Marketplaces - the next big thing, but no-one's sure how they'll
work, writes David Bicknell
Six months ago, the picture for business-to-business
marketplaces was clear.
A whole string had been set up, for example Chemdex (now Ventro)
in the chemical sector; Band-X in the IP telephony arena; and Altra
Energy in the energy sector.
The whole marketplace concept then seemed to be legitimised by a
decision by the Big Three carmakers - GM, Ford, and
Daimler-Chrysler - to merge their separate supply chains.
Suddenly, a whole string of marketplaces in other sectors were
set up - not by the dotcoms this time, but by bricks-and-mortar
companies. On consecutive days, an Internet trading exchange
involving Boeing, Raytheon and Lockheed-Martin was set up for the
aerospace and defence industry, swiftly followed by a healthcare
exchange to facilitate the buying and selling of medical equipment
involving Johnson and Johnson, Abbott Labs, Medtronic and Baxter
International.
No dotcoms these. These were all traditional firms seeing an
opportunity to create exchanges in their own industries. If you
were an established multi-national company and you weren't involved
in a marketplace, you were behind the curve. Round up some
companies in the sector - no, it doesn't matter if they are your
competitors, you'll worry about that later! - and boost that share
price and market capitalisation. Do you have an e-business
strategy? Sure, you do, you're part of one of those "electronic
marketplaces".
Now, less than four months on, the world has changed again. At
the end of May, while those pioneering dotcom exchanges
contemplated the imminent entry of the "slow" legacy firms into
their arena, the US Justice Department and the US Senate Commerce
Committee stepped in to confuse the situation further.
First of all, the Department of Justice said it would hold a
meeting in June to examine the marketplace for small suppliers to
the proposed GM, Ford and Daimler-Chrysler set up. Then, both
indicated they would also examine an online venture by the US's
largest airlines. The venture, involving Delta Airlines,
Continental, NorthWest, United and American, has been dubbed T2 by
the travel industry. The industry fears that T2 will offer special
rates for tickets through its Web site, freezing out third party
distributors, even online travel agencies such as Travelocity and
Expedia. That could hinder competition in the marketplace, hence
the antitrust concerns. Instead of having a marketplace in which
smaller suppliers can participate and drive competition, what might
actually be created by the large bricks-and-mortar companies is
essentially a cartel set up for their own benefit.
This would lead to UK suppliers, being forced - on unfavourable
terms - to join a consortium-led marketplace. The car industry,
where the Big Three hold huge buying power, is a prime example.
The new exchange builders claim that this is not the case for
many industries. In the majority of industries, there is greater
fragmentation in purchasing power. In some industries the largest
players may control only 25% of the purchasing power.
In any case, say the new market makers, many of the marketplaces
being set up by bricks-and-mortar companies so far have little
substance behind them, other than an announcement for the benefit
of investors. For Altra Energy, there are nine traditional
companies challenging its space, but so far precious little real
movement.
Eventually, both traditional companies and dotcoms are likely to
have to pool their resources. That is more likely than a string of
competitors working together. Already the marketplace entrepreneurs
have a quiet chuckle at the idea of competing managers from six
bricks-and-mortar companies "invading" their marketplace - because
their boards had put them up to it - then having to grovel to the
entrepreneurs to learn now to do it. "It takes them three months
just to get a date to meet," said one recent delegate at the Net
Market Makers conference in Boston.
Meanwhile, for IT and e-commerce strategy leaders trying to
deliver a working system for their boards, the best news of last
month was that for those pressed for time, more technology options
to help create marketplaces will shortly exist.
Apart from the string of companies already in the e-marketplace
and supply chain space - such as Oracle, Commerce One, Ariba,
Biomni and i2 - you can now add IBM, which has claimed to be able
to put a e-marketplace solution "in a box" that can be delivered
within 90 days.
Similarly, SAP, whose MySap.com solution was unlikely to be able to
reproduce the runaway success of SAP R3 in the ERP world, is also
ready to partner with Commerce One's. By the end of May, an
integrated Oracle e-business solution was expected to be available
too.
In the meantime fledgling marketplaces face some serious
challenges. For the dotcoms, it is trying to grow a business that
is unlikely to get more funding. For the traditional companies, it
is delivering on the marketplaces they claim to want to create, and
countering any antitrust concerns.
The next three months are going to be just as much of a
rollercoaster as the last three.