e-Marketplaces: enough already
Are e-exchanges the future of online business or overhyped e-traps?
Garrett Wasny, CMC | October, 2000Planning to build or expand your company website? Consider this: you may no longer need one. That's right. A new generation of online mega-hubs called e-marketplaces or e-exchanges may soon make standard websites obsolete. Unlike launching your own e-business site from scratch which can cost plenty, take months to build, and give you a peptic ulcer, e-marketplaces provide you with instant access to thousands of qualified buyers and sellers in your industry at a fraction of the cost and hassle. Skeptics think otherwise. Click off the rose-colored browser, they say, and e-exchanges are little more than over-hyped, immature e-boondoggles rife with bugs and traps, and plagued with everything from shaky business models to unreliable technology to industry collusion.
Exactly what are e-marketplaces? In brief, they're online trading communities for business. Companies the world over use the e-exchanges to connect with buyers and sellers, and exchange goods, services, and information. Compared to the total number of webpages on the Internet – as many as five billion by some estimates - the number of e-marketplaces is microscopic, around 1,000 or so. While few in number, they pack a digital wallop. E-exchanges combine the real-time transaction frenzy of a stock exchange or auction with the crowds and buzz of an industrial exposition. Highly diverse in form and focus, at least a dozen categories of e-marketplaces have emerged in the last year or so. These include multi-industry e-marketplaces such as Oracle Exchange at http://www.oracleexchange.com which provide online transactions for industries ranging from construction machinery to medical equipment, vertical e-marketplaces such as VerticalNet at http://www.verticalnet.com which key on a specific commodity or industry, horizontal or functional e-exchanges such as MRO.Com at http://www.mro.com which zero in on maintenance, repair and operating or other functions which span many industries, and geographic-based e-exchanges such as MeetChina at http://www.meetchina.com which focus on a particular country or other geographic area. Their biggest payoff, say proponents? E-marketplaces cut or eliminate transaction costs -- the time and effort buyers and sellers spend finding each other, determining a price, finalizing terms, and completing the deal. According to e-marketplace experts – and more about these experts in a moment - the typical firm saves anywhere from 8-45% through quicker ordering, speedier delivery, fewer errors, and more opportunities to find the lowest-priced products and services. They also estimate that transactions on these e-marketplaces will skyrocket from an estimated $200 billion annually today to nearly three trillion dollars a year by 2004.
"At last," a novice might exclaim at this point. "The perfect e-business model." Not quite. Behind all the shiny, happy predictions are some disturbing realities. The problem starts with the so-called e-exchange experts themselves. Virtually all are e-business consulting firms, research companies, and e-marketplace builders who have a vested interest, directly or indirectly, in the expansion of e-marketplaces. In the last six months or so, a prediction cottage industry has developed among these e-players who compete against each other to see who can spin out the most wildly optimistic Pollyanna forecast on the future of e-exchanges. One week, e-biz consulting firm A reports that e-exchanges will generate revenues of, say, $3.6 trillion by 2003. A week later, e-biz research company B forecasts revenues of $4 trillion by 2004. A month after that, consulting firm A suddenly revises its forecasts and tops the latest prognostication - and its own original estimate made just weeks earlier - with estimates of $7 trillion by 2005. I suspect this bizarre auction-game of hyper-expectations and oneupmanship is done more to whip up interest, attract clients, and get coverage in the Wall Street Journal and Zdnet than it is to objectively and genuinely calculate the future of e-exchanges. They can do this with a straight face of course because almost no web economist or analyst is ever held accountable for his or her e-divination, no matter how absurd. I have yet to see, for example, a scorecard of e-economy predictions for the year 2000 that were made back in 1996 and 1997 to judge how close - or ridiculously off, as is often the case - these forecasts were with what is actually happening today. I probably never will either. The reason is that e-economists get way too much slack for reasons unknown. We expect perfection from certain professions, such as airplane pilots to land the jet perfectly, engineers to construct the bridge exactly, and doctors to perform the surgery precisely. But e-analysts, different story. Whatever e-trash oozes out of their mouths, we embrace as gospel. No questions asked. We’re getting totally duped, and we don’t seem to care.
This zero-accountability palm-reading about the stratospheric future of e-exchanges is bad enough. What's even more galling is that wildly optimistic predictions were - and still are - being made at the precise time that e-marketplaces are tanking. As of September 2000, many e-marketplaces have yet to develop any significant transactions, and some have yet to make even one sale. Numerous manufacturers have shunned the exchanges because of privacy concerns and fears over price-wars. Every week, more and more e-marketplaces go online, but the dollars and clients just aren't there to support them. The result? A massive shakeout. Since the first quarter of this year, the typical B2B e-marketplace stock is down over 50%. Venture capital funding is retreating. Some e-exchanges are folding, and about half of the current 1,000 e-marketplaces are expected to be digital dust in three years.
To spread risk and share costs, a number of consortium-based e-forums have emerged such as Covisint at http://www.covisint.com. An auto-industry exchange backed by Ford, General Motors, and DaimlerChrysler, Covisint has been racked by internal dissension over what technology to deploy and even what name to use. These and other e-exchanges which are jointly owned by corporate rivals are also under the watchful eye of regulators. On the sites, competitors share sensitive transaction data which creates opportunities for price-fixing and other anti-competitive behavior that did not exist previously, antitrust experts say.
What should you do? Despite legitimate concerns over collusion, financing, and technology, e-marketplaces provide many new and exciting opportunities for businesspeople to sell and buy online, and e-connect their entire supply chain. As a start, you should identify the e-marketplaces which focus on your particular industry. To find them, check out two leading B2B directories: B2businessNet at http://www.b2business.net and Line56 at http://www.line56.com. Both provide a searchable directory of hundreds of leading B2B e-marketplaces in many manufacturing and service industries. Next, make the monitoring of this e-marketplace, either by yourself or an employee, a regular part of your marketing routine. Sign up for any free e-mail bulletins or newsletters provided by the e-exchange, and make a point of visiting the e-forum at least once every couple of days to check for any buying, selling, or partnering opportunities. This simple surveillance technique may produce valuable new leads, sales, and savings. Finally, test drive your industry’s e-marketplace and make your first online sale or purchase, even if it only involves a few dollars. You’ll learn as you go, and build your comfort level, experience, and profit potential with e-exchanges.
Based in Vancouver, Canada, Garrett Wasny, CMC, is an e-commerce trainer and author. His latest book is World Business Resources.com. Mr. Wasny may be reached at gwasny@direct.ca or Tel: 604/878-4555.
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