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 / Fourth Quarter 2002 / Issue 29(originally published by Booz & Company)


E-Marketplace Survival Strategies

In one notable change, many e-Marketplaces now market themselves as technology/software providers, rather than as intermediaries in an existing supply chain. Consider e-Steel, a pioneering e-Marketplace launched with great promise in September 1998, which changed its name to NewView Technologies Inc. in November 2001 to mark the firm’s shift to a licensed software model. Even VerticalNet, the operator of multiple e-Marketplaces, markets itself as a “collaborative supply chain solutions provider” on its corporate Web site, with barely a mention of the 59 individual exchanges it operates.

Only a handful of e-Marketplaces appear to be on track to fulfill the original promise of revolutionizing industries by becoming new intermediaries in the value chain. These Full Service e-Marketplaces must be highly customized to the needs of the industry they serve, and quickly gain the transaction volume needed to support the massive infrastructure investment. Consortia such as Aeroxchange (airlines), Covisint (automotive), and GlobalNetXchange (retailing) appear to have the customer commitment and staying power to survive. These Full Service consortium e-Marketplaces no longer see themselves as dot-coms, but rather as Web-based shared services driving dramatic improvements in industry efficiency.

Consider the recent executive change at Covisint. Company leader Kevin English, a high-profile executive recruited from the financial news Web site Inc., passed the CEO title to Harold Kutner and the COO role to Bruce Swift, two experienced automotive-industry insiders. The move suggests that the car companies, at least, are ready to get down to the serious business of streamlining the complex processes of the automotive industry rather than responding to the hype of the software consultants and the capital markets.

Paying It Forward
Ultimately, we believe successful e-Marketplaces will be those that find the combination of ownership model and service-offering mix appropriate to their industry.

Across industries, we predict that Full Service consortia will continue to demonstrate the highest survival rate. Only one of the 11 from our sample has failed. Catalog Buying sites, whatever their ownership, should also continue their positive trajectory. Many e-Marketplaces will ultimately reposition themselves as Application Service Providers, as NewView Technologies and VerticalNet did, selling services to individual companies rather than seeking a place as an ongoing transactional marketplace.

Others will continue to seek success by exploring a range of options in hopes of finding a clear path. “We are still actively using the technology and the Internet to generate sales in the swine and cattle business,” Joe Dales, a cofounder and vice president for business development at Ltd., a North Carolina e-Marketplace, wrote us in an e-mail. “The adoption, which has been slow, continues to progress and more customers are online and becoming familiar with the technology.” has covered its bets by purchasing several traditional software companies with products, sales, and staff, and is about to launch new Web-enabled applications for feed and grain procurement as well as swine production management. The acquisitions have provided cash flow and additional expertise. By reducing its marketing, business development, and programming expenses, has finally achieved profitability.

“We are still excited about the future prospects but are more realistic in regards to market potential and timelines,” Mr. Dales wrote us, expressing sentiments undoubtedly echoed by many e-Marketplace principals. “This past year has been a great learning experience, but I don’t think I would want to do it again.”

Reprint No. 02403

B2B e-Marketplace Glossary

Ownership Models
Independent: Developed by independent entities or pure-play operators.

Consortium: Various players in a single industry, including competitors, who combine forces to create a common forum for the exchange of goods.

Private Network: Private exchanges that facilitate commerce up and down a supply chain (e.g., the Dell Computer Corporation’s e-Marketplace facilitates exchange between Dell, its corporate customers, and its suppliers).

e-Marketplace Segments
Total Procurement: Companies that concentrate on digital catalogs and online auctions, the two core Internet procurement services.

Catalog Buying: Operations that offer digital catalogs and sometimes information exchange.

Auction House: Exchanges that focus on auctions.

Collaboration Facilitator: E-Marketplaces that aid collaboration between buyers and sellers with supply chain planning and collaborative design tools.

Full Service: Companies that offer all six core services (information exchange, digital catalogs, online auctions, logistics services, supply chain planning, and design collaboration).

Application Service Providers: Companies that sell software
through hosting services over the Web rather than for local installation.

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