• Consortium Participants. Immediate transaction volume from committed founders (on top of the massive funding typically provided by these behemoth companies) gives the consortium e-Marketplaces an initial advantage. But two factors will ultimately drive their success or failure. First, a successful consortium will need to create an integrated suite of services that becomes the industry standard. Simply serving as an application service provider selling software “by the drink” adds too little value to justify the cost.
Second, a small set of founders must remain committed to the survival of the consortium and ensure the financing and usage fees that keep the e-Marketplace afloat while it builds the desired capabilities. A small number of founders — such as the five large automotive OEMs backing Covisint — offers the greatest likelihood of committed support. On the other hand, Transora (the packaged-goods e-Marketplace), with 49 founders, risks dilution. With so many players, no one participant feels the necessary ownership or commitment to ensure Transora’s survival.
Alternatively, there’s a breakaway strategy — one that redefines the industry. Imagine a consolidation among the multiple exchanges in the retail industry (like Transora and GlobalNetXchange) in conjunction with a third-party logistics provider (like Excel) to tackle services beyond the software tools described previously. Such a combined entity could offer to take control of the full distribution network and logistics between consumer-products manufacturers and major retailers (the founders of Transora and GlobalNetXchange, respectively) and create a new entity — one offering digital and physical outsourcing of the goods along the chain. The combined entity could eliminate hundreds of separate distribution centers currently operated independently by the manufacturers and retailers. Such a move would be riskier than the shared resource model, but could offer rich rewards by freeing billions of dollars in assets for the retailers and manufacturers.
• Independent e-Marketplaces. With venture capitalists now more cautious and the IPO market effectively closed, independent e-Marketplaces must become intently focused on the bottom line to conserve cash. Launching new services in a field-of-dreams model is no longer affordable. In fact, even sustaining some services may destroy value. Auction services continue to offer the most immediate returns to customers, and accordingly the best chance for extracting value in the short term. Unfortunately, online auction systems and support face rapid commoditization, making them increasingly tenuous revenue streams over the long run unless an e-Marketplace has built industry expertise that is deep enough to differentiate it from the competition.
We do not believe that independent e-Marketplaces can succeed in the Full Service model. Though some consortia, like Covisint, may eventually create seamless links among the services and thereby dominate an industry, such aspirations would be impossible for an independent. Even the Total Procurement players may discover that they have bitten off more than they can chew, largely because the transactional focus of digital catalogs requires a great deal of investment but delivers relatively low benefits.
Among independents, niche players should have the best chance of survival — if they have built a sustainable customer base delivering a clearly visible value proposition. If an independent lacks a strong membership and offers a vague overall value proposition, we recommend seeking a deep-pocketed consortium, ideally one in need of fresh resources looking to embark on a breakaway strategy.
• Mid-sized Corporate Buyers and Sellers. Most mid-sized companies sat on the sidelines as the initial e-Marketplace game unfolded. Although initially chided for inertia, their conservatism has paid off. The time is now ripe to exploit the e-Marketplace investments financed by the venture capitalists, software vendors, and corporate behemoths. Even the successful e-Marketplaces need more buyers to take full advantage of the increasing returns and scale advantages available in many e-business platforms.