WSJ(4/7): Online B2B Exchanges Suffer From Surfeit Of Sites
By Julia Angwin
Staff Reporter of The Wall Street Journal
WAYNE, Pa. -- Just a few months back, Internet Capital Group Inc. was a
leader in the hot sector of the Internet aiming to build
business-to-business shopping exchanges online. ICG, which went public in
August, already had a dizzying market cap of $56 billion. But today, its
stock has lost $36.5 billion in value and its virtual shopping centers are
virtually empty.
Investors are losing faith not just in ICG but in the promise of online
business marketplaces that allow companies to buy and sell everything from
paper clips to cattle to each other. "Its been tough for everybody," says
Mark Walsh, CEO of VerticalNet Inc., which operates 55 online exchanges and
has seen its valuation shrink to $4.4 billion from $10.9 billion a few weeks
ago.
What's gone wrong? Much of the about-face can be traced to the Big Three
auto makers. When General Motors Corp., Ford Motor Co. and DaimlerChrysler
AG announced in February that they were planning to build their own online
exchange, many investors questioned whether there was room in the market for
independent exchanges built by companies like ICG. Since then, a number of
other industries have announced plans to build their own exchanges.
"We are concerned that big corporations don't want to give up a piece of
the action," says Robert Turner, who is chief investment officer at Turner
Investment Partners, a $3.8 billion fund in Berwyn, Pa., that recently sold
its stake in some business-to-business stocks.
Indeed, the ramped-up competition from bricks-and-mortar companies has
become so intense that ICG's chief executive Walter W. Buckley spends much
of his time knocking on the doors of other CEOs, asking them to buy or sell
on his exchanges.
It hasn't been easy. It turns out that industrial giants like DuPont Corp.
want to own some of the prized Internet real estate themselves. Although the
Wilmington, Del., company has agreed to form a joint venture with ICG that
will provide a marketplace for chemicals, construction and apparel, it also
has plans of its own: DuPont expects to divert $1 billion of its spending
over the next two years to online B-to-B sites -- and not necessarily with
its newest partner.
"We'll look at their companies first," says Charles O. Holliday, Jr.,
DuPont's chairman and chief executive. "If we don't like them, we'll go
somewhere else."
General Electric Corp. has similar plans. The company owns an equity stake
in ICG, but when it comes to selling plastic resins, it has built its own
site -- GE Polymerland. "Our policy is not to put anyone between us and our
customer," said Jay Pomeroy, spokesman for GE Plastics.
Last year, GEPolymerland.com had sales of $100 million. By comparison,
ICG's site, PlasticsNet.com, sold only $445,300 worth of plastic resins and
plastic manufacturing equipment in the first nine months of 1999. In hopes
of boosting sales, PlasticsNet has partnered with Ashland Inc., a Covington,
Ky., plastics distributor that has promised to list at least 1,000 products
on PlasticsNet. But even Ashland has its own Web site, where it sells
plastic resins.
Other ICG partners are also trying to carve out their own turf.
International Paper Co. has promised to sell some products through auctions
on ICG's PaperExchange.com Inc., but the paper giant has also formed a joint
venture with Georgia-Pacific Corp. and Weyerhauser Co. The three leading
paper companies intend to build their own Web site that will let buyers and
suppliers do transactions online. John Balboni, vice president of e-business
at International Paper, said that the company prefers to reach customers
through "intimate direct personal contact" on its own Web site.
ICG was formed in 1996, when Mr. Buckley and co-founder Ken Fox left their
posts at Safeguard Scientifics Inc., a Wayne, Pa., investment firm, to take
part in the Internet boom. They first bought a stake in Internet advertising
firm MatchLogic, which was later sold to Excite At Home Corp. Soon after,
they invested in Internet directory WiseWire Corp., which was later sold to
Lycos Corp.
But they struck gold in 1997 after purchasing a start-up called
WaterOnline, which promised to help water-treatment plants buy pumps and
other parts online. ICG helped transform WaterOnline into VerticalNet,
Horsham, Pa., which operates sites such as Solid Waste Online and Food
Online.
Today, ICG focuses exclusively on B-to-B e-commerce companies. It operates
41 online exchanges ranging from auto parts to apparel, and the high-tech
outfits that build the tools to get those shops up and running.
Six of ICG's investments have already gone public, and nine more have filed
for public offerings this year. Some of ICG's recent offspring include
eMerge Interactive Inc. and Universal Access Inc., both of which saw their
market capitalization soar and fall. Both have yet to turn a profit.
Although many of ICG's investments have lost 50% to 75% of their value in
the past month, ICG executives are taking the downturn in stride, saying
they plan to hold onto their investments for a long time.
ICG also says it hopes the companies it has invested in will work together
in what it calls a keiretsu, the Japanese word for a network of companies
that supply goods and services to each other. However, ICG recognizes that
it doesn't have a large say in what the companies do because it isn't the
controlling shareholder in many of them. On average, ICG owns about 36% of
its affiliate companies.
Mr. Buckley's goal is to have most of the sites use similar software so
that customers can buy from the steel site and the plastics site without
having to re-enter their ordering information. And the network of B-to-B
sites gives ICG an edge in attracting corporate customers, ICG believes.
"We're playing the role of a kingmaker," says Mr. Fox. "You're either with us or against us."
END) DOW JONES NEWS 04-06-00
11:47 PM |
