Greetings and Solicitations

Online trading hubs stage a comeback. But this time, there's a twist.

When David Mroz, a manager at Shannon Precision Fastener, needed to buy a new LCD projector for a training class, he didn’t head to Staples to hunt down a bargain. Nor did he go online to search out the best price on the product. Instead, the quality manager at the Madison Heights, Mich.-based Shannon put his prospective purchase up for bid on the Internet.

The posting—the purchasing equivalent of a request for proposal—forced vendors to come to him with their best deals.

Internet-based sourcing is hardly new, of course. During the dot-com halcyon days of the late 1990s, it was generally assumed that E-markets would come to dominate the corporate purchasing scene. Some exchanges did take off, too, in vertical industries such as metals and plastics. But no B2B market emerged as the corporate equivalent of eBay—that is, an online market that’s driven by bidders rather than sellers. And when the dot-com frenzy died off, so did many online trading hubs.

In recent years, though, a number of bid-based, online auction houses have popped up to service business customers. The sites appear to be gaining in popularity with those customers, who go online to solicit offers on everything from computers to consulting services. One finance manager, who declined to be named, told CFO that his company purchased 50,000 desktop computers in a virtual reverse auction (the same company also solicits bids for consulting services). Says Andrew Bartels, an analyst for Forrester Research, a technology research firm based in Cambridge, Mass.: “Despite everything that has happened over the past few years, it seems that old E-markets never die.”

Exchanges—The Early Years

Apparently not. Yet today’s B2B Internet-sourcing environment is much changed from the late 1990s, when lavishly funded, industry-specific E-markets emerged to serve large businesses. Indeed, the concept of companies using online trading hubs to procure bids for big-ticket items like rolled steel is diminishing. Big businesses tend to buy from other big businesses, notes Bartels, eliminating the need for exchanges. “They can connect their systems and do their own sourcing directly, without the need for intermediaries,” he says.

Thus, most of the E-markets that remain have shifted gears, focusing on more modest items. Typically, the exchanges enable large buyers to seek bids from small and midsize suppliers. On E-markets such as Quadrem, BuyerZone.com, Enporion, and eWork Markets, prospective purchasers request bids on products or services. Some of these exchanges serve particular industries, some don’t.

George Gordon, chairman and CEO of Enporion, an E-market that caters to energy companies, has witnessed firsthand the changes in online procurement. “The early years of online auctions were predominantly for hardware and commodities,” he says. Now, Gordon sees auction activity for services becoming an increasing proportion—more than 50 percent—of Enporion’s auction activity. Gordon adds that most of his customers are very specific about the products and services they need. “They’re not looking for a three-year contract for an indefinite quantity of computers,” he says. “They’re going out for a very specific buy.”

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