Lessons, failures challenge B2B exchanges: IBM, partners pour $339m into e2open

Industry analysts have long been sceptical that the major companies proposing to build collective electronic marketplaces could actually work together. But last week, IBM and seven major electronics companies announced plans for an online marketplace that just might succeed.

The marketplace, dubbed e2open.com, aims to help thousands of companies in the computer, electronics and telecommunications industries buy and sell components online.

It's scheduled to launch in mid-July and will add new functions throughout the year. Along with IBM, e2open is backed by Hitachi (HIT), LG Electronics, Matsushita Electric Industrial, Nortel Networks (NT), Toshiba (TOSBF), Seagate Technology (SEG) and Solectron (SLR), as well as two venture capital partners, Morgan Stanley Dean Witter and Crosspoint Venture Partners. The 10 companies put up $US200 million ($339 miilion) to launch the venture. The founders say they will spend a total of $US205 billion a year on procurement. They put the value of all procurement within the computer, electronics, and teleco industries at $US700 billion a year.

The companies will begin moving some of their procurement through the Web site this year to drive liquidity in the marketplace and reduce their own processing costs.

To prevent e2open from falling prey to infighting among the founders, IBM and its partners have not only created a separate company to run the marketplace, they've appointed John Mumford, a founding partner of Crosspoint, as acting CEO. "I can cut through the political bullshit and make sure we do what's best for e2open," he says. E2open may compete against another proposed marketplace announced by AMD, Compaq, Hewlett-Packard (HWP) and others. So far, that project has no CEO and no technology partner, but is scheduled to launch later in the year.

IBM's Ward says he expects six to 12 competing exchanges. "The exchanges are going to have to interoperate across industries as well as within an industry," he says. There's no guarantee, of course, that the IBM-led coalition won't unravel like a ball of yarn. The partners haven't signed an official agreement and most of the transactions taking place on the existing marketplaces come from IBM.

Bruce Richardson, senior VP at AMR (AMR) Research, says e2open has done a lot of things right so far, but doesn't expect it to revolutionise the electronics industry. "Is it going to change the face of the planet and create computers you can buy for $US50?" he says. "I don't think so. But anything you do to improve communication with suppliers is a great idea."

- The Industry Standard

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