Net Markets: So How's It Going?

Time flies when you're in a revolution. But how are Net markets really performing?


Time flies when you're in a revolution. It's been just a few years since a few pioneering players launched electronic marketplaces with the potential to dramatically alter the way business transactions are done. Since then, there's been an explosion of new entrants, from dot-com startups to major consortia of industry heavyweights.

But how are Net markets really performing? What do the buyers, sellers and industry analysts think about them? Where is the activity strongest? Here's what our reports from the front reveal about the successes and problems participants are encountering.

Well, I Haven't Spent My Purchasing Dollars on Net Markets ... Yet.

Lesson one we've learned hasn't been that easy for participants. When it comes to overall activity, there's less than meets the eye. Fact is, despite all the hoopla, buyers haven't actually spent a lot of money on purchases made through electronic markets. This year just 13.5 percent of the total $400 billion in total online sales was from Net market activity, according to Steven Kafka, an analyst with Forrester Research, a market research firm in Cambridge, Mass. But, that should change. In just four years, he predicts e-market activity will grow to 53 percent of $2.7 trillion in total online trade. In fact, a recent Forrester study found that while major corporate buyers are reporting only moderate Net market usage today they plan to more than quintuple their online purchases by 2002.

For now, most of the action has been in a few areas: volatile industries, where buyers and sellers need a smoother way to trade, and fragmented markets, where participants want a better method for connecting at a low cost. Ken Scott, facilities manager for Telik, a biotechnology firm in South San Francisco, is a good example. Researchers at the company now buy some of their supplies directly through Chemdex.com, where they're able to find products from a variety of highly specialized suppliers selling sophisticated items aimed at everyone from molecular biologists to medicinal chemists. Buyers had to go through dozens of catalogs from dozens of suppliers before, he says.

I'm Testing the Waters

What are they buying? Most of the activity is in indirect, finished goods. Corporate purchasers may be willing to stick their necks out and test the electronic waters but, more often than not, they do so cautiously, one step at a time. And that means veering away from certain types of make-or-break products. There's a lot less risk buying, say, paper clips over the Web than materials needed to make core machinery of strategic importance.

Forrester's research underscores that point. In a recent study of buyers in 50 corporations, few indicated they were ready to jump into buying direct materials.

Consider Edward Jarman, purchasing agent for Tri-Pak Machinery, a custom manufacturer of fruit and vegetable-packing machinery in Harlingen, Texas. For the past five months, he has used Materialnet.com, a marketplace for industrial metals but sparingly. For the most part, he relies on only existing, trusted suppliers for a range of most mission-critical parts, from circuit breakers to hydraulic cylinders. "The machinery we make has to be dependable and we have to know the parts will work," he says. "Or customers may only operate six weeks out of the year, but they're going 24 hours a day and they can't afford a breakdown."

Buyers are, of course, purchasing direct materials, too. but, when they do, it's generally in small amounts, and to supplement traditional buying methods. Jarman, for example, purchases steel through Materialnet, since, he says, "A piece of steel is a piece of steel." But, he does so sporadically, and only when time is not of the essence. A year ago, Bruce Miller, manager of raw materials and processing for Olympic Steel, a Cleveland processor and distributor of flat steel, started buying products over a site called Metalsite.com, bidding for suppliers' excess inventory.

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