If You Build an Exchange, Will Buyers Come?

SAN MATEO (05/01/2000) - Business-to-business Web-based trading exchanges need more than a great Web presence to be successful; they need buyers. Hardly a day goes by that another independent trading exchange is not announced for a particular vertical market, and for these new exchanges the business of getting business is no trivial matter.

"Once you have a clear view of what your Web market can do, you need to attract a mass of potential participants to buy in to the exchange," says Raj Koneru, chairman and CEO of SeraNova, the e-business services unit of Intelligroup, in Edison, New Jersey. "This is not a Field of Dreams -- simply build it, and they will come. It's going to take some thought, planning, and negotiation to get your critical mass."

Partnering with a third party such as a trade association is one way to gain customers, Koneru suggests, and some companies are already putting this advice to the test. For example, eSociety, a Bellevue, Washington-based company that partners with industry associations to build marketplaces, actively courts trade-association partnerships.

"Look at the statistics," says Anne Gordon, CEO and president of eSociety.

"Last year, businesses spent $200 million to attend trade shows sponsored by trade associations. Professionals put in 173 million hours working with their trade associations."

In addition, Gordon says, trade associations have unique relationships with their industries. "Trade associations provide services such as certification and registration," she says. "They also do advocacy before legislative and regulatory bodies. I can't see VerticalNet going to lobby for an industry."

Some of eSociety's top trade association customers are the National Housewares Manufacturing Association and the Truck Equipment Association.

"We give the trade association members a real b-to-b market," Gordon says.

"Businesses can submit RFPs [requests for proposals] and hold auctions. We also provide community services such as education and advocacy."

Gordon says trade associations see eSociety as a way to build stronger markets, but are also motivated by fear. "[Trade associations] see other online services as threats," she says. "We offer them a way to compete ... [and we] get to leverage the community and domain expertise that already exists within the trade association."

Third-party partnerships can bring instant recognition to a company. Jacob Pechenik, president and CEO of TechTrader, a Washington-based technology provider for vertical marketplaces, created PackagingInsider.com, a Web exchange to serve the $100 billion dollar packaging industry. But getting buy-in was difficult.

"We tried going to trade shows," Pechenik says, "and people would ask, 'Who is TechTrader? What do you know about the packaging industry?' "As a result, TechTrader allied with the Independent Publishing Company (IPC), a leading publisher of trade journals for the packaging industry, in St. Charles, Illinois. IPC bought a minority stake in PackagingInsider.com; TechTrader owns the rest.

The partnership is mutually beneficial, according to Pechenik . "[IPC has] a subscription base of 140,000," he says. "These are potential customers for us, and the IPC sales staff sells our site to advertisers. We don't even have a sales staff."

IPC, in turn, gets help in adapting to the new world of online publishing.

TechTrader puts all of IPC's content online, courtesy of TechTrader's software engine that allows prospective buyers, for example, to access a comparative analysis tool to shop for the best deal across vendors.

"We realized over a year ago that our business was changing," says Patrick Farrey, national sales manager at IPC. "This kind of partnership is a great opportunity for publishers in established media to become significant players in Internet media. In fact, I think that trade journal publishers that don't do this will quickly find themselves at a disadvantage."

Entrade, a b-to-b marketplace creator, in Northfield, Illinois, collaborated with Dallas-based Associates First Capital to build Truck-Center.com, a marketplace for truck sales and services. Associates First Capital is a leader in financial services and the largest financing company in the transportation sector, so the partnership gives Entrade an immediate boost in attracting buyers and sellers.

"We partnered first with organizations like Associates First Capital," says Carrie Shea, executive vice president at Entrade, "because they are truly neutral."

Domain expertise defines the strategy of NetworkOil, a Houston-based marketplace technology provider specifically serving the gas and oil industry.

NetworkOil built a Web site to bring sellers of gas and oil drilling equipment and services together with buyer companies that explore and dig wells in the perpetual hunt for new sources of energy.

In this case there are no trade journals, trade associations, or other entities with the clout to jump-start a Web market, so NetworkOil's founder and CEO, Steve Martin, went to the oil and gas companies themselves.

"We initially got 30 oil and gas companies to invest," Martin says. "It was critical for us to get industry participation early on."

To preserve neutrality, NetworkOil let no company invest more than 5 percent in the venture. The company's primary goal for the Web site is to get all of the investing companies to do a significant amount of procurement using the site.

But other services will be offered as well.

"We aren't just providing a place to do transactions," Martin says. "This will be a place where suppliers for a particular project can collaborate."

"Finding a partner that can help create critical mass for a Net market is critical," says Joshua Greenbaum, principal at Enterprise Applications Consulting, in Berkeley, California. "For many of these markets, they need to either find synergy with a partner or die."

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