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B2B's Surprise: The Survivors

B2B's Surprise: The Survivors

Two independent business-to-business exchanges, Promedix Inc. and Chemdex Corp., were quietly axed by their parent company this week.

Meanwhile, executives from two of the largest industry consortium-backed online marketplaces, Transora and Exostar Inc., insisted that their exchanges are up, running smoothly and steadily gaining ground with buyers and sellers worldwide, despite reports of bickering among member firms and limited support from suppliers.

That's not the way analysts have been saying things would turn out over the past several months. They have long predicted that independent marketplaces will thrive, while those controlled by industry consortia will get mired in political infighting and brick-and-mortar bureaucracy.

"Consortium sounds laden with committee structure and like it goes at a snail's pace," said Judith Sprieser, CEO of 9-month-old Transora, the Chicago-based exchange sponsored by 54 of the world's biggest consumer packaged goods companies.

The reality, she told attendees at a business-to-business e-commerce conference here, is that Transora has 250 employees, 100 of whom are on loan from member companies, including Unilever PLC, Procter & Gamble Co. and Nestle USA Inc. All the members are buying and selling goods and electronically managing a portion of their supply-chain activities through the exchange.

In the aerospace industry, Washington-based Exostar, which was launched in March by Raytheon Co., BAE Systems Inc., Lockheed Martin Corp. and The Boeing Co., has created electronic XML-compliant catalogs on the exchange for 50 suppliers of indirect goods and has 100 more under contract, according to Stephen O'Sullivan, executive vice president of the exchange.

In return, the suppliers pay a fee of about $3,000 and can upload the newly digitized catalogs to other exchanges they may choose to join, O'Sullivan said. This capability has been a key factor in attracting suppliers to the exchange, he added.

But analysts said it's the sheer "gorilla" buying power that consortia wield that is working more than anything else - especially technology - to drive in suppliers.

"Consortiums definitely have channel power, which means they have the ability to coerce small suppliers," said Karen Peterson, an analyst at Gartner Group Inc. in Stamford Conn.

But they also have potentially devastating weaknesses, including incohesive management that leads to an inability to move quickly with the market, said Jon Ekoniak, an analyst at Piper Jaffray Inc. in San Francisco.

"If there is one group with the best opportunity for success, it's private marketplaces," Ekoniak said.

But this week, two independent B2B exchanges - Promedix, a specialty medical products marketplace, and Chemdex, a life sciences marketplace - were unplugged. Parent company Ventro Corp. in Mountain View, Calif., said it will lay off 235 workers and take a loss of up to $410 million for the closings, effective in the first quarter of next year.

Gartner estimates that some 30,000 private exchanges are in various stages of development, compared with about 600 public exchanges currently in operation.

"In the near term, I see private marketplaces, such as those operated by Wal-Mart (Stores Inc.), Dell (Computer Corp.) and Cisco (Systems Inc.), as the best in terms of value they deliver," said Ekoniak. "Those with the next best chance of success are the industry consortia, followed by the independents last."


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