B2B exchange future questioned

B2B exchange future questioned

Since their start, business-to-business digital trading exchanges have been holding out the Holy Grails of better prices for buyers, more channels for suppliers and the multiple efficiencies that are part and parcel of automation.

For the moment, though, the exchanges are focussing on going live, getting financial backers, gathering buyers and sellers, and making certain they offer ancillary services to keep those buyers and sellers happy. Those that are advancing to the stage of actually carrying out transactions are doing so with an eye toward the day when they will hit the high volumes that will make these risky ventures economically viable, industry analysts say.

It's a given that every industry will be hit with an exchange, and that if they have not arrived yet, they will. It is so well accepted that "people are worried about being left out", says Lisa Williams, an analyst at market researcher The Yankee Group.

In many sectors, exchanges and their promises of Internet efficiencies are the first real signs that the New Economy has arrived. But there are important rules from the Old Economy that these exchanges and their participants will have to keep in mind.

The keys include the fundamentals of doing business and a Federal Government nervous about whether or not these exchanges are engaged in price-fixing and monopolistic behaviours. Underlying all of these concerns is a widely predicted consolidation via failures and mergers and acquisitions that some say may come in less than a year.

Shortening reins

Wall Street investment and venture capitalist firms have begun shortening their reins on B2B exchanges, thanks to their counterpart pioneers in the business-to-consumer, e-commerce realm, says Randy Covill, an analyst at AMR Research.

The days of the open-ended capital influx are over, and although investors do not expect to see immediate profits, there will be expiration dates for funding and an expectation to see "signs of profitability," Covill says.

"I think [the shakeout] will happen in the next six to 12 months," Covill says.

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