Business Exchanges Look to Regroup for
2001
By ERICH LUENING, CNET NEWS.COM
At this time last year, companies in the
business-to-business market were the
rage on Wall Street and among venture
capitalists.
Software companies that build the
marketplaces saw their stock prices
skyrocket. Traditional offline businesses,
like the chemical, auto manufacturing and
construction sectors, lined up to buy the
software and build marketplaces to streamline their business transactions
with suppliers and business and logistics partners.
The two leaders in the business-to-business software market, Commerce
One and Ariba, saw their stock soar from single-digit share prices at their
public offerings in summer 1999 to triple-digit share prices a year later.
But by the end of 2000, several marketplaces had come under
international antitrust scrutiny, while a market shakeout and skepticism
about investing in Internet-related companies bogged down the new
business-to-business boom.
There have already been some early failures.
"A number of companies didn't really have a business plan for staying
afloat," said Tim Clark, an analyst with Jupiter Media Metrix. "They had
one for establishing a marketplace, but they didn't have one for getting
liquidity, to bring customers on board."
In September, RedLadder.com, a construction marketplace, shut down
because of financial difficulties. Soon afterward, used equipment and
metalwork machinery exchange eSprocket announced that it was cutting
its staff in half to reduce costs and build business. In December, online
marketplace services provider Ventro said it planned to shut down its
Chemdex and Promedix ventures and lay off about 235 employees.
But the size and value of business-to-business marketplaces may soon
dwarf those of their e-tail cousins--even of such household names as
Amazon.com and eBay.
For example, take Covisint--a massive business-to-business auto
marketplace for as many as 40,000 companies doing business with the
automobile industry. The exchange, which is due to go live in 2001, is
expected to handle up to $750 billion in annual purchasing and,
according to advisers at Morgan Stanley Dean Witter, could amass a
market capitalization exceeding $10 billion by 2005.
Overall, analysts estimate that the business-to-business market will grow
from about $131 billion in 1999 to between $2.7 trillion and $7.3 trillion
by 2004. In comparison, Forrester Research projects that e-tailer
spending will reach $184.5 billion in 2004, up from $20.3 billion last
year.
The sky-high business-to-business predictions still hold despite the early
challenges online marketplaces have faced, analysts said.
In addition to shutdowns and job cuts, the sector has stared down
antitrust investigations and vicious talent poaching among
business-to-business e-commerce companies and their clients. The sheer
size of the large marketplaces caused some concern for companies that
had longstanding relationships with suppliers that might be jeopardized.
And many smaller players feel squeezed by the larger marketplaces
springing up for whole sectors, like chemicals or aluminum.
"Investors and independent exchanges got scared when the big
brick-and-mortar companies came in with their consortiums," Clark said.
"Venture capital firms thought there was too much risk in financing
independent companies against the big consortium exchanges like
Covisint."
In 2001, analysts expect two major trends: The larger marketplaces,
such as Covisint, will become operational, and there will be an upswing
for support software and technology companies that got hurt in the
dot-com downturn.
"I expect to see a resurgence in customer resource management within
the business," said Andrew Bartells, an analyst at Giga Information
Group.
"I also see a renewed concentration on internal processes," Bartells said.
"As online business between companies becomes standardized,
companies will realize that in order to be competitive they'll have to focus
on internal systems as well. We expect this to occur in the enterprise
resource planning area especially." |
