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AMR Research ranks Top 20 independent trading exchanges

The report predicts a shakeout and anticipates a drastic reduction in ITEs in 2001.

AMR Research Inc. identifies and evaluates the top 20 independent trading exchanges (ITEs) in the Boston firm's new report "Evaluating the Independent Trading Exchanges."

The report outlines a methodology assessing the top ITEs across major vertical industries based on the strength of their business models. It also details the firm's conclusions regarding common trends across vertical segments, identifying the main issues surrounding ITEs and their relatively short life span.

AMR Research predicts that the more than 600 ITEs existing today will be reduced to 50-100 in 2001. As the last few weeks on the NASDAQ has indicated, success for business-to-business (B2B) Internet companies is far from guaranteed.

"The ITE market is still very young, and the future of a successful ITE will ultimately depend on its ability to address participants, technology, and business concerns," said Bruce Richardson, senior vice president. "None of the top 20 ITEs is a sure thing."

The ITE Company Ranking chart indicates that not all ITEs are equal, and that there are four evolving levels of functionality: information, facilitation, transaction, and integration.

The bulk of the B2B start-ups fall under the first category, providing information functionality. The information ITE takes the form of industry directories, product databases and catalogs, discussion forums and billboards, and professional development.

If it has the facilitation functionality, an ITE has the ability to match a buyer's specific need with a supplier's specific offering. The transaction is completed off-line via traditional channels.

If an ITE provides transaction functionality, it provides a higher level of commitment from the ITE and participants, as trading partners can consummate the transaction on-line.

Finally, with integration functionality, ITEs can fit into a larger supply chain and application integration strategy.

AMR Research identifies the leading ITEs ranked by their integration functionality. The top five include: Altra Energy Technologies Inc., Ventro Corp. (formerly Chemdex), CheMatch.com Inc., SciQuest.com Inc., and PlasticsNet.Com.

The best-positioned ITEs are in the integration category, where they are successfully leveraging existing relationships and are integrated with legacy enterprise resource planning (ERP) and supply chain management (SCM) systems.

Market overview: major issues and future of ITEs

During the past 18 months, AMR Research has tracked 600 venture-capital-funded ITEs. They predict that within the next year the number of ITEs will drop to two to three exchanges within each industry as a result of bankruptcy, mergers, and acquisitions.

Major issues affecting ITEs across all industries include:

  • Revenue Strategy: AMR Research's analysis shows the current revenue model of deriving fees based on a percentage of the transaction is flawed. The firm expects most ITEs to adopt a tiered subscription model and to focus on developing multiple revenue sources. Ultimately, ITEs will begin to look like application service providers (ASPs).
  • Integration: To be successful, the majority of ITEs will need to partner with enterprise application vendors and systems integrators to address back-office integration issues.
  • Liquidity: Several ITEs are finding it difficult to drive transactions and many have not processed their first orders. As a result, many competing ITEs are beginning to consolidate and are looking to span multiple verticals to increase their revenue.
  • Neutrality: The pressure to build liquidity and increase transaction volume is forcing ITEs to accept equity investments from established brick-and-mortar companies, thus sacrificing their neutrality.
  • Suppliers: Suppliers, concerned with pricing pressures and fear of commodization, are beginning to launch their own exchanges on their own terms, forcing ITEs to dramatically change their business models to accommodate their suppliers who do not want disintermediation.
  • Technology: ITEs provide value through technology, but they do not provide the more important part of the equation: supply chain execution. During the next year, ITEs and wholesale distributors will increasingly take equity stakes in each other to fill their functionality gaps.

To find out more about the AMR Research "Evaluating the Independent Trading Exchanges," visit its Web site at http://www.amrresearch.com.

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