PPRO/AOL article.....states the the national market place site debuts October 2000. Let the games begin.....
June 19, 2000
E-Marketplaces Get Territorial
Regional procurement hubs make sense for certain goods and services, but can they compete with national portals?
By Mark Roberti
Beneath the soaring steel-and-glass atria of the Palais des Congres in Montreal, the talk this week among utility executives at the Edison Electric Institute annual conference is likely to be about the power of e-commerce. Spurred by Washington startup Energy Leader.com, several utilities are considering setting up regional electronic procurement hubs for their small- and midsize-business customers to purchase a broad array of products and services.
"This is the next paradigm," predicts EnergyLeader founder and CEO Steven Mitnick.
He may be on to something. Plenty of goods and services should be traded on a regional basis. It doesn't make sense, for instance, to ship a used car across the country or fly in janitors from another state, if they're available locally.
So far, though, the only regional marketplace doing much business is eScout in the Midwest, where small companies buy office supplies, computers and other products from national distributors such as Boise Cascade and Necx.
And few online marketplaces are being created to let small companies within a specific region trade goods across industries. In addition to EnergyLeader, BellSouth and the Phoenix Chamber of Commerce have marketplaces under way.
Mitnick, a former business consultant, says his research indicates that 40 regions around the country could support a profitable Web marketplace. He wants to partner with utilities to create hubs in the 20 largest regions. The utility will take advantage of its relationships with regional companies to encourage them to sign up to buy and sell a wide array of goods and services, from paper clips to temp workers.
That's the theory. Thus far, Mitnick has signed up Potomac Electric Power to build a regional procurement hub for the Washington-Baltimore region. He expects to announce a second regional hub with a Midwest utility this week, and says he is close to signing a utility in the South.
One of the keys to success for the regional hubs, according to Mitnick, will be to make it possible for small and midsize businesses to buy services online, since small companies usually hire local accountants and ad agencies. "The range of services available on most marketplaces is pretty pathetic," he says.
Some national sites have begun to beef up their service offerings. For example, Onvia.com, a small-business marketplace, has members that perform accounting, information technology, office management and other services. But there's no guarantee that a small company will find, say, a security firm in its area on the site.
Mitnick came up with the idea for regional hubs last fall, when he was working in the utility practice of Hagler Bailly, an Arlington, Va., consulting company. When General Motors and Ford announced plans to build procurement marketplaces (which were later merged with an effort by DaimlerChrysler), he realized that utilities have enough local buying power to anchor regional marketplaces.
"Utilities aren't the only regional institutions that could do this," Mitnick admits. "Banks are one possibility. Telephone companies are another. But we think utilities have an edge because they have more buying power within a region."
The utilities also have deep pockets, and they're under pressure to become more efficient and find new revenue streams in the face of increasing competition as their industry is deregulated.
Potomac Electric spends about $100 million a year on goods and services unrelated to producing power. "We got into [the regional hub] because we became convinced we could save money and provide lower rates to our customers," says Dennis Wraase, Potomac Electric's president and CFO. "We also saw a business opportunity."
Wraase says he wasn't aware of Pantellos, a Web marketplace for the utility industry that was recently proposed by 21 leading energy companies, including Consolidated Edison, Entergy, PG&E and Reliant Energy. But, he says, Potomac Electric prefers the idea of a regional procurement hub because it could stimulate regional business activity, which in turn would create more demand for electricity. "What's good for local businesses is good for us," Wraase says.
The regional Web marketplace isn't exactly new. UMB Financial, a Kansas City, Mo., bank holding company, set up eScout in 1998. The exchange, which was spun off into a separate company, currently has more than 4,000 small-business members in several Midwestern states. BellSouth launched PurchaseWise in the Southeast in April, then suspended the marketplaces after members found it difficult to use. The company plans to relaunch the marketplace this fall.
But EnergyLeader is the first to try to blanket the country with regional marketplaces. It will face stiff competition from a number of national Web marketplaces, including Commerce One's MarketSite, which targets large companies, and Onvia and PurchasePro.com, which primarily go after small and midsize businesses. Chase Manhattan Bank, Merrill Lynch and Wells Fargo have also set up procurement marketplaces to let their small-business customers aggregate purchases and get better prices from national suppliers.
The chief advantages of national hubs are that they can reach critical mass more quickly and should generate enough volume to enable suppliers to offer the best price. But regional Web markets clearly make sense for fresh produce and other items that can't be transported nationally.
So far, few horizontal marketplaces – national or regional – offer features extensive enough to let small companies do the things bigger companies spend millions on IT to do, such as marketing and managing human resources. America Online may be the first to do it, which could give it an edge over regional competitors. Teaming with PurchasePro, an electronic marketplace based in Las Vegas, AOL will create a national marketplace for goods and services. The company is cutting deals with other marketplaces to use their services, too. For instance, Onvia would provide a request-for-quote service for the AOL-PurchasePro marketplace. David Gang, senior VP for strategic development at AOL, says more deals are in the offing.
AOL's huge membership and marketing muscle give it an advantage over other companies setting up marketplaces for small and midsize businesses. But it won't necessarily prevent regional marketplaces from succeeding because AOL plans to link to cobranded regional marketplaces, according to Gang. A small business in, say, Seattle might enter the market through a network sponsored by the local bank or utility, buy services from other Seattle companies, then link to the AOL-PurchasePro site to buy office supplies from Office Depot.
But both regional and national Web marketplaces will have to overcome some hurdles before they generate enough transactions to become profitable. Few small and midsize businesses have created electronic catalogs, which is expensive and time-consuming, as is the process of linking the suppliers' computer systems with the marketplace. EnergyLeader's Mitnick acknowledges this is a problem. "Easily, the biggest risk for us is on the sell side," he says.
Mitnick says each marketplace will cost less than $25 million to set up, and some of that money has been put aside to help buyers and sellers develop the systems needed to do business online. He's hoping that the opportunity to sell to the utility and the charter buyers will further motivate suppliers to invest in creating electronic catalogs.
Clearly, there's a place for regional electronic marketplaces. The question is, can they create a critical mass of buyers and sellers before the national procurement portals – and the many vertical Web markets being set up – lure away local businesses? Only those that move quickly and execute well will succeed.
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Putting E-Marketplaces on the Map
Regional electronic procurement hubs for small and midsize companies may be catching on.
BACKERS MARKETPLACE/REGION LAUNCH COMMENTS
America Online and PurchasePro.com Unnamed/National site will incorporate regional hubs. Oct. 2000 The companies are building a national marketplace that will link to some regional hubs.
BellSouth PurchaseWise/Southeast Fall 2000 The telco plans to offer office supplies and other products from national suppliers to its small-business customers.
EnergyLeader.com and Potomac Electric Power Unnamed/Baltimore-Washington area Dec. 2000 The marketplace will connect small and midsize companies throughout the region.
UMB Financial and several venture capital companies eScout/Midwest Oct. 1998 Community banks encourage small businesses to join the marketplace to conduct business with other local and regional companies.
* Source: Companies Listed
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