| By
BOB TEDESCHI
July 16, 2001
Earlier this year, Forrester Research , the Internet
consulting firm, predicted that the universe of business-to-business
e- marketplaces would shrink to a mere 180 in the next
two years, from 1,000 or more today. It was a bleak
forecast, but one that surprised few who had watched
such sites search in vain for customers in 2000.
The shakeout is proceeding apace, with the rate of mergers
and failures picking up where the consumer e- commerce
sector left off. But just as some survivors have begun
to emerge from the consumer e-commerce rubble, so, too,
have some of the so-called B2B marketplaces started
to show some staying power.
In recent weeks, Pantellos, an online marketplace for
the utilities industry, said it had handled nearly $200
million of transactions since it rolled out in January.
ChemConnect, an online chemicals exchange, recently
crossed the $1 billion mark in transactions handled
so far this year. Intercontinental Exchange, a trading
site for electric power, gas and oil, said it had handled
more than $100 billion in trades in the 10 months since
it opened.
These companies and a handful of others, analysts said,
have managed to attract buyers and sellers by broadening
their service features beyond the typical marketplace
site, which heretofore had focused mainly on the concerns
of buyers. "While buyers have run to this fairly
quickly, suppliers haven't," said Matthew Sanders,
a Forrester analyst.
Most of the business-to-business marketplaces, Mr. Sanders
said, were created with the premise that if a corps
of powerful buyers in a given market gathered on one
site, the suppliers would come running — even if
that meant the suppliers had to engage in auctions in
which they underbid one another for the right to sell
their wares.
"But attributes that go beyond price, like quality,
service, the stability of the brand, warranties —
all the things suppliers build around their products
— marketplaces haven't allowed them to offer,"
Mr. Sanders said.
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ChemConnect, for one, has countered that trend, said
Michele B. Hincks, the company's vice president for
marketing. Ms. Hincks said the site had set up an online
exchange floor, where 5,000 to 7,000 companies negotiate
to buy and sell specialized chemical products.
The site lists companies that are interested in buying
or selling certain types of chemicals, and then sets
them up in password-protected negotiation rooms, where
they can deal with such issues as product quality, warranties,
shipping and price. In exchange for enabling such negotiations,
Ms. Hincks said, ChemConnect charges annual subscription
fees of $300 to more than $100,000.
According to a recent report by Gartner's GartnerG2,
a business strategy research firm, e-marketplaces will
broaden their offerings even further in the coming months,
to rely on a wider spectrum of business services, like
supply-chain collaboration and demand forecasting.
In the case of e-Steel, such services now dominate the
company's business plan. Michael S. Levin, e-Steel's
chief executive, said that about a year ago, the company
changed its focus from a typical e-marketplace to that
of a software seller that also operates an online marketplace
for heavy industries.
Companies like Ford Motor and BHP, the Australian miner,
Mr. Levin said, "told us in their own way that
enabling a transaction online is interesting, but insufficient,
and that we had to do more than that for them to become
clients."
So e-Steel developed software that the companies now
use to help integrate their manufacturing processes
with those of their suppliers, using the Web. Among
other things, the software permits Ford to track and
manage the manufacturing steps that begin when it orders
steel from a supplier. The software helps Ford move
the steel to plants for processing, while accounting
for the different specifications for rolling the steel,
stamping it, and moving it to various processors and
assembly plants. Mr. Levin would not say how many clients
e-Steel had for the software, which costs each customer
millions of dollars a year and requires multiyear contracts.
Nor would he disclose revenue figures for the company,
which is privately held. But he said the company had
"two years' worth of money in the bank, and way
before that, probably within 15 months, we'll be cash-flow
positive."
As
for the site's marketplace, Mr. Levin said it still
had value, "but only as part of a much more powerful
set of tools" and for serving as a place for attracting
prospective software clients.
Analysts and executives also pointed to the role of
experienced — and independent — management
for whatever success some e-marketplaces had experienced
so far. Lauren Jones Shu, research director at GartnerG2,
said those were not advantages shared by many of the
so-called industry consortium marketplaces, which are
owned by a collection of the major participants in a
given industry.
E-marketplaces like Covisint and Exostar, which are
owned by some of the biggest companies in the automotive
and aerospace industries, respectively, are examples
of consortium-owned sites. But Ms. Shu declined to say
whether she thought the ownership structure of those
particular sites was a handicap.
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Still, Ms. Shu said, "a lot of them have agendas
that are too large, and are trying to cater to the various
needs of different members."
Apparently, at least one e-marketplace owned by an industry
group, Pantellos, has avoided paralyzing its management.
Pantellos, an online exchange that is owned by 21 large
utility companies, was cited by Mr. Sanders, the Forrester
analyst, as one of the few e-marketplaces to find success
this year.
The site caters to utility companies and energy service
companies like General Electric , helping utilities
and power companies build and manage power plants, for
example, and offering a forum for suppliers of those
services to compete for business. The business is growing
quickly, said Graham Collins, the company's chief executive.
"Virtually all of our operating metrics are doubling
every two weeks," he said.
Mr. Collins attributed that growth, in large part, to
the fact that the 21 companies with ownership stakes
in Pantellos did not have a direct say in how it operated.
"That's allowed us to stay focused on the interests
of our memberships, not the parochial interests of the
shareholders," he said. "There's nothing more
mind-numbing than to attend meetings where you have
to vote on whether or not you should vote."
Luck, of course, has played a role in the early success
of some online exchanges — perhaps most notably
in the success of Intercontinental Exchange, which in
April announced it would buy Europe's largest offline
energy exchange, the International Petroleum Exchange.
Jeffrey Sprecher, chief executive of Intercontinental
Exchange, based in Atlanta, said the core of the site's
technology was refined between 1994 and 1997. But at
that time, Mr. Sprecher said, "absolutely no one"
in the electric power, gas and oil markets wanted to
trade in the forward and futures markets online. "Everybody
thought they were already getting the best prices,"
he said, and they feared that posting prices on the
Web would destroy that competitive advantage.
Then in October 1999, Enron started buying and selling
these products online, "and the whole argument
about pricing went away," Mr. Sprecher said. Shortly
thereafter, he offered equity in his site to 13 market
makers, like BP and Goldman Sachs , in exchange for
commitments to use the site for trading.
"I got lucky in that I built this before the Internet
revolution," Mr. Sprecher said. "The last
year's been amazing, compared to the early years, which
involved a lot of sitting around."
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