B-to-B players retrench

Bad financial news last week from leading b-to-b vendors served as an industry wake-up call, signaling a sharp shift toward private business-to-business marketplaces and tentative corporate spending on IT.

Taking the spotlight last week, Ariba Inc. announced layoffs and disappointing financial results, putting a stop to the $2.55 billion acquisition of Agile Software Corp. announced in late January. Other b-to-b marketplace and e-commerce providers, including Commerce One Inc., i2 Technologies Inc., WebMethods, Art Technology Group Inc. (ATG), BroadVision Inc., and SynQuest Inc., also had downcast financial news.

Predictably, analysts had varied takes on what happened to the once high-flying Ariba and what lessons other b-to-b players could glean from the situation. But observers agreed that fizzling interest in public exchanges, coupled with the general slowdown, is forcing e-business vendors to refocus their development energies.

The collapse of the Agile acquisition will remind b-to-b vendors to "focus on the core aspects of their business," said Austin Whitehead, an analyst at Gartner Group Inc., based in Stamford, Conn. The multiple acquisitions of the b-to-b players "have started to make them less best-of-breed and more jack-of-all-trades," Whitehead said. "They're losing their ability to do niche capabilities."

Specifically, vendors are focusing on integration technologies and getting suppliers' content online.

"Just because you build a supplier marketplace does not mean that they will come. You have to make it easy," said Michael Schmitt, chief marketing officer at Mountain View, Calif.-based Ariba.

One analyst said that Ariba's on-ramp platform had scalability and integration issues as well as a business model that was too general and too ambitious. "To be successful, you have to be focused," said David N. Obrin, president of B2B Analysts, a consultancy based in Cambridge, Mass. "You have to provide clear value to all participants."

Some users of public marketplaces are finding that this equation is not always very clear, a problem in the current economic climate.

Peter Dupre, CIO of W.B. Mason, a Brockton, Mass.-based office supply company, said his company will continue its cost-cutting IT projects but will hold off on those "nice-to-have" and "wouldn't-it-be-slick" types of IT projects during the economic downturn. As for b-to-b initiatives, W.B. Mason has found that tapping public exchanges for selling its goods has been bad for its business.

"It costs us $5,000 per exchange that we get involved with," Dupre said. "The business that comes out of that is customers we already have. ... We're really cannibalizing our own customer base. What is the point? What we would rather do is machine-to-machine interactions with our customers."

Even Ariba's CEO concedes public marketplaces do not work in all cases. "Companies are looking for competitive advantage. If they are part of a [public] marketplace, they give that up," Chairman and CEO Keith Krach said.

One analyst said Ariba's problems were due to internal difficulties rather than a shift in the b-to-b industry.

"The nonsense Ariba put out there about nobody being interested in b-to-b is completely silly," said John Bermudez, an analyst at AMR Research, based in Boston. "The b-to-b market is still the fastest growing market there is. Ariba is just trying to justify some management miscues and explain why they need to retrench in e-procurement, which they probably should have stayed focused on."

Much of the current woes can be attributed to a natural lag in the market between when early adopters purchase products and when less cutting-edge, more pragmatic enterprises began their buys, Bermudez said. Many of them were "selling on a vision," he said. "These guys don't have applications that do what their vision PowerPoints say they do," Bermudez said.

Despite the woes at technology providers, some trading networks are thriving, noted Robert M. Tarkoff, senior vice president of worldwide business development at competitor Commerce One, who said the trick is to focus on specialty markets. One such marketplace is the year-old eScout.com formed with Commerce One, Tarkoff said. Lee's Summit, Mo.-based eScout works with regional banks to help small businesses make online purchases using Commerce One's Global Trading Web.

Meanwhile, competitor i2 is also moving into the private exchange business, mainly from its position of strength in supply-chain management. Next month in New York, the company will relaunch and consolidate its TradeMatrix Network -- a series of private exchanges focused on vertical industries, such as high-tech or consumer packaged goods. Jim Mackay, CTO of Dallas-based i2, said that i2 will offer a number of services, such as financial settlement, collaboration, catalog management, and fulfillment and logistics.

The complexity of trading networks is clearly hitting home. Companies want the same personal experience they have in the brick-and-mortar world when ordering products, said Nick Bard, CEO of Emachinetool.com in Fairfield, N.J.

"Some b-to-b companies don't realize that buying paper clips online is a different experience than buying machine tools," Bard said. "There's a different mind-set, a different discount rate, a whole host of different processes; and to try and integrate all of that into one system is not what companies necessarily want."

Additional reporting provided by Martin LaMonica.

B-to-B business lessons (Source: Industry Analysts)

Public and private b-to-b exchanges must find the right business model to survive.

Private exchanges:

* Focus on direct procurement

* Serve specialty markets

* Offer extra services such as logistics and financing* Pay for integrating supplierPublic exchanges:

* Focus on specific business needs

* Provide economies of scale

* Provide scalable technology

* Build a community

B-to-B scorecard (Source: Vendors)

Some players are hitting speed bumps.

* Ariba

* Commerce One

* i2 Technologies

Others have the pedal to the metal.

* FreeMarkets

* 401Kexchange

* ChemConnect

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