Rapid changes in the e-marketplace

Disillusioned by the hype swirling around e-marketplaces? The prophesied cost advantages for procurement operations can easily cloud the judgment of the most level-headed CxOs, who find themselves uncertain of which way to turn.

But in the case of e-marketplaces, inaction is not entirely a poor course of action.

The promise of the e-revolution was sound: streamline the sales and procurement of goods by developing a single point of access through which multiple buyers and sellers could broker their wares in an open market. The new environment would yield a broader catalogue of manufacturers and suppliers with which to partner and ensure competitive pricing on goods and services sold.

Reality, however, has turned out to be different from the ideal. The costly pay-to-play and ramp-up costs for participation have effectively closed the doors on e-marketplaces to all but the wealthiest companies.

The danger these partnerships represent for new-guard start-ups may boost the perceived need for small and midsize companies to join forces and form alliances. But e-marketplace exchanges are time-consuming and expensive to build, and they still have a lot of shaking out to do.

There is grumbling even within one of the strongest and most successful e-marketplace alliances formed to date: IBM, Ariba, and i2 Technologies. Despite a number of marketplace victories tallied by the trio, i2, with its growing supply-chain offerings and pending alliance with BroadVision, is showing signs of independence from its teammates. Indicators point to a pending shakeout that may well find solid partners turned into overnight competitors.

The impact limits the ability to remain nimble in volatile market conditions, particularly in a procurement model that locks companies into a single vendor's marketplace standard. Meeting the sizeable, ERP-like (enterprise resource planning) staffing demands required to build buy-side, marketplace, and sell-side applications is challenging enough without running the risk of starting from scratch each time a heavyweight alliance is upset by a power play.

Adding to instability in e-marketplaces is the looming threat of price wars. E-marketplaces force the exposure of proprietary information, such as pricing data, to competitors. And although such brokerage-like conditions offer great benefit to the buy-side of the equation, the threat to a supplier's bottom line could be detrimental.

To overcome this commodity exchange atmosphere, suppliers will likely need to find incentives for their offerings, perhaps through value-added services such as report generation and sales summaries that would obscure the ability to draw direct pricing comparisons.

Dampening the mood further is the issue of antitrust action. As technology opens up processes once managed in private, buyers and sellers find price-jockeying opportunities that slip just under the limbo stick of antitrust violation. Although today's alliances have cleared this bar, government is keeping a close eye on the dance.

But don't let the fear of being left behind drive you to extreme action. Advances in the way we transact inter-company business are fast offering alternatives. Ushering in an exciting new paradigm in brokered transactions are open-source initiatives such as e-speak from Hewlett-Packard as well as less open, competing platforms such as UDDI (Universal Description Discovery Integration), championed by Microsoft and IBM.

These budding standards will enable on-the-fly partnering and procurement of services between businesses by means of self-registration brokerage hubs and XML-enabled autodiscovery of services with which to conduct business. These hubs not only will change the flexibility with which companies find and interact with new partners but will also afford to smaller businesses an improved opportunity to compete by reducing the cost outlay for implementation.

As e-marketplaces continue to mature, many of these obstacles will be overcome, but this is an instance where first-to-market is not always better. I certainly wouldn't abandon my current e-commerce applications just yet. In the meantime, focus on beefing up the e-commerce backbone within your infrastructure to be ready when the time comes.

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