The Old Way is the Best Way

New study reveals winners and losers in B2B shakeout

Philadelphia  November 18, 2002  A new research study titled "Shakeouts in Digital Markets: Lessons from B2B Exchanges" tracks the compressed boom-to-bust cycle for Internet startups in B2B markets. It also shows that the old way of doing business is here to stay, much to the chagrin of many B2B exchanges.

The study was conducted by Professor George Day, Ph.D. of the Wharton School of the University of Pennsylvania and Pembroke Consulting President Adam J. Fein, Ph.D.

"Our study of eight industries found only 43 percent of independent B2B exchanges survived between April 2000 and July 2002," explained Fein. "B2B exchanges thought they had a great value proposition but actually misdiagnosed their advantage versus existing ways of doing business."

According to the study, there were an estimated 1,500 B2B exchanges operating in 2000. However, the study suggests less than 200 of these B2B exchanges will likely survive through 2003 if the current shakeout trend continues.

"B2B exchanges were late movers  not first movers. They couldn't replace longstanding relationships in the B2B supply chain between customers and their distributors," added Fein. "Only a handful of exchanges, such as FreeMarkets and eBay, have capitalized on the breakthrough possibilities of the Internet."

The paper suggests other winners will be adaptive survivors, who find a protected niche supporting existing B2B relationships, or acquisitive incumbents who buy the assets of pure-play companies at deep discounts.

The full results of the study will be published in a forthcoming edition of California Management Review, which is published by the Haas School of Business at the University of California Berkeley.