From: Adam L. Beberg (beberg@mithral.com)
Date: Wed May 10 2000 - 23:23:10 PDT
I think they still miss the reality: How do you convince suppliers to
slit their own throats by entering Internet B2B systems, thus
eliminating any pricing power and any hope of profits? No profits, no
businesses.
My favorite is the TV commercial where the customer gets a huge discount
on their widgets after using a B2B reverse auction site whose name
escapes me. Since out in the real world most businesses have profit
margins of 3-5%, this ment some supplier had to take a bath. This in the
wild hope that their new customer would somehow become loyal, and not
just go back to the auction site again.
Does anyone else give these old economy companies more credit then to
want to do this? They will have no choice at some point, but why rush to
the death valley that B2C is now in?
Blatant plug: Found this on my favorite computer news blurb site
http://www.acm.org/technews/ - it's alot like reading FoRK.
[http://www.usatoday.com/usatonline/20000510/2246042s.htm]
- Adam L. Beberg
Mithral Communications & Design, Inc.
The Cosm Project - http://cosm.mithral.com/
beberg@mithral.com - http://www.iit.edu/~beberg/
----Despite the hype, B2B marketplaces struggle Many barricades hamper revolution in corporate purchasing
By Edward Iwata USA TODAY PALO ALTO, Calif. -- Business-to-business digital marketplaces sound intriguing, even revolutionary -- on paper. The idea is simple: Companies move all of their supply-chain operations onto the Internet. They join with other competitors and suppliers and use computers and Web sites to buy and sell goods, trade market information and run back-office operations, such as inventory control. In the end, they predict they'll save billions of dollars. That's the hype. But in reality, the hundreds of recently announced online exchanges might be years from reaching their bold promise of leading industries into the Internet age. Nearly all are barely in the planning stages, with launches tentatively set for three to 18 months from now, industry experts say. And that's if all goes smoothly. Only a handful of exchanges -- including Chemdex in the chemical field and eSteel in the steel industry -- are up and running. And though a few exchanges are seeing trickles of revenue from transaction fees, software licensing and other charges, none are believed to be profitable yet. ''Basically, we're seeing a war of press releases,'' says Forrester Research analyst Laurie Orlov. ''Exchanges will transform industries, but they still have a long way to go.'' Clearly, the corporate and media buzz over the exchanges has reached galactic heights. Many hail the exchanges as the ''killer application'' of the Net, the Holy Grail of the electronic commerce revolution. Depending on which numbers you use, business transactions online could explode to between $2 trillion and $13 trillion within five years. Fearing extinction in the e-commerce era, executives are leaping on the exchange bandwagon. In recent months, nearly 1,000 online marketplaces in 70 industries have been announced by Internet and brick-and-mortar companies. Among the largest and splashiest: * The Worldwide Retail Exchange led by Safeway and Kmart. * A giant marketplace for high-tech firms overseen by Hewlett-Packard and Compaq Computer. * A global exchange run by automakers Ford Motor, General Motors and DaimlerChrysler. Beyond the buzz, though, online marketplaces face many formidable obstacles, from ill-matched technology to clashing business partners. Companies are learning quickly there's more to launching an online exchange than simply designing a cool Internet site. ''A lot of people believe digital marketplaces are the right thing to do,'' says Kevin Costello, managing partner of Arthur Andersen's Digital Markets Practice in Atlanta. ''But they're greatly underestimating the effort it takes to build a successful one. It takes a lot of work.'' There are many troublesome hurdles. * Chaotic competition and clashes among corporate rivals. More than 10,000 online exchanges will sweep the business world within three years, Arthur Andersen estimates. Barely one in four will survive. Analysts say the early leaders appear to be Silicon Valley software start-ups Ariba and Commerce One, and high-tech giant Oracle, the world's No. 2 software company. Oracle boasts more clout, capital and Fortune 500 customers than Ariba and Commerce One. But analysts say its Oracle 11i software -- scheduled for release this month after much delay -- falls short of Ariba and Commerce One's offerings. ''Oracle's footprints are broad, but its ability to provide complex, exchange-based applications is a concern,'' says Pierre Mitchell, an analyst at AMR Research. The war of words is heating up. In conference calls with analysts and the media, Oracle CEO Larry Ellison often disrespects his rivals, saying only Oracle offers a total software solution. Firing back, Ariba CEO Keith Krach says: ''Oracle is blowing smoke. They're just a database company. They don't have anything in terms of an e-commerce platform.'' Adds Commerce One CEO Mark Hoffman: ''Ariba and Oracle do not have a (Web) portal and exchange capabilities like we have. We're years ahead of them.'' Among them, the companies have signed at least 200 digital marketplace deals. The dealmaking reached a frenzied pitch earlier this year, when Commerce One landed GM for an auto exchange, while Oracle signed on Ford. Since then, Ford and GM have told Oracle and Commerce One to join hands and build the grandfather of all exchanges in Detroit. Easier said than done. Ellison and Hoffman are bitter rivals, going back to Hoffman's tenure as CEO at Sybase, a software