Internet Trading Exchange Seen as Model

SAN MATEO (03/01/2000) - When General Motors Corp., Ford Motor Co., and DaimlerChrysler AG agreed last week to create a single Internet exchange from two existing ones, the implications were that an archetype for Internet-based trading of goods and services had come to the forefront of the global e-commerce market.

Further fueling the template theory, Sears Roebuck & Co. and Carrefour AG, a Paris-based luxury retailer, announced last week that they would be setting up an exchange for retail industry suppliers that would be based upon Oracle Exchange software with Oracle Corp. hosting the site. Procurement services are expected to be up and running in two weeks.

Backers have pointed to the forthcoming automakers' exchange as a model even though they could have chosen from among comparable efforts in the chemical, aerospace, and steel industries.

However, as archetypes go, the process of gathering together fiercely competitive automakers and their IT suppliers is less than a month old, and analysts cautioned that it is not likely to be smooth sailing to opening day.

"The automotive players really haven't cooperated well together in the past," said Lisa Williams, an analyst at the Yankee Group, in Boston. Williams cited the fizzling of the Automotive Network Exchange (ANX) effort of three years ago, a shared network backbone that was supposed to be used by GM, Ford, and what was then Chrysler for data sharing among themselves and their suppliers.

Part of the problem with ANX is that its backers forced potential participants to use the same kind of VPN and firewall technologies, Williams said. "They have to not go down the path they went with ANX," she said.

Like the RosettaNet consortium for XML-based, supply-chain trading standards, the Big Three will have to be more accommodating to their trading partners, Williams said.

The Big Three and their IT suppliers also will be facing the IT supplier battles that are likely to rage behind the scenes. There will also be ERP (enterprise resource planning) integration challenges as buyers and suppliers begin conducting transactions, industry observers said.

In addition, the Big Three automakers and other major brick-and-mortar exchanges will discover that participants will need an Internet infrastructure that provides fast, reliable IP multicasting, new application integration links between front-end exchange systems and back-end ERP suites, and support for emerging XML standards.

The exchanges also will have to conquer the extreme fragmentation that exists among buyers and sellers as the newly launched Cymerc, an exchange for secondhand routers, switches, hubs, and PBXes, is discovering.

"We have what is commonly referred to as a fat butterfly," said Cynthia Dai, vice president of marketing at Cymerc. The many potential buyers and sellers serve as the wings, and "basically, we will be the trusted intermediary to help people find a market for their goods and services," Dai said.

On the upside, the new global automotive exchange promises to level the playing field, to provide a common access platform for automotive suppliers and manufacturers, and to provide cost savings and new efficiencies for participants through a joining of forces.

The unnamed exchange will be governed by a dot-com entity independent of the three automakers and an IPO candidate with an estimated market capitalization of $30 billion to $40 billion. The backers expect $3 billion in revenues from services, transaction fees, and advertising. The effort already has gotten the support of other major automakers such as Renault, Nissan, and Toyota.

For the time being, the exchanges already in place -- Ford's AutoExchange, based on Oracle Exchange, and GM's TradeXchange, created via Commerce One -- will continue to function until the new company, the new exchange, and underlying technologies are established. That timetable may stretch in the second quarter, said officials from the automakers.

The details of which IT suppliers are likely to dominate have not been clarified by the Big Three, but Bruce Bond, an analyst at Gartner Group, in Stanford, Conn., has declared SAP and Ariba as the losers in the deal and Commerce One, i2, and Oracle -- IT suppliers to Ford and GM -- as winners.

Not so fast, said Yankee Group's Williams, because DaimlerChrysler's IT supplier preferences have not been aired. "Ariba has not made its entrance on the stage yet," she said.

In all likelihood, a horse race is likely to ensue among the IT partners, said Williams and other analysts. The IT players and the Big Three will have to tango carefully going forward. "If they [exchange participants] have to use the same system, there are going to be some unhappy faces [among the IT suppliers]," Williams said.

Eugene Grygo is an InfoWorld senior editor.

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