Clearing the Fog from the Dot-com Landscape: Why the long list of MRO e-marketplace failures is good news for users

Despite all of the e-marketplace failures of late, the long-term survivors are beginning to emerge and solidify their gains. Experienced e-marketplace operators with industry-focused initiatives are proving that they can offer enough business value to attract and retain buyers and sellers alike.

The materials, repair and operation (MRO) e-marketplace evolution was brought about by a year-long demolition derby filled with companies that raced to create a new business paradigm on the Internet without getting the basic business question  better, cheaper, faster? right. Once again this race to the Internet helped prove a simple fact: Without a sound business model, speed kills.

While there may yet be more failures, the long-term survivors are beginning to emerge and solidify their gains. Experienced e-marketplace operators with industry-focused initiatives are proving that they can offer enough business value to attract and retain buyers and sellers alike.

Witnessing commercial Darwinism in action has been a sobering experience for many, but the resulting survival of the fittest turns out to be good news for users. Besides simply reducing the confusion caused by too many e-marketplace marketing dollars chasing too few customers, how can the wholesale failure of dozens of new dot-com businesses help the buyers and sellers of office supplies and maintenance items? After all, wasn't all of this new competition supposed to lower prices and drive increased efficiency?

The promised benefits are real, but they have been obscured by dot-com bluster and misguided focus. A key dynamic lost in all of the e-marketplace hype is the fact that MRO procurement savings promised by marketplace operators come primarily from e-procurement applications and the business processes they enable & not the list of suppliers e-marketplaces sought to assemble. Somewhere in all of the PowerPoint presentations and sales pitches, we've confused streamlining MRO e-procurement with picking a winning e-marketplace. Getting your e-procurement house in order will yield the best returns, whether you choose to use an e-marketplace to interact with suppliers or not.

However, e-marketplaces can still add significant value. For instance, suppliers get an additional low-cost channel with which to service old and new customers alike.  A marketplace can help them easily target new market opportunities while increasing their product, service and geographic coverage. And buyers, in turn, can use marketplaces as part of an e-procurement initiative to simplify access and interaction with a broad range of suppliers.

There are continuing signs that e-marketplaces offering these types of benefits are succeeding. In November 2001, the Global Trading Web Association (GTWA), the world's largest independent membership organization of electronic marketplaces reported a dramatic increase in transaction activity and sales volume on member sites. In the first half of 2001, transaction activity increased 733 percent to approximately 884,000; and sales volume increased 3,110 percent to over $3.7 billion. Also good news for users was that product selection available online was increasing with a projected 24 million product stock keeping units (SKUs) available by year-end 2001.

While there is little doubt among analysts and consultants that e-markets will play a central role in a company's B2B e-commerce strategy, many users are still caught between the promise of future benefits and the reality of current system performance. No buyer can get everything it needs from a single MRO e-marketplace.  Every successful e-procurement solution relies on a blended supplier interaction model that combines e-marketplace supplier access with some direct supplier connections, as well as electronic data interchange (EDI) and snail-mail components as the unique needs of each relationship demand.

Creating a portfolio of private and public e-marketplace relationships appears to be a sound strategy moving forward. So is setting the proper expectations within your company for the challenges and benefits of such business change  the e-procurement of office supplies and services is just a start. Reducing costs and improving forecasting across the supply chain, reducing product design and development cycle times and improving customer relationship management and loyalty are all areas of benefit from collaboration through private or public e-marketplaces.

Some additional steps for success would include:

·        Carefully evaluating the partnerships you choose to support your online business initiatives,

·        anticipating that there will be changes needed inside of your company and that they won't be easy,

·        focusing on a particular process and driving for its success before expanding into other areas,

·        selecting systems and technology that are open and support developing industry standards for communications such as Extensible Markup Language (XML), and

·        getting started, but remember that speed kills.

Keep these things in mind as you develop your company's unique set of requirements. It is safe to embrace the new world of fewer, stronger MRO e-marketplaces. Users will find  a less confusing and more focused set of supplier connection choices combined with increased clarity around where the real e-procurement benefits lay, and how to realize them.

Most analysts still predict that e-marketplaces will account for the greater portion of business spending. In the November 2001 GTWA announcement mentioned above, Gartner G2 analyst Gale Daikoku commented e-Marketplaces are not dead. Our ongoing research continues to debunk that myth. We expect that by 2005, e-marketplaces will become an integral B2B trade mechanism for thousands of companies worldwide.

Kerry Lamson is PeopleSoft's vice president of eBusiness Strategy and Marketing. He is responsible for formulating PeopleSoft's eCommerce strategy, partnerships and go to market programs across all product divisions.

Robert Shecterle is the vice president of SRM Strategy for PeopleSoft.  Shecterle has engineered the solution strategies, marketing strategies, and product launches of some of the industry's most notable e-commerce and supply chain applications.