Business-to-business e-commerce marketplaces desperately need to add mission-critical functionality, according to attendees at last week's Commerce One user conference here.
Users claimed that the company and other business-to-business vendors last year rushed enthusiastic customers into unstable online marketplaces and that those vendors must now deliver a more compelling value proposition that works for a broader range of companies. What users said they want and still don't have are fully interoperable products that offer a guaranteed return on investment.
"The industry's been oversold," said Anthony Abate, vice president of IT acquisitions at The Hartford Financial Services Group. "We thought we'd be able to move very quickly if only 50 percent of the hype panned out. It's really more like 5 percent to 10 percent," he added.
According to Abate, his company's online procurement has been limited to simple catalog purchases such as office supplies. The Hartford's established computer hardware and software suppliers have yet to enter such marketplaces.
"For a large supplier who's already got critical mass in the market, the only reason to join an exchange is to prevent losing market share to the smaller players who are in there," he said, adding that smaller suppliers lack the funds needed to build an IT infrastructure that can link to such exchanges.
Boise Cascade Office Products has 25 live Commerce One customers and 50 live customers inside multiple exchanges created by Ariba. Yet Clay Siemsen, manager of e-business initiatives at the office supplies firm, said that high-volume sales inside the exchanges have yet to turn into profits for his company.
Siemsen noted that exchange transaction fees cut into the low margins that are common in his industry.
"On a US$135 purchase, a $2 transaction fee may be cost-prohibitive," he said. "That's pretty much all of our profit gone to a third party."
Boise Cascade also has yet to convert its back-end systems to process orders placed in XML. Every time an order comes through Commerce One, it must be converted into electronic data interchange protocols, and a value-added network (VAN) must be paid to do that work.
Siemsen said his company is installing a back-office XML-based system designed by webMethods that should eliminate roughly $900,000 per year in VAN charges and improve the online sales margins.
He said vendors need to focus more on supplier needs. "They lump all suppliers together, it's a one-size-fits-all approach, and you're not allowed to question it," Siemsen said. "We're a high-volume, low-margin business, and there's certain things that work for other companies that won't work for us."
He also said suppliers and buyers rarely converse when they're being connected inside an exchange, which often creates skewed expectations between the parties.
The recent downturn in the business-to-business market also creates a heightened need for interoperable products, according to Graham Collins, CEO of Pantellos Group LP, a utility and energy services exchange.
"We have a plan in place so that at any time, we can move to another [vendor]," he said. "We don't want to be married to any one piece of technology. Our membership won't allow us to be down six months because one of our key partners has gone out of business due to shifting market conditions."
Kimberly Knickle, research director at AMR Research , said vendors have also been asking companies to commit too much, too soon.
"A lot of suppliers want to test the model before they commit," she said. "Give them a template that allows them to put up 15 or so products and see how they like it before they migrate their whole catalog."
CEO Predicts Bright Future for B2Bs
In front of 1,500 people at his company's user conference here, Commerce One CEO Mark Hoffman said the world is moving toward online trading and vowed that his company will be there when the world arrives.
After the vendor and its business-to-business brethren saw revenues drop in the first quarter, many questioned whether the business community is ready, willing and able to completely re-engineer its supply chain. Hoffman said the change will happen and will be felt on many fronts.
"I see a world that is not consolidated down to a few big marketplaces. I see a world of multiple distributed marketplaces," he said.
From one-to-one trading portals to complex, collaborative exchanges, Hoffman believes, businesses will be active in all sorts of online trading. He said the key for his company is to reduce costs, extend the reach of the marketplaces, improve visibility and increase speed.
Last week, Commerce One announced separate deals with SAP AG and Microsoft designed to improve the flow of internal and external business data and to broaden the pool of companies that can link to online exchanges.
Yet in a smaller session at the conference, Keith Colonna, Commerce One's vice president of e-revolution, acknowledged that marketplaces have yet to deliver the key functionality many users wanted when they entered those arenas.
Colonna said collaborative supply chains are still an unrealized dream. In fact, he noted, many companies still need to improve internal collaboration and flow of data before they can integrate successfully with an external trading partner.
"Everybody's asking for the supply chain in a box, which really doesn't exist," he said.
Colonna also said marketplaces have been "a win-lose proposition," good for buyers but bad for suppliers. "We have to find a better balance," he said.
Commerce One to Build Links to Microsoft's BizTalkCommerce One and Microsoft Corp. last week unveiled the details of a plan to embed Microsoft's business software inside Commerce One's online marketplaces.
Commerce One CEO Mark Hoffman said at the business-to-business software vendor's user conference here that his company plans to build gateways between its product and Microsoft's BizTalk Framework. Commerce One also plans to offer a BizTalk connectivity kit for smaller suppliers that would like to take advantage of the Microsoft/Commerce One systems used by their larger buyers.
Addressing conference attendees live by satellite, Microsoft President and CEO Steve Ballmer said he believes suppliers will take advantage of the new technology if the price is low enough and if they are shown how to realize profits from their investments.
Hoffman said his company's alliance with Microsoft creates an opportunity to offer more detailed and robust back-office business applications inside online marketplaces.
Microsoft has supplied $25 million to help the two companies develop joint products.
The first online exchanges using the combined technologies have already launched. Among them is Asite Ltd., a construction industry portal that has been in operation for six months.
Alastair Mellon, Asite's senior director of strategy and business development, said the Microsoft/Commerce One alliance has allowed his company to use Microsoft's business applications and database technologies inside a Commerce One marketplace.
He said the chief benefit of the alliance is that it provides an easy-to-use exchange for the decidedly low-tech construction industry.