Out With the Old and In With the New

While most companies are bracing themselves for the dot-com shakeout, private e-marketplaces are gaining confidence.

[From iSource Business, April 2001] In 1999 we witnessed the phenomenal growth of B2B e-marketplaces. Many companies felt rushed to jump on the bandwagon, failing to carefully think through their e-business strategies. But by the end of 2000 industry experts were predicting that a majority of these e-marketplaces would not survive the dot-com shakeout.

While it is incorrect to assume that all B2B e-marketplaces are doomed, it is imperative for companies to take a step back and figure out what can be done now to formulate a successful e-commerce strategy for the future.

A major stumbling block within the public e-marketplaces stemmed from manufacturers that were connected with suppliers through systems that created duplicate, rather than complementary, distribution channels for the sellers. Whether for coalitions of brick-and-mortar companies or independent Net markets, this method fostered a lack of collaboration among customers and channel partners and resulted in companies having to manually input transaction information. The bottom line is that the benefits of participating in public e-marketplaces could never be realized without precise systems integration.

Buyers, meanwhile, grappled with the lack of connectivity to their backend systems. Sure it was great to be able to search multiple suppliers for the lowest prices on goods or services, but when it came time to close the deal, buyers, more frequently than not, used the phone and fax to avoid paying e-market transaction fees.

This points to the flaw in the public e-marketplaces' business model: most public marketplaces were never able to move beyond the transaction simply because transaction fees formed the core of their revenue streams. Fortune 500 manufacturers can tell you that, while selling original items is a profitable business, pre- and post-sale services deliver incredible value to consumers and generate a high margin of revenue.

The Rise of the Private e-Marketplace

Many of the public marketplaces, along with many of the large e-consultants and integrators, lost out because they bought into the dot-com craze. The bankers came into the boardrooms of Fortune 1000 companies and pitched an illusion: Companies could band together, share a little data, build an unbelievable portal, and then go public and make everyone wealthy. Now the short-term effects of this craze have become visible, with numerous dot-coms that close their doors forever and e-business consulting firms that find themselves in serious trouble because their client roster is shrinking and they aren't realizing the revenue that they were booking.

But the greater implication is that businesses will return to a more commonsense approach to using online marketplaces. Suppliers are going to start asking several critical questions that will read as a checklist for manufacturers: How can I make it easier for my customers to do business with me? How can I take care of my existing channel partners? How do I ensure the return on investment (ROI) on my technology investment? And finally, how do I increase my market capitalization over the long haul?

The answers to these questions lead to just one logical outcome: the rise and eventual domination of private e-marketplaces.

Private e-marketplaces (again, whether consortium-based or centered around a single, large supplier) will dominate in the future because they have the capacity to co-opt existing channel partners (distributors, retailers, service centers, sales reps) rather than exclude them. Buyers will benefit from this because they will receive greatly improved service before and after the sale, while realizing the kinds of transactional efficiencies the public marketplaces promised.

Ultimately, private e-marketplaces will dominate because they provide greater control over branding, marketing and transaction data, which ensures long-term customer satisfaction.

This is not to say that all the public e-marketplaces will wither. Those that survive will function as aggregation points for the private marketplaces of major suppliers. Suppliers will participate in a limited manner, allowing certain brands or certain quantities of particular products to be posted. The markets will charge buyers subscription fees, rather than per-transaction fees, and the buyers will be willing to pay because the cost savings will be significant. The bottom line is that the public e-marketplaces will become merely another sales channel for the suppliers, instead of the be-all and end-all distribution channel.

Private e-marketplace is the buzzword for 2001. The e-marketplace is alive, but it is not the same animal that it was in 2000.