Digital Markets Have Arrived, So Buckle Up!

FRAMINGHAM (04/03/2000) - I've been racking my brain trying to find a word or phrase to describe what the new digital marketplaces will do to information technology departments. I keep coming up with movie titles about asteroids about to hit Earth. Armageddon. Deep Impact. Take your pick.

By now you know that business-to-business e-commerce will dwarf business-to-consumer e-commerce and that trillions of dollars worth of transactions will flow over the Net in a few years. If that were just the use of the Internet to supplant electronic data interchange, proprietary networks or automated fax/phone/Rolodex systems, that wouldn't be a big deal for IT departments. Just another Web-based application.

But International Data Corp. (IDC) has just published its forecast of B-to-B e-commerce, and there's plenty of news for IT.

Consider the three types of B-to-B e-commerce. The first, in markets where there are lots of customers and a few dominant suppliers, could be called "extranet-based," or selling through the Web site. The second, where a few buyers dominate - such as Ford, GM and DaimlerChrysler in auto parts - could be called "procurement-based." The big buyers dictate how they want their suppliers to tie into their electronic procurement systems.

That's really about all there is for B-to-B e-commerce today. But enter the third type, the thousands of digital exchanges - what IDC calls "digital marketplaces" - that started popping up last year. Did you know there are a dozen such exchanges for wholesaling fish? These favor neither the supplier nor the buyer. But by 2004, they will account for more than 50 percent of B-to-B e-commerce.

Here's a clue to the immenseness of this change in commerce habits. One of the most well-known startups that specializes in setting up these exchanges is VerticalNet Inc., which lost $32 million last year on revenue of $24 million.

Yet its market capitalization is $8 billion, and Microsoft just committed $100 million to the company. Birds are flying backward here.

Did you think implementing a commerce Web site was tough? Well, what happens when you have to serve up your whole inventory to dozens or hundreds of such exchanges? Or let people track their orders or settle payments? It will be like running the back-office settlements for a brokerage.

Meanwhile, your colleagues in marketing, sales, production and finance will be going nuts trying to keep the company alive as business models change at the speed of light. Do you think you'll be immune?

That's the real problem. Earth-shattering change is implied here, but no one can really predict what's going to happen, just that it will. We're too close to the asteroid to see it well, and it's closing in. You're just going to need the skills, courage and charisma of Bruce Willis to survive.

And you thought migrating to Windows 2000 was a headache.

JOHN GANTZ is a senior vice president at International Data Corp. in Framingham, Massachusetts. Contact him at jgantz@idcresearch.com.

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