The News – 04/16/01

B2B Exchanges Have Lost $1 Billion

The trough of disillusionment widens and deepens in a recent Reuters article. The article quotes an equities analyst’s claims that companies have lost at least a billion dollars on public exchange efforts. It’s hard to put too much credence in the number since most of the exchanges are private, but, then again, losses of such a maghnitude don’t seem that unlikely.

It is less easy to believe an article, however, that confuses the recent revenue problems of Ariba and Commerce One with public exchanges. These two companies are eProcurement vendors; they are not public exchanges, nor do they really supply public exchanges. I’ve seen this a lot in the trade press – writers who confuse all kinds of eCommerce with exchanges. What Ariba and Commerce One do is enable companies to automate the procurement of indirect materials. The resulting systems do not resemble exchanges closely at all. An exchange is generally thought of as an embodiment of the “Fat Butterfly” model.

Exchange vendor SupplyConnect defines the Fat Butterfly this way:

The term “Fat Butterfly,” in describing e-markets, comes from the depiction of numerous suppliers representing one wing of a butterfly and numerous customers as the other. The “fat” in “Fat Butterfly” connotes that the e-market is robust in terms of provided member services and liquidity.

Very few of Ariba and Commerce One’s customers would fit into this category. Rather, they are typically one-to-many marketplaces: one buyer/seller, many sellers/buyers. As such, they are not exchanges.

While this may seem to be a quibble, it is important if the media is going to equate financial woes in eProcurement vendors with problems for an unrelated eCommerce effort, exchanges.

All this is not to say B2B exchanges aren’t having problems. Ariba, in a case of the pot calling the kettle black, recently predicted the demise of all public exchanges, and plenty of writers and analysts are all too eager to kick exchanges while they’re down.

Consider the author of the $1B loss quote, Credit Suisse First Boston analyst Brent Thill. Thill now claims he was never convinced about the promise of B2B exchanges in the first place: “This B2B marketplace thing was going to be the hottest thing since sliced bread, but...I don’t think they’re anything more than vaporware.” Thill has a buy rating on supply chain software vendor i2, who would greatly benefit from a shift to private exchanges. (He also recently tried to explain away Nike’s claim that i2 cost them millions.) Yet Thill had a strong buy on Commerce One as recently as last December, so he was obviously drinking the Kool Aid then. In February, he said that Dell’s shutdown of their marketplace powered by Ariba would have “zero” effect on Ariba. He sounds a little like a pumper now gone dumper.

My point here is that analysts are camp followers, ever willing to subscribe to the herd mentality. They were the cheerleaders of irrational exuberance a year and a half ago, and they’re the purveyors of doom and gloom today.

What businesses need to do is really examine and understand the value propositions involved in doing all kinds of eCommerce, from eProcurement to exchanges. Will it help your business to streamline your procurement? Will it help if you trade goods and services on an exchange? Can you save money by participating in online auctions? Would the pain involved in setting up an intelligent supply chain be worth it in the end?

Analysts, pundits, and clueless writers who confuse indirect goods procurement with exchanges can’t answer these questions. Only informed decision-makers within your business can.

If you want my opinion, this trough of disillusionment will last probably through the end of the year. After that, the reports of real advantages gained through eCommerce by pioneering companies will start to turn the tide. I predict it will only take one high profile success per industry to get the herd back singing the praises of exchanges and eCommerce.

Yahoo News

ASPs Defying Predictions of Demise?

GartnerGroup has predicted that 60 percent of Application Service Providers will be out of business by the end of this year. Then why are their numbers increasing? Summit Strategies recently counted 1,870 companies in the directory at ASPNews.com and 1,763 at ASPStreet.com . Summit says these numbers don’t even include some industry-focused vertical ASPs (known as VSPs in the ever-expanding xSP lexicon).

Summit argues that these VSPs, which are typically launched by a corporate parent that is an industry player, may have several advantages over the typical, cash-starved, venture-backed ASP. For one, they generally are well-funded from the start, and for another, they have the backing of an influential industry player, which bequeaths them brand presence, channels, and credibility in their target markets.

Summit points to three VSPs as examples: Sallie Mae Solutions (www.salliemaesolutions.com ), a new division of Sallie Mae, which manages $66.7 billion in student loans; RMX, or RetailersMarketXchange (www.rmx.com ), which evolved from the Chevron Retailer Alliance program and is targeted at convenience stores’ and small retailers’ supply chains; and Sabre eMergo (www.sabre.com/emergo ), a division of travel giant Sabre, which provides business-management solutions for the airline and railroad industries.

Summit sees these VSPs as becoming virtual workplaces for their industries. I see instead a concentration on smoothing the supply chain. Much like the exchange market, which is evolving into intelligent supply chains, the ASP market seems to be gravitating this way as well. This could be another instance of a sector in trouble heading right for the comfort of existing companies’ sponsorship, and pitching in to evolve the next generation supply chain.

Businesses should be aware of this trend, and, when considering ASP services, seek out these specialized VSPs, which can bring lots of valuable industry experience and contacts to the party.

TechRepublic

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