High volume is Holy Grail

Since their start, business-to-business digital trading exchanges have been holding out the Holy Grails of better prices for buyers, more channels for suppliers, and the multiple efficiencies that are part and parcel of automation.

For the moment, though, the exchanges are focusing on going live, getting financial backers, gathering buyers and sellers, and making certain they offer ancillary services to keep those buyers and sellers happy. Those that are advancing to the stage of actually carrying out transactions are doing so with an eye toward the day when they will hit the high volumes that will make these risky ventures economically viable, industry analysts say. It's a given that every industry will be hit with an exchange, and that if they have not arrived yet, they will. It is so well-accepted that "people are worried about being left out", says Lisa Williams, an analyst at The Yankee Group.

In many sectors, exchanges and their promises of Internet efficiencies are the first real signs that the ‘new economy' has arrived. But there are important rules from the ‘old economy' to keep in mind. The keys include the fundamentals of doing business and a government nervous about whether or not these exchanges are engaged in price-fixing and monopolistic behaviours. Underlying all of these concerns is a widely predicted consolidation via failures and mergers and acquisitions that some say may come in less than a year.

The single greatest key to survival is liquidity, or volume of business. This means exchanges will be aggressive in how they attract members. There will be the expected offerings of logistic and financial services, but exchanges have to remember the personal touch, says Lisa Williams, an analyst at The Yankee Group. Beyond providing front-end Web access and transaction platforms, exchange founders will have to provide assurances that buyers and sellers will not be out on their own. Safety nets are likely to include channel customer support and back-end integration, all of which means new alliances with established bricks-and-mortar companies.

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