Most pundits agree business-to-business (B2B) trading exchanges will become significant channels for business in the New Economy.
But before they win widespread acceptance their founders and participants will have to come to grips with the reluctance of some players to integrate their back-end systems with the new e-marketplaces.
"Security is a large concern and until there's an environment in which companies feel their data and their processes are safe they will continue to be reluctant to integrate," said Brooke Galloway, senior analyst, Internet and e-commerce at IDC.
"Integration is also quite a hard and expensive exercise to conduct."
Gartner Group research director John Roberts has also noted continued reticence on the part of some companies to integrate their back ends into these systems, with a perceived lack of security the main barrier to widespread adoption.
"I think they're happier doing it if it means getting into something that lets them get their office supplies, but not where it's something that ties into their core business," Roberts said.
Will that reluctance stymie growth? Not for long perhaps.
David Bickerstaff, director of eBusiness and supply chain solutions with PeopleSoft, said large companies were feeling compelled to adopt an Internet-based B2B business model to cut indirect costs from their supply chains and to gain other benefits such as speed and agility in their business cycles.
And anyway, as Roberts and Galloway point out, companies can still play an active part in e-marketplaces without integrating their back end. It's just that the process will be less seamless and the demand for manual intervention higher, which in turn removes some of the benefit by increasing the ultimate cost.
"Marketplaces should accommodate all buyers and suppliers from the smallest (with simple back-end systems) to the very largest with global ERP systems, allowing the right level of integration for each organisation," Bickerstaff said.
E-marketplaces offer a real-time, highly liquid, anonymous trading environment that brings together large populations of buyers and sellers, promising huge efficiency gains and lower costs through electronic buying and selling and giving customers a way to instantly compare price and availability across multiple manufacturers and products. They promise huge efficiency gains and lower costs through electronic buying and selling.
Numbers of Australian businesses are starting to dip their toes into the B2B e-marketplace arena. Prominent examples include FoodConnect Australia, which has just piloted what it hopes will be a premier electronic trading and meeting hub.
Cable &Wireless Optus' about-to-be-released Marketsite, which will link into a global network of portals in the US, UK and Japan, is receiving a lot of interest from both buying and selling organisations and the company claims many of its customers have projects under way or are considering them. Meanwhile Telstra has signed a strategic alliance agreement with SAP to offer the Australian, New Zealand and South Asian marketplace a collaborative B2B portal that goes far beyond MRO procurement.
There are currently two forces driving development of these digital marketplaces, according to Grant Pascall, national manager for e-commerce with SAP.
He said large organisations were currently positioning themselves as either anchor tenants or market makers and attempting to coerce all their suppliers to join.
"The other driving development is that vendors are seeing the risk of being disintermediated from the supply chain by companies in the marketplace that are setting up a giant catalogue and putting all goods and services in there for buyers to be able to collaboratively source. Vendors are saying hang on, this might be the death knell for me', so vendors are now getting together into supply clusters or vendor clusters or vendor markets," he said.
Traditionally e-marketplaces have had to interface to legacy systems and merchant's systems by custom interfaces or EDI. Now standards like XML are rapidly simplifying the task of integration and the associated services. The big software vendors like Ariba, Optus, Telstra, SAP and PeopleSoft are jumping in. For instance both PeopleSoft and SAP claim to have fully integrated e-procurement modules. Others like IBM and Microsoft have added auction and other marketplace applications to their basic commerce server toolboxes.
But Forrester Research points out that the vendors to watch in this space are not just the usual e-commerce suspects, predicting that as marketplaces mature, players like the software arm of Nasdaq or Reuters could make a play in offering e-marketplace infrastructures alongside Internet purebreds like TRADE'ex, Intelisys, and TimeØ.
"This means that market makers will not be burdened with the need to be an expert at both industry dynamics and software "rocket science", lowering the barriers to entry for them and spurring innovation in how they are formed and operated," Forrester said.
"e-Procurement is one of the first Internet applications that truly delivers a compelling return on investment to adopters," Bickerstaff said. "And because the business case is so compelling it is given high project priority by CEOs and CFOs.
"These systems also have the potential to allow organisations to use their brand recognition to become a dotcom and benefit from new revenue opportunities in providing goods and services to their business customers. This, as well as aggregating demand for their industry sector, has a multiplication effect on the compelling nature of the solution."
While integration costs are expensive, Galloway said once standards were established across industries the integration costs should be the same whether organisations participated in one or multiple exchanges.
"In terms of integration costs I guess they are expensive but the playoff against that is that participating in B2B exchanges actually is going to bring big benefits to these companies' businesses," she said.
However Bickerstaff warned the cost of integration to multiple exchanges would be a problem for those organisations that failed to do their homework.
"Not a day goes by without some press about a new B2B initiative, so it will be those marketplaces that attain critical mass, and are part of a global trading web, that will survive whilst others will probably flounder or perhaps be absorbed," he said.
Is a B2B exchange worth the risk?
As vendors scramble to create alliances and unified products to provide bridges into this new territory, IT staff must weigh the risks of taking on a major integration effort against the promised gains of exchanges.
Roberts said companies wanting to enter e-marketplaces have to weigh up the strength of their traditional market channels versus the B2B exchange where everything suddenly becomes brutally open and the lowest price wins.
"There is that fundamental conflict between having negotiating prices on an individual basis, versus suddenly everything becoming lowest common denominator," he said.
"Then if it's price driving it, where does service fit within that relationship, and where does value-add fit? I think that's why you'll see it emerging first in those products that are really truly commodities."
Companies must also understand their existing "procurement to pay" processes and understand their direct and indirect costs, Bickerstaff said. Once these were understood they could accurately measure the advantages to their organisation.
Decision-makers must also understand that the success of these virtual marketplaces will be measured by their ease of use and accessibility to many buyers and sellers.