.

Developers say Rooster.com allows growers to sell grain to local elevators and processors and offers them one-stop shopping for seed, fertilizer, crop protection products, equipment and other supplies. Producers connect with local retailers and elevators via an online business center created by Rooster.com and customized for each individual business. By clicking on the e-Business Center they want to check out, buyers can pull down current grain contracts, find production information relevant to their local area or search for products and services, along with prices you set as the storefront owner.

“The e-Business Center will help dealers build an online community where producers can go to find information, decision support, news, weather, products and services,” says Dale Locken, vice president of retail partnerships. The Rooster transaction engine supporting the local e-Business Center will initially allow producers and elevators to trade grain online, and will eventually let retailers link online customer orders to their accounting systems, generate automatic invoices and shipping documents and adjust inventory. Locken says Rooster plans to introduce financing arrangements with lenders as part of the service package in the future.

XSAg.com and Rooster.com are by no means the only e-commerce firms you'll likely spot at the trade show. Farms.com, online since 1994, deals in crop inputs, livestock and related products, including feed, real estate and used farm equipment. Farmbid.com, a 1999 entry, sells equipment, seed, animal health products, home and garden supplies and crop protection products. Directag.com was founded in 1999, to handle Stine and ABT seed, crop protection products, animal health products, farm equipment, parts and financial services. E-markets.com introduced an online grain production contracting system in 1997 and a crop input ordering system in 1998. Quickfarm.com, launched in April 2000, specializes in pooling producer bids for seed, fertilizer and chemicals. On the online storefront side, one-year-old AgWizard.com provides an electronic clearinghouse through which manufacturers sell to retailers, as well as customized e-commerce Web sites for dealers to target grower customers. Pradium.com, a new online category, is a virtual trading exchange targeted at second and third handlers of cash corn and soybeans and commodity by-products.

Minnesota economist Buhr also expects a major alliance force to emerge from vtraction.com, an e-commerce co-op launched last February by the Netherlands-based Rabobank, a powerhouse co-op lender to food and agricultural companies. Since its formation, vtraction has invested major venture capital in farms.com and other sites, including agribiz.net, Trading pro duce.com, Foodtrade.com, FbiX.com and other ag and food e-commerce initiatives. It also became a minority shareholder last October in Sparks Companies Inc., a large Memphis-based market research and analyst firm.

“Location is the key to retailing. That's true downtown or on the Internet,” says Buhr. If you've decided to move part of your business online, you must choose whether to go with a storefront/business center provider or develop an e-commerce strategy on your own site. On the one hand, companies like Rooster and AgWizard claim they provide a high-traffic marketplace that costs less than building, maintaining and promoting a site, and they offer value-added transactional support. On the other hand, there's the danger of looking like all the other stores in the online mall, and you might wind up simply putting yourself head to head with your competition in a new environment, he warns.

Speed of access is also critical. Check out the site in question, Buhr advises. Once you're at the home page, is it easy to access the mall? Two clicks or five? If it takes five, you'll lose most users before they get into the store, he says.

Developing a Web site is getting easier. “You can literally outsource 99 percent of the technology needed. They build the site and manage it. You worry about correctly positioning your business strategy,” Buhr adds.

If you decide to build your own site, he advises assigning the Web project to someone within the company who knows the business strategy and who can communicate it effectively into a technology platform. Do you want the site to track orders? Sell seed and chemicals? Forward orders to central marketing departments? Put clearance items into an auction format? The options are “virtually” endless. Fortunately, there are now a number of Web site developers who have worked with agricultural companies and understand the business much better than a few years ago, says Buhr.

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