Over the last two years, journalists, scholars, and self-proclaimed experts have written volumes about business-to-business e-commerce. Thousands of newspaper articles, dozens of popular business books, and countless online newsletters examine the phenomenon from every angle — save one. None of these sources has conducted a truly rigorous examination of the new business model that we call e-Marketplaces.
We define an e-Marketplace as a forum that leverages the Internet to facilitate commerce among businesses. Such a definition obviously encompasses a wide range of entities — from independent or pure-play dot-coms financed by venture capital, to industry consortia backed by pooled funds, to private networks created by individual companies.
Such e-Marketplaces burgeoned during the last five years. As was inevitable, a shakeout has begun; most of these marketplaces will fail. The fate of individual firms, however, will depend on the strategic decisions they make over the next 12 months. Many characters will play roles in this B2B drama — the founders, operators, and investors who shape strategy and tactics, as well as the buyers and sellers whose choices will ultimately determine the survivors. Given the vast number of entities and the breadth of participants, most corporate leaders will play some part in the evolution.
This year, Booz Allen Hamilton teams in the U.S., Latin America, Europe, and Asia/Japan/Pacific identified 2,233 publicized e-Marketplaces and profiled 1,802 of them in detail. (See “Profiling the Players”.) Our examination, the most comprehensive yet undertaken on this subject, offers insight into the drivers of success and provides a baseline for monitoring the inevitable fallout over the coming year.
Profiling the Players
Teams in four regions — the U.S., Europe, Latin America, and Asia/Japan/Pacific — culled public data sources and identified 2,233 announced e-Marketplaces; the teams were able to find information at the described URL for 1,802 of them. This discrepancy reflects announced plans that never got off the ground, as well as exchanges that may have launched but quickly failed. Even within our population of 1,802 profiled entities, some have since joined the dot-com graveyard.
By examining the e-Marketplaces’ published materials and their Web sites, and in some cases interviewing members of management, the four teams documented geographic scope, industry focus, ownership structure, technology providers, and, most importantly, service offerings.
We then employed a mathematical technique known as cluster analysis to classify the profiled e-Marketplaces into logical groupings. The techniques examined the mix of services offered to cull the 1,802 entities into a mere six clusters — out of a possible 128 permutations. Those six clusters offer a new segmentation that highlights the evolving nature of the e-Marketplace landscape.
Our research documented three ownership models and six basic service offerings across 24 traditional industry segments. By examining the key data on service offerings in combination with the market size, we have concluded that independent or “pure play” e-Marketplaces, currently representing an overwhelming proportion of the population, risk extinction. Founded in the heady days of Internet mania, most face huge ongoing technology investments, competition-driven price erosion, and limited liquidity resulting from their failure to create a clear value proposition that appeals to either buyers or sellers.
The e-Marketplaces formed by consortia, a small proportion of the total today, appear to have the strongest base, but they risk being hobbled by conflicting agendas among their founding companies. If they can survive the machinations of their founders and truly integrate the services required in a particular industry, consortium-based e-Marketplaces are most likely to blossom into defensible full-service operators. Indeed, they could fundamentally transform the structures of select industries.
Finally, private networks sprouting from the in-house systems of many major companies represent the newest phenomenon — and a threat to both independents and consortium-based e-Marketplaces. Operated for the exclusive use of the single owner, private networks will not drive a fundamental restructuring of an industry, but may consume resources that could otherwise support the independents and consortium-based models.