When it comes to stampedes, you already know better than to stand in front of bison, elephants and fans waiting on Waveland Avenue. But these days, you also have to know not to stand between a 900-pound gorilla and a “B2B Net market.”
Of course, this is a new millennium, and “900-pound gorilla” is the code word that pundits use for “established mega-corporation.” Meanwhile, “B2B Net market” denotes a Web portal that serves as a business-to-business e-commerce intermediary, tying together the buyers and sellers of a particular industrial “supply chain” and saving them anywhere from 1 to 17 percent on procurement costs. So far these entities have usually been pure Internet dot-coms, beloved by Wall Street for their ability to attract money without getting their hands dirty.
Then, between the burial of the Y2K problem and the first hint of spring, it began happening:
– General Motors Corp., Ford Motor Co. and DaimlerChrysler jointly announced plans to set up a B2B marketplace for the auto industry. Their suppliers are expected to join and even competitors are welcome. No name has been chosen and many details appear undecided.
– Sears, Roebuck and Co. announced plans to team with an equally huge European retailer–Carrefour–to open a similar B2B market for their 50,000 suppliers. The initiative has a name, GlobalNetXchange, but little else had jelled.
– Chevron Corp. and a subsidiary of Wal-Mart Stores Inc. announced plans for a B2B market for the convenience story industry, to be RetailersMarketXchange.com.
– Chemical industry giant DuPont Co. has teamed with a B2B dot-com holding company, Internet Capital Group Inc. of Wayne, Pa., to set up B2B Net markets in such areas as apparel, chemicals, and construction.
– IBM announced a large investment in two firms that are involved in setting up B2B markets.
The reason given for these initiatives is the usual “maximize shareholder value” piety. Others have a different opinion.
“There is no way major firms can sit on the sidelines and just watch billions being created by the young Internet companies that are going public,” said Michael Levin, chairman of e-Steel, an Internet marketplace for the steel industry, based in New York. “They are driven by a realization of what the Internet can do, and by the decision of most boards of directors that they have to have an Internet strategy in place by the end of the year.”
Companies believe they “have to do something about e-business,” said David Hope-Ross, analyst at the Gartner Group, a market research firm in Stamford, Conn.
“People feel like they are going to be left behind,” he said. “Plus, the software vendors have done a great job of exciting senior management, since it looks like an opportunity to introduce not only efficiencies but also new revenues. But [business-to-business Internet] marketplaces are not just a fad.”
Even the most traditional industries want to be associated with high technology because the financial markets are focusing on B2B, said Lou Unkeless, director of worldwide marketing at Oracle Corp., the Redwood Shores, Calif.-based software maker.
“Plus, having streamlined their enterprise resource planning systems, they wanted to extend these resulting efficiencies outside the company to the supply chain,” Unkeless said. “A craze? Yeah, but at the same time they will have to get an entire industry supply chain on-line, and that’s more than a fad.”
But with these 900-pound gorillas at large, isn’t the survival of the wraithlike dot-coms threatened?
“It doesn’t threaten our survival,” said Tim Stogka, co-founder and chief executive of Commerx Inc. of Chicago. Commerx owns PlasticsNet, a marketplace serving the plastics industry, and plans to set up more. “In fact, I think it is an opportunity for us, since it will be hard for them to do it on their own–they will need to partner with someone like us.”
“A rising tide floats all boats,” agreed Levin at e-Steel.
Stogka pointed to pundits’ estimates that as many as 10,000 Internet marketplaces could spring up in the next few years–followed by a wave of consolidations.
Some disagree with that estimate.
“You can’t have 20 competing marketplaces in a single industry,” said Leah Knight, research director for the Gartner Group in San Jose, Calif. “The marketplaces being sponsored by buyers or sellers who have large market share are more likely to succeed.”
“It’s a winner-take-all model, and I think that the number will be smaller than the number of industry sectors we have today,” said James Vogtle, economic research director in the Toronto office of the Boston Consulting Group. “The auto exchange, for instance, could expand into an industrial goods exchange. The markets set up by the incumbents will dominate.”
“I think there may be thousands, but only a small number will really matter,” said Doug Alexander, managing director at the Internet Capital Group.
But no one says success is assured even for the largest consortiums–a Net market is of no value until it has users, and no users will come until it can offer value. Indeed, achieving critical mass is an important chore, involving several aspects, Stogka said. The first is neutrality.
“Both buyers and sellers have to know they are on neutral ground, and are not at a competitive disadvantage. How to ensure it is a good question, and depends on the dynamics of the particular industry,” he said.
Next, the site needs to offer a complete set of features, not just auctions or on-screen catalogs. The main points are “community, content and commerce,” Stogka said.
“Community” means communication tools such as chat rooms and classified ads, he said, while content means things like on-line product catalogs and industrial magazines.
“These things build credibility, trust and relationships with the buyers and sellers–until they feel comfortable doing e-commerce,” he said.
So last comes e-commerce, with its auctions, reverse auctions, aggregated catalogs, requests for quotations, workflow management facilities, etc. Participants need to have the option of anonymity, analysts agreed, so that participants will not fear they are giving away competitive intelligence, or spooking their suppliers by looking elsewhere. There will also have to be mechanisms to guard against price-fixing.
“There is evolution involved,” Stogka said. “You may see a lot of big announcements now, but user adoption, and then revenue, will be much slower. The amount of time depends on the industry, but it will be more than a few months.”
“Long term, I think they are at the point where they have all gotten together and are singing `Kumbaya’ while watching the sun come up over the beach on a grand and glorious day,” groaned Jack Staff, analyst with Zona Research in Redwood City, Calif. “But now they must work together with the people they used to compete with.”
So the stampede is on, but it may not get anywhere for a while, and no one is sure who is going to be trampled.
