B2B Exchange Survivors

Computerworld - Pop-culture experts say the nostalgia cycle is growing shorter and shorter—that someday we may all yearn for those lazy, hazy, carefree days of six weeks ago. So it doesn't seem out of line to look back with amusement at 2000. Back then, James Glassman and Kevin Hassett's Dow 36,000: The New Strategy for Profiting from the Coming Rise in the Stock Market (Three Rivers Press, 2000) was selling briskly, and experts were predicting that enterprises were set to junk a hundred years' worth of purchasing practices and instead buy everything—from manila envelopes to sheet steel—through online exchanges, or e-marketplaces.

Seems almost quaint, doesn't it?

The idea, you'll recall, was to conjure the Internet's power to form a more efficient marketplace. Suppliers would be forced to cut prices (because if they wouldn't, a competitor surely would), but the best would benefit from massive volumes. Buyers would have a world of choice a mouse click away, all at rock-bottom prices. Everybody would win. All this was scheduled to occur soon, just about the time the Dow would be closing on 36,000.

According to Keenan Vision Inc., a Berkeley, Calif.-based analyst firm, more than 200 exchanges and exchange-related products were rolled out each month from November 1999 to April 2000. Small wonder, then, that Keenan once predicted that there would be 4,070 exchanges in the U.S. by this year. Today, analysts and exchange CEOs say they believe that fewer than 200 e-marketplaces survive—though It's hard to nail down a precise number.

Carl F. Lehmann, an analyst at Meta Group Inc., says, "If you're trying to exploit economies of scale, you don't need to set up [online] markets; you need to analyze markets. All you have to do is put three good MBAs on the problem. But we learned that too late."

Most exchanges were bubble-driven businesses that quietly folded when the venture funding dried up. But some vertical e-marketplaces were founded by industry consortia whose members boast deep pockets. Many of them have flailed about for tenable business models and managers, but along the way they've learned how to deliver value to their members/customers. By signing on with Elemica Inc., an online exchange for the chemical industry, The Dow Chemical Co. "saved thousands of hours," says Dow CIO Dave Kepler, "and we think we can [eventually] reduce inventories up to 50%."

Less Tech, More Value

While the exchange boom was by its very nature technology-driven, the surviving companies universally agree that their focus has shifted. "We've transitioned from a tech company in Houston to a company with people on the ground working with [member companies'] procurement people," says John Wilson, CEO of Trade-Ranger Inc., an exchange that serves the energy industry. "Three years ago, the tech was our raison d'etre. No longer. We've gone from being IT experts to being purchasing experts."