Quit Building Your Own E-Commerce Infrastructure

SCOTTSDALE, ARIZ. (03/03/2000) - Companies should immediately quit building their own electronic-commerce applications and instead take up with one or more of the hundreds of business-to-business marketplaces springing up on the Internet.

So preached analysts at a Forrester Research Inc. forum here this week, saying that doing so would greatly cut costs, give companies faster and near limitless access to new customers and suppliers, plus position them at the forefront of a booming electronic-business market that will reach $2.7 trillion by 2004.

But full-blown converts among the 500 or so attendees were few and far between.

"Few people here may be saying it, but e-marketplaces are still a lot like the emperor without clothes. They may not be naked, but they're definitely in their boxer shorts," said Mark Chellis, vice president of e-business and marketing at Houston-based Wilson Supply Co., a $3.5 billion oil industry equipment and services company.

Still, 71% of attendees said they plan to extend at least some trading to electronic marketplaces by next year.

Like several other users, Chellis confessed to being frustrated by "all the hype and glory" around the new digital marketplaces. For example, at least 10 such pure-play Internet marketplaces have launched in the oil industry since last Thanksgiving, yet not one that has approached Chellis has had any way to fulfill orders placed online, he said. In contrast, Wilson has more than 200 distribution locations to serve its 5,000 customers, many of which require next-hour delivery of pipes, valves and other emergency parts to remote oil rigs.

Also, Wilson already gives its customers for free what many of the digital marketplaces plan to charge money for: order and sales summary reports. "So at this point, I have a hard time seeing the value of a marketplace that is charging a fee to install themselves between us and our customers," Chellis said.

Still other manufacturers worry about their products being reduced to commodities in an online environment where buyers can easily compare prices across hundreds of suppliers. But according to Forrester analyst Paul Hagen, online commoditization and the downward pressure on product prices will ease as marketplaces get more technologically sophisticated, enabling traders to search on attributes other than price.

Among other things, "companies will be able to publish their manufacturing schedules right to an e-marketplace," Hagen said.

Another huge concern of companies is giving up the chance to distinguish themselves from competitors by offering value-added services, such as reporting, to win more sales. This is because many of the new marketplaces plan to provide detailed reports to all customers whose information they capture automatically during trades executed online.

Consider the $400 million Texas-based clothing brand-name clothing manufacturer that provides its small and medium-size retailers - many of which remain unautomated - with computerized order and sales summaries. The free, value-added service has been key to retaining hundreds of $100,000-a-year customers and the prized shelf space they control, the manager said. Handing that service off to a third party just doesn't make sense, he added.

Steven Zerby, electronic-commerce coordinator at $20 billion Marathon Oil Co. in Findlay, Ohio, is suspicious of the huge cost savings analysts say the marketplaces will deliver.

"There is a myth that you can take hot technology and apply it to transactions and get efficiencies," Zerby said. "The oil industry has been wringing costs out of transactions for 20 years, so our industry is already pretty efficient."

Also, because the oil industry is conservative and tends to follow, rather than lead where IT is concerned, Zerby said he doesn't anticipate a big rush to digital marketplaces, at least not for 18 months or so.

Still, he believes in being prepared. Despite Marathon's "very limited exposure" in today's Internet business-to-business marketplaces, IT's job should be building an internal electronic-commerce backbone "so we're ready when our business development group wants to make the leap," Zerby said.

At the same time, he acknowledged that the cost of "business-to-business middleware is in the high six figures. Getting that funded without a specific line-of-business application in mind is one of the biggest challenges," he said.

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