MaterialNet launches e-sourcing platform, drops e-marketplace focus

Lake Success, NY  August 29, 2001  Erstwhile e-marketplace MaterialNet is moving to reposition itself as a provider of online sourcing solutions with the launch of a hosted strategic e-sourcing platform.

The move follows similar transformations over the past year as struggling e-marketplaces have sought viable paths to profitability.

In announcing its ASP-based Custom Procurement Management System (CPMS), MaterialNet is completing a transformation that has been underway for about a year, moving away from being an e-marketplace serving the metals and mining industries to being a provider of software for companies across industries.

The shift marks yet another milepost in the decline of e-marketplaces. "It was all the rage for about a year-and-a-half or two years," said MaterialNet chief operations officer Joe Pecoraro of the online exchanges that at one time were predicted to draw the majority of B2B spending. Companies were going to connect to anonymous marketplaces to buy and sell just about everything.

But the business model for many exchanges proved fundamentally flawed. "As it works out in the real world," Pecoraro said, "people don't need to do anonymous trading with their suppliers. They don't want to be blind to whom they're trading with, and it's definitely not all about price, which was what the exchanges really focused on."

With CPMS, MaterialNet said it is offering a platform for the desktop management of the global sourcing process for direct and indirect materials, goods and services. "We've designed the MaterialNet CPMS to both deliver immediate material and process cost savings and to create a scalable foundation for systematic, enterprise-wide strategic sourcing," said Pecoraro.

Companies can use the sourcing platform as a means to reinforce and institutionalize best practices within individual purchasing departments and across entire organizations, Pecoraro added.

During an initial launch period for CPMS, MaterialNet said it is offering a pilot program that allows companies to test the software under real-world auction conditions over a 30-day period to develop "proof of concept" for their purchasing operations.

MaterialNet said it has already rolled out CPMS for pilot testing with a number of customers, including both Fortune 500 companies and state governments.

The sourcing platform comprises five functional components, including Custom Auction Toolkit, for creating, managing and reporting on online auctions and negotiation events; eRFI (electronic Request For Information), for creating, disseminating and collecting supplier surveys to determine best qualified sources; Order Management and Award Notification, for creating, managing and reporting on contract and spot purchases and blanket orders; Document Management, for managing documents, worksheets and drawings from a central location; and Analytics, for running sensitivity analyses on user-defined parameters.

MaterialNet's transformation into an e-sourcing company means that it now is competing with long-time online auction provider FreeMarkets. Pecoraro argued that MaterialNet's advantage is that it focuses on providing software rather than on any of the sourcing activities that can precede an e-negotiation event. "We concentrate on creating the tools, and we concentrate on training people in how to use those tools, how to create online auctions and how to assess their current relationships with suppliers in the different commodities that they buy," he said.

MaterialNet is just the latest e-marketplace to put an "ex-" in front of its name. In April, former B2B poster child VerticalNet announced it was going horizontal, shifting its focus from operating public e-markets in disparate industries to providing software to enable participants in those marketplaces to connect with each other in private marketplaces. Last December, Net markets pioneer Ventro shuttered its flagship marketplaces and said it would reposition itself as a B2B marketplace services provider.