firm that threatened Oracle's dominance in the early 1990s. At best, the auto venture is a shaky, one-shot partnership between natural high-tech enemies, analysts say. Already, the exchange has been stalled as the automakers debate whose software to use to power the marketplace. A consultant, Diamond Technologies, was hired to evaluate Oracle and Commerce One's software suites. It recommended Commerce One. Oracle executives went ballistic, according to industry insiders. The automakers are still weighing which software architecture to adopt for the exchange. ''It's moving slowly,'' says Oracle President Ray Lane. ''When the decision is made, I would expect Commerce One to get some stuff and Oracle to get some stuff. * Getting all parties, from buyers to suppliers, to buy into the idea of Internet marketplaces. Revolutionary change starts slowly. Various surveys by research firms show that barely 10% to 20% of companies surveyed are doing business through digital exchanges. Many distrust corporate rivals and fear losing trade secrets in cyberspace. Even with encryption and other security measures, no Internet network is fail-safe, they warn. Suppliers worry that the online marketplaces and their auctions, similar to eBay's auctions in the e-tailing world, will drive down the prices of their goods and favor buyers. In the meantime, buyers and suppliers alike are taking a wait-and-see attitude while the early exchanges work out their problems. ''We'll see what happens with the larger exchanges,'' says Peter Rowe, a spokesman for Delphi Automotive Systems, which runs its own online network for procurement and auctions with 500 suppliers. Some companies that already use the Internet for their private exchanges have no desire to share their online expertise with competitors. At Wal-Mart, the world's No. 1 retail chain, executives have turned down several invitations to join exchanges in the retail and consumer goods industries. They're pleased with their in-house exchange, Retail Link, which connects Wal-Mart to 7,000 worldwide suppliers that sell everything from toothpaste to lawn furniture. ''We've put years into developing our exchange and we're jealously protecting it, as any business would,'' says Wal-Mart spokesman Jay Allen. ''We see little benefit and much downside to joining other exchanges.'' * A software Tower of Babel that makes the integration of computer networks very rough. Perhaps the biggest nightmare facing exchanges is blending dozens of software packages with thousands of global companies wanting to use a growing array of Web-based functions in their supply chains. Imagine a simple online transaction. Say a company needs to order a ball bearing or tires from an electronic catalog. Even that order involves an array of software and computer language standards that need to mesh smoothly. Now picture a flourishing exchange with supply-chain planning linked to legions of business partners and Internet sites around the world. Add other crucial back-office tasks, including financial accounting, shipment and manufacturing schedules, data storage and human resources. For good measure, throw in language barriers, foreign currencies and customs laws. It gets ugly fast. ''Like the old adage goes, the beauty of software and standards is there are so many to choose from,'' says Mitchell at AMR Research. ''Supply chains are incredibly complex. This isn't like ordering a book from Amazon.com.'' * Deals increase opportunity for anti-competitive behavior and government scrutiny. When competitors get together, it nearly always raises antitrust questions. But with B2Bs, there may be more questions than answers. ''I would say it's clearly an area of concern,'' says former Justice Department antitrust chief Charles Rule. ''But there are a lot of new issues that the government has yet to really sort through.'' Rule says some B2Bs may be putting off dealing with some of the most troublesome issues, such as the sharing of information, which could raise suspicions about collusion. Others, he says, are obviously setting up sites without consulting antitrust lawyers. Rule says he's heard of sites that represent a large percentage of buyers that are telling vendors they have to quote a single price -- which could lead to charges of a buyer cartel or monopsony. A monopsony gives companies the power to drive prices below competitive levels. ''There are real questions, because people are flying blind and potentially creating antitrust problems without knowing it,'' says Rule, now with law firm Covington and Burling. That's not all. Wall Street investors are fleeing from many overinflated B2B stocks, worried that profits might never come. Ariba and Commerce One have fallen sharply from their 52-week highs of $183.38 and $165.50. Ariba closed Tuesday at $66.88, down $3.13; Commerce One shares fell $3.31 to close at $47.75. The dire shortage of high-tech talent -- especially among e-commerce engineers and designers -- is slowing the growth of many exchanges. Some haven't named management teams yet. And in boardrooms around the country, some skeptical executives are starting to wonder if the fear of being left behind in the B2B race has clouded their business judgment. Despite the stumbling blocks, most companies still seem to have faith in the promised land of digital exchanges. Too much money, manpower and technology have been committed to the B2B revolution. There's no turning back. ''If a company doesn't have an e-business plan built yet around these marketplaces, they're going to have problems,'' warns Costello at consulting firm Arthur Andersen. ''The brave new world isn't very far away.''
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