Beware of exchanges

There is no doubt that business-to-business (B2B) trading exchanges are one of the fastest-growing applications of Internet...

There is no doubt that business-to-business (B2B) trading exchanges are one of the fastest-growing applications of Internet technology.

John Adamson

Soapbox

Indeed, research from Forrester Research claims that trading exchanges will account for 6% of all B2B trade in the European Union by 2005. Yet Forrester also claims that this explosion may see more than a few casualties - of the 1,000 or so exchanges already established in Europe, only one in 20 is expected to survive.

Companies that praise this business model would like us to believe these failures are down to the wrong technology and ill-conceived business plans, but this is typical supply-side thinking.

The real problem is that customers do not see the value of subscribing to many, if any, of the services on offer. Underneath all the marketing fluff, the main proposition of trading exchanges is cost saving.

The bigger the customer, the less attractive this proposition becomes. Big firms exert considerable influence on their suppliers by virtue of sheer purchasing power. If you are General Motors or IBM you do not need to belong to any kind of community to get a good price and an efficient service.

Customer requirements tend to be very specific, but most trading exchanges are general by definition. Most have failed so far to deliver any true added value or sustainable benefit. Customers want the ability to define the unique range and style of business relationships they need and to benefit from the efficiencies and economies of scale made possible by the Internet. In theory these two sets of objectives can be combined; in practice buyers still have to choose between them.

John Adamson is joint managing director, Tranmit

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