PetroCosm, a joint energy sector marketplace venture by Chevron and Texaco is taking on the BP and Shell-led intiative, TradeRanger, for a cut of a billion cake, writes David Bicknell.
One of the prominent features in the setting-up of electronic marketplaces has been the competition between key heavy-hitters in a string of industries. It happened in the car industry between Ford and GM before the pair decided to team up with Daimler Chrysler on Covisint, the retail sector and it's a similar story in the energy sector as well, where a group largely driven by US giants Chevron and Texaco - dubbed PetroCosm - is taking on a BP and Shell-led operation, called TradeRanger What's more, it's no small marketplace to compete over. Estimates put the global oil and gas industry's annual spend at around $400bn - and PetroCosm is aiming for a quarter of it. Typical products at the heart of this marketplace will be pipes, valves, drilling components, and cement.
PetroCosm - led by former senior executive Norman Chambers of energy services company Halliburton - was first announced in February and is now trying to convert page after page from suppliers' catalogues into a digital form.
The company originally grew out of initial efforts by Chevron to slash its procurement spend - an estimated $6bn a year - through an internal project in partnership with US software company Ariba. Then, after realising the possibilities, and the expense involved in setting it up, Chevron brought Texaco on board to share the expense - and the benefits.
The move is the latest in a series of e-business ventures by Chevron, which previously had also been one of the early pioneers of real knowledge management, or "best practice sharing".
Chevron has also teamed up with a WalMart subsidiary and Oracle to set up an Internet trade exchange for all convenience store and small business retailers and their suppliers. The operation is to be known as RetailersMarketXchange.com
In the first year or so, PetroCosm wants to attract around $8bn-$12bn worth of business to its site, then eventually start making a profit after two to three years.
Already around $20m has already been spent on setting up the Web operation, with probably more than double that likely to be spent over the next two years, expanding functions.
Eventually, PetroCosm expects to be offering the following services in its marketplace:
Already PetroCosm claims to have achieved more than $5m transactions through the company's catalogue procurement tool in the past few weeks. Through this service, PetroCosm participants accessed a shared environment allowing them to manage their procurement activities real-time.
It also recently announced two new markets to be hosted on the company's auction service, Dynamic Bidding. Through Dynamic Bidding, PetroCosm conducted a sellers' market for a nine-well, four pile-drilling production platform and a buyers market for tubular steel products.
Overall, the benefits to the seller are access to new electronic sales channels, a shared infrastructure, lower accounts receivables, lower inventory costs and better information flow to customers.
For the buyer, there is a streamlined procurement process, enhanced global market knowledge, lower costs, less "maverick" buying, where corporate buying is made off-the-cuff, more efficient invoicing, and faster\transactions and delivery.
Another key aspect of PetroCosm is its focus on creating a regional focus to its activities. This will demand the setting up of a series of regional local communities or "hubs", which will have ownership rights, and be able to influence the way in which the operation can develop.
These hubs, according to Chambers, will facilitate local and regional marketplaces, providing support for local differences, as well as providing support for firms who want to branch into new markets. The hubs will link regional participants to international markets, offering companies support in areas such as tax, regulatory issues, international products specifications and distribution.
PetroCosm is likely to have two revenue streams. The first will be the fees charged for basic e-procurement services, followed by fees for value added services - such as financial services, inventory management and business intelligence, which are eventually expected to account for most revenues.
As the focus on hubs suggests, eventually most of PetroCosm's revenues are likely to come from outside the US.
But both PetroCosm and its rival TradeRanger face considerable challenges long term in delivering on their goals. Although the overall market might be $400bn spent every year, currently only 2% of that is done as "e-business".
As for suppliers, who will be encouraged to participate in PetroCosm, many of the smaller players have little or no clue about offering their products electronically. That offers the prospect of PetroCosm eventually playing the role of being an applications service provider to the suppliers whose products it wants to host.
This was first published in December 2000