Emerging Trends in B2B Marketplaces
Deepti Jaggi, MBA2
Issue date: 10/29/01 Section: Technology
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Five of my colleagues surrounded a single computer screen. Another two waited in the back, ready with champagne. We were watching it happen, our first B2B exchange customer going live. We celebrated, as the first auction progressed, rejoicing the fruits of days and nights of our labor. We, the “Exchange Team” at Oracle, were at the forefront of technology, making it all happen. Our hearts soared, as with every press release about our Exchange Platform the company’s stock price increased by several dollars. Those were the days of B2B glory.
However, today as I read the papers, the scene seems dismal for B2B. Commerce One recently laid off almost half its work force, blaming lack of demand for its Exchange software. Ariba has its own bad news, and my friends from Oracle report a similar slowing in momentum. So, what happened to the B2B Exchange demand?
At the onset of B2B marketplaces, businesses hastily adopted them, without completely understanding the technology, or its business implications. Besides, several logistical and technological bottlenecks existed. The success of an Exchange depends on its size, location and the technologic readiness of its participants. Not all companies in an industry’s supply chain had the well-developed software systems needed to seamlessly plug into an Exchange. Moreover, there was the question of trust. While B2B Exchange software builders created robust and scalable auctioning and e-commerce technology, they did not create reliable mechanisms to establish trust between participants on the Exchange. While technological problems impaired the success of B2B Exchanges, incompatibility with business fundamentals posed the primary challenge. Online marketplaces are based on collaboration and co-existence, which is incongruent with the concept of competition amongst companies. As companies within an industry’s value chain came together within electronic marketplaces, their reluctance to share information was the first barrier to the success of this new business model.
Faced with multiple challenges along with the softening of the economy, B2B marketplaces began to adapt and evolve.
Consolidation
So many marketplaces sprang up with the initial hype of B2B, that consolidation was inevitable. Consequently, we are seeing a shakeout with the “mega-exchanges” (large industry exchanges such as Covisint) being the survivors. Gartner forecasts that more than 80 percent of existing e-marketplaces will either drop out of the picture, or merge with more prominent ones. Eventually, each industry might have one or two major exchanges that have smaller, private exchanges participating within them.
Private network collaborative commerce
Since no sustainable trust infrastructure existed within Exchange Platforms, companies were uncomfortable working with others that they hadn’t conducted business with before. Resultantly, they are relying on private collaborative networks to get the benefits of an online marketplace with the satisfaction from knowing they are doing business with a company they trust.
Growth in specific industries
Opportunities for B2B are prominent in industries where there is a desperate need for increased automation. This includes industries that strive for greater supply-chain efficiencies, such as electronics and hi-tech. Other potential segments for B2B include logistics and consumer goods. Logistics, because it is the critical link that enables the movement of physical goods and consumer goods because they have highly fragmented supply bases.
Geographic demand
While the U.S has clearly lead the world in implementing B2B marketplaces, demand for many private exchanges is surging in Asia according to Robert Grove of Viewlocity, Asia-Pacific. This is because the Asian economy is fueled by SMEs (Small and Medium Enterprises). Besides since most companies in Asia don’t have existent legacy systems, it is far easier for them to adopt new technology.
Amidst a “shake out” the B2B space is still thriving. Analysts continue to be optimistic about B2B adoption, despite toning down their projections. Jon Gibs, at Jupiter Media Metrix says, “ I don’t know if we’re in a position where things are looking up…but we’re seeing a clear direction of where things are moving.”
However, today as I read the papers, the scene seems dismal for B2B. Commerce One recently laid off almost half its work force, blaming lack of demand for its Exchange software. Ariba has its own bad news, and my friends from Oracle report a similar slowing in momentum. So, what happened to the B2B Exchange demand?
At the onset of B2B marketplaces, businesses hastily adopted them, without completely understanding the technology, or its business implications. Besides, several logistical and technological bottlenecks existed. The success of an Exchange depends on its size, location and the technologic readiness of its participants. Not all companies in an industry’s supply chain had the well-developed software systems needed to seamlessly plug into an Exchange. Moreover, there was the question of trust. While B2B Exchange software builders created robust and scalable auctioning and e-commerce technology, they did not create reliable mechanisms to establish trust between participants on the Exchange. While technological problems impaired the success of B2B Exchanges, incompatibility with business fundamentals posed the primary challenge. Online marketplaces are based on collaboration and co-existence, which is incongruent with the concept of competition amongst companies. As companies within an industry’s value chain came together within electronic marketplaces, their reluctance to share information was the first barrier to the success of this new business model.
Faced with multiple challenges along with the softening of the economy, B2B marketplaces began to adapt and evolve.
Consolidation
So many marketplaces sprang up with the initial hype of B2B, that consolidation was inevitable. Consequently, we are seeing a shakeout with the “mega-exchanges” (large industry exchanges such as Covisint) being the survivors. Gartner forecasts that more than 80 percent of existing e-marketplaces will either drop out of the picture, or merge with more prominent ones. Eventually, each industry might have one or two major exchanges that have smaller, private exchanges participating within them.
Private network collaborative commerce
Since no sustainable trust infrastructure existed within Exchange Platforms, companies were uncomfortable working with others that they hadn’t conducted business with before. Resultantly, they are relying on private collaborative networks to get the benefits of an online marketplace with the satisfaction from knowing they are doing business with a company they trust.
Growth in specific industries
Opportunities for B2B are prominent in industries where there is a desperate need for increased automation. This includes industries that strive for greater supply-chain efficiencies, such as electronics and hi-tech. Other potential segments for B2B include logistics and consumer goods. Logistics, because it is the critical link that enables the movement of physical goods and consumer goods because they have highly fragmented supply bases.
Geographic demand
While the U.S has clearly lead the world in implementing B2B marketplaces, demand for many private exchanges is surging in Asia according to Robert Grove of Viewlocity, Asia-Pacific. This is because the Asian economy is fueled by SMEs (Small and Medium Enterprises). Besides since most companies in Asia don’t have existent legacy systems, it is far easier for them to adopt new technology.
Amidst a “shake out” the B2B space is still thriving. Analysts continue to be optimistic about B2B adoption, despite toning down their projections. Jon Gibs, at Jupiter Media Metrix says, “ I don’t know if we’re in a position where things are looking up…but we’re seeing a clear direction of where things are moving.”