CoBAMs Live

Jupiter report finds industry-sponsored marketplaces may work after all

The coalitions of brick-and-mortar companies (CoBAMs) announced earlier this year are proving more agile and more viable than skeptics initially believed, according to a new report from a technology consulting and research firm.

When brick-and-mortar companies began announcing that they would form industry-specific coalition Net marketplaces in the first half of 2000, naysayers were quick to discount the chances of success for the CoBAMs. According to the doubters, the participating companies were too big and too mistrustful of one another to give the coalitions a realistic chance.

In fact, of the 64 CoBAMs identified and studied by New York City-based Jupiter Research, three-quarters said they would be operating online by the end of 2000. Jupiter released the report, "Industry-Sponsored Marketplaces: A Look at the First Ten Months," Tuesday at the firm's Ground Zero 4 conference of Net marketplaces in Los Angeles.

Interviews with executives at the CoBAMs, which Jupiter calls industry-sponsored marketplaces (ISMs), revealed that while brick-and-mortar companies were not necessarily impressed with the value propositions and functionality that the Net markets offered them, they found the online marketplace concept in itself compelling. The brick-and-mortars "love the marketplace model so much they are claiming it for their own," said Kevin Jones, a research fellow with Jupiter.

But whereas the marketplaces saw their value primary in providing for savings on the costs of goods purchased, the brick-and-mortar companies viewed the marketplace model as a road to increased supply chain and procurement efficiencies.

Brick-and-mortar executives interviewed by Jupiter for the report said they had begun to discuss the possibility of forming coalitions as early as August 1999, long before the CoBAM announcements in early 2000, according to Tim Clark, a senior analyst at Jupiter. With all the hype associated with the independent Net markets' stock valuations, the coalitions were able to study their options and work on joint plans while remaining "under the radar" of media attention.

In its report, Jupiter states that industry-leading companies viewed coalition marketplaces as the best option because they recognized that "Net markets work best when they reach a critical mass of buyers and suppliers. So getting big, established companies to participate was key, even if those big companies were traditional competitors."

The big companies also found the functionality offered by the Net markets to be wanting. The marketplaces offered primarily basic transactional capability, with some degree of added informational content, such as industry-specific news. But the industry leaders wanted support for such business functions as financing, credit, settlement and logistics, and the marketplaces could only offer the hope that such features would be included in a future release of their market software.

Ultimately, the BAMs decided they were better off investing in their own marketplaces rather than "paying to pay" in the independent Net markets.

Despite the good news for the coalitions, Jupiter points out that "no ISM can yet be called sucessful." The key to whether they succeed or not will be the deal-making skills of the partners involved in the CoBAM and the partners' ability to guide the coalition quickly through growth phases to full operational capability.

The coalitions must also be careful not to avoid violating antitrust laws, although the Federal Trade Commission's preliminary approval for auto industry CoBAM Covisint in October signals that, so far, the ISMs are on steady ground.