Among the venture capitalist– funded independent e-Marketplaces that have remained in private hands, the failure rate has slightly exceeded the overall average of 45 percent. Those that went public prior to the market peak managed to achieve a somewhat better success rate: A “mere” 38 percent of those failed. Observers ought to be careful not to conflate survival and success. Iprint Technologies Inc., which offers printed promotional material via the Web, went public on the Nasdaq with the symbol IPRT in March 2000 at $20 to $25 per share but hovered below 25¢ per share throughout this year, going as low as 6¢ in July 2002.
We also looked for differences across regions, but found little: Failure rates across North America, Europe, and Asia-Pacific varied by less than one percentage point. Since the U.S. serves as the base for 75 percent of the sample, we looked further and found major differences among the seven U.S. states that served as headquarters for at least 35 e-Marketplaces: California, New York, Massachusetts, Texas, Illinois, Pennsylvania, and Florida.
Involvement of the extensive network of technology entrepreneurs and venture capitalists in Silicon Valley did not improve the odds for survival. Though California is headquarters to three times as many e-Marketplaces as the state with the next largest number of e-Marketplaces, New York, its failure rate closely tracked the U.S. and global averages. Pennsylvania proved to be the most hospitable to e-Marketplaces, with failure rates that were one-fifth of the overall rate for the U.S. The results in Pennsylvania are largely attributable to VerticalNet Inc., an independent, publicly traded company based in Malvern, which operates 59 industry-specific e-Marketplaces ranging from Food Online for the food service/hospitality sector to Fiber Optics Online for the communications sector.
VerticalNet’s long-term survival remains open to debate, however. It conducted a reverse stock split last summer to lift its share price out of the penny-stock range. During the dot-com peak in early 2000, VerticalNet’s stock had reached an adjusted price of $1,530 per share.
Texas has achieved a lower failure rate (half that of the overall sample) because it serves as host to a disproportionate number of consortium e-Marketplaces. These include Pantellos, which serves the utility industry; Aeroxchange, which was formed by a group of airlines; and Trade-Ranger, an e-Marketplace serving the chemical processing sector. Seven of Texas’s eight consortia still operate. EnronOnline.com, the only failure, was acquired by UBS Warburg earlier this year.
Who Went Right?
The advertising/media and textiles industry e-Marketplaces each generated failure rates in excess of 60 percent. On the positive side, aerospace, financial services, and paper and printing all produced failure rates below 35 percent. The generalist e-Marketplaces that lacked a focus on any particular industry failed at the average rate of 45 percent — despite our prediction a year ago that they were at the greatest risk.
When we looked at our data from the perspective of service-offering segmentation, the highest failure rate occurred among the Total Procurement e-Marketplaces — those offering digital catalogs and online auction services. Since this category was the largest segment in our sample, perhaps the model was too common to allow the players to demonstrate a differentiated position. The lowest failure rates came from the Full Service and Catalog Buying segments. Auction Houses, which we had expected to suffer the most, performed no better or worse than the overall sample.
It is hard to analyze industry segments and service offerings at the macro level because they involve multiple variables that fracture the data into samples too small for statistical modeling. For example, the Catalog Buying segment works best in industries evolving from conventional, offline B2B sales to Web-based selling. This proves particularly true in fragmented industries with many small players.
Consider Branders.com, ePromos Inc., and IPromoteU, three e-Marketplaces offering promotional products (for example, your-logo-goes-here golf balls, coffee mugs, T-shirts, toy automobiles, and even desk-crumb sweepers). The traditional approach to selling promotional goods involves traveling salespeople who work for distributors with a network of Asian suppliers. A digital catalog with online tools allows customers to upload their artwork and immediately see digital pictures of the monogrammed golf balls — an easy evolutionary change that has dramatically increased efficiency and price transparency for the customer.