B2B: Bonanza or Bust?: Page 3

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"Just name an industry, and it's a sure bet it has a B2B exchange--or two or three or 10. And that's the problem. Even the $100 billion food industry may not be able to support that many separate marketplaces. "

Probably more daunting is tying back-end accounting, inventory, and other systems to the exchange. Again, most exchanges are striving to make that easier for participants in the future. "Anything that can export or import very basic Excel-like files can connect to our systems," says Eugene Shiu, vice president of business development at BigMachines.com Inc., a Foster City, Calif., exchange for makers of industrial equipment. BigMachines.com also uses integration software from webMethods. "We've spent millions of dollars building standard interfaces to ERP suites out there," Shiu says.

Other exchanges, however, require the participant to bear the cost of integrating their systems into the exchange and provide either their own consulting services or access to outside consultants. And most provide translations, or plan to, between standard formats like electronic data interchange (EDI).

Nagging Issues Remain

Government oversight may still be a concern for the CTEs, but Covisint got the go ahead in September 2000 from the Federal Trade Commission, which had been investigating the automotive exchange for potential antitrust violations. Part of the deal, however, was a guarantee that Covisint's buyers--the Big Three auto makers--wouldn't aggregate purchases to avoid the possibility of price fixing. Covisint agreed, although Hay says aggregation was never a major portion of the exchange's business model. However, the exchange is still under the scrutiny of the European Commission, which proposes trade legislation and oversees adherence to it for the European union.

Such investigation, and the uncertainty it engenders, has led to some delays for the exchanges. Covisint says it will be operational before the end of 2000 and is marketing its many services, including auctions, catalog purchases, and joint product design. Yet the exchange still has to appoint a CEO, hire a permanent staff, and establish a permanent headquarters.

For these and other reasons, traffic at most exchanges is hardly something to brag about. "There's been no stampede to get there," says AMR's Prouty. "People aren't ready for it. Most procurement is still manual, and companies don't see the benefit yet [of automating the process through exchanges]." As an example, Prouty says the average transaction in the automotive industry costs $135 to complete, and vendors will wait until that cost is significantly reduced by an exchange before they jump on the bandwagon.

Some exchanges have fared better than others. FoodUSA.com, for instance, has been operating since April 2000 and so far has closed 700 transactions for a total of $20 million, according to O'Connell. One of FoodUSA.com's biggest tasks, he says, is in the initial marketing of the exchange, starting with the basics. "We had to convince [the industry] that e-commerce was a good thing and change the way people have been doing things for 150 years," O'Connell says.

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