Businesses Weigh Pros and Cons of Web Marketplaces

SCOTTSDALE, ARIZ. (03/10/2000) - Companies should immediately quit building their own e-commerce applications and instead take up with one or more of the hundreds of business-to-business marketplaces springing up on the Internet.

That's what analysts preached at a recent forum here sponsored by Cambridge, Mass.-based Forrester Research Inc., but few in the audience of 500 or so were ready to convert.

The Forrester analysts said moving to Web marketplaces would greatly cut costs, give companies faster and nearly limitless access to new customers and suppliers, and position them at the forefront of a booming electronic-business market that will reach $2.7 trillion by 2004, by Forrester's estimate.

"Few people here may be saying it, but e-marketplaces are still a lot like the emperor without clothes. They may not be naked, but they're definitely in their boxer shorts," said Mark Chellis, vice president of online business and marketing at Wilson Supply Co., a $3.5 billion oil industry equipment and services company in Houston.

Like several other users, Chellis confessed to being frustrated by "all the hype and glory" around the new digital marketplaces.

For example, at least 10 such pure-play Internet marketplaces have been launched in the oil industry since last Thanksgiving, yet none of those that have approached Chellis had any way to fulfill orders placed online, he said.

In contrast, Wilson has more than 200 distribution locations to serve its 5,000 customers, many of which require next-hour delivery of pipes, valves and other emergency parts to remote oil rigs.

Also, Wilson already provides customers - at no charge - what many of the digital marketplaces plan to charge money for: order and sales summary reports.

"So at this point, I have a hard time seeing the value of a marketplace that's charging a fee to install themselves between us and our customers," Chellis said.

Commoditization Concerns

Still other manufacturers worry about their products being reduced to commodities in an online environment where buyers can easily compare prices across hundreds of suppliers.

But according to Forrester analyst Paul Hagen, online commoditization and the downward pressure on product prices will ease as marketplaces become more technologically sophisticated, enabling traders to search on attributes other than price. Among other things, "companies will be able to publish their manufacturing schedules right to an e-marketplace," Hagen said.

Companies are also concerned about giving up the chance to distinguish themselves from competitors by offering value-added services, such as reporting, to win more sales. That's because many of the new marketplaces plan to provide detailed reports to all customers whose information they capture automatically during trades executed online.

Consider the $400 million Texas-based brand-name clothing manufacturer that provides its small and midsize retailers - many of which remain unautomated - with computerized order and sales summaries. The free, value-added service has been key to retaining hundreds of $100,000-per-year customers and the prized shelf space they control, a manager said. Handing that service off to a third party just doesn't make sense, he added.

Steven Zerby, e-commerce coordinator at $20 billion Marathon Oil Co. in Findlay, Ohio, says he's suspicious of the huge cost savings analysts say the marketplaces will deliver.

"There's a myth that you can take hot technology and apply it to transactions and get efficiencies," Zerby said. "The oil industry has been wringing costs out of transactions for 20 years, so our industry is already pretty efficient."

Also, because the oil industry is conservative and tends to follow rather than lead where information technology is concerned, Zerby said he doesn't anticipate a big rush to digital marketplaces, at least not for 18 months or so.

Still, he said, he believes in being prepared. Despite Marathon's "very limited exposure" in today's Internet business-to-business marketplaces, IT's job should be building an internal e-commerce backbone "so we're ready when our business development group wants to make the leap," he said.

At the same time, Zerby acknowledged that the cost of "business-to-business middleware is in the high six figures. Getting that funded without a specific line-of-business application in mind is one of the biggest challenges."

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