This Year’s Model

While independent exchanges are stalling, industry-led trading hubs are gaining in popularity. Here's what we found when we examined E-marketplaces in four industries: metal, chemicals, paper, and energy.

Of course, virtual procurement is still in early days. Trading platforms and search engines will undoubtedly get more sophisticated, shortening cash-conversion cycles for buyers and sellers. And industry consolidation should mean more suppliers on fewer exchanges, thus better deals.

The industry could stand a little consolidating. At last count, there were about 400 online exchanges scattered across dozens of vertical industries. That’s a lot of exchanges. Therefore, we have fixed our attention on online exchanges in four major industries: metal, chemicals, paper, and energy. Why those four? Because there’s something to write about. Mega sites like Covisint (autos) and Transora (consumer packaged goods) have garnered plenty of press lately, but the reality is that both sites are still getting up to speed.

What We Found

In putting together this roundup, we paid particular attention to three major issues for industry exchanges. First, we looked at survivability. We based this mostly on who’s backing the exchange, what the exchange’s cash burn rate is, and — most important — how much actual business the exchange is doing. By our lights, business-to-business exchanges should be doing some business — not just conducting beta tests. But to some exchange operators, that quaint notion is as revolutionary as Darwin’s theory that man’s early ancestor wore a 64 sleeve and enjoyed the occasional banana.

Beyond survivability, we examined the technopolitics of the exchanges. The simple fact is, B2B exchanges are all about supply chains. And the supply-chain business is a hotly contested battleground, with tech giants like Oracle, SAP, CommerceOne, and Ariba slugging it out for supremacy. We figure, given the ferocity of this battle, there’s probably something worth fighting for.

Finally, we looked at the services these sites offer. If the only thing an E-marketplace does is bring buyers and suppliers together, the Web will never replace a trade show in Miami in March.

In researching this story, a few market trends stood out immediately:

If you’re ahead, you’re dead. This may stem from the fact that the independent exchange model was shaky to begin with. But as far as we can see, first-mover advantage in the E-marketplace business means you’re at the front of the line when they open the doors at the job fair.

Newbies rule. Strangely, the more recent startups (typically, consortium models) own the dominant mind share of their industries. We use the term mind share advisedly — the lion’s share of consortium exchanges aren’t up and running yet. The big question: Have the operators of these new exchanges learned from history, or are they just late arrivals doomed to the same short lifecycle?

Reincarnation happens. Many of the first movers couldn’t hack it as exchanges, but that doesn’t mean all of them have disappeared. Some builders of defunct E-marketplaces have found new life as technology providers for consortium-led hubs and private exchanges.

Napster’s coming, hide your heart. Few E-marketplace operators want to discuss it, but the Napsterization of supply chains could force all online exchanges — independently run, industry run, or do-run run — into early retirement. Peer-to-peer networking enables buyers and suppliers to hook up on their own, eliminating the need for intermediaries. Indeed, serverless data-sharing could revolutionize the way companies do business — not just the way they procure supplies.

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