InformationWeek
Defining The Business Value Of Technology
May 10, 1999
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Online marketplaces aren't entirely new. IBM's World Avenue and Time Warner's Dreamshop were early attempts to create Web sites where retailers and consumers could be connected through technology. They failed because they couldn't attract enough buyers. The focus is shifting to business-to-business sites, and the growth in the number of sites is fueled by the rapid expansion of E-commerce. The value of business-to-business transactions online is expected to hit $30 billion this year and top $1.3 trillion in 2002, according to Forrester Research.
No figures are available yet for the amount of goods being sold through online marketplaces, but analysts say these sites are beginning to take off because of the advantages they offer, such as the ability to simplify purchasing. "Customers are doing two things," says Monica Luechtefeld, VP of marketing in the business-services division of Office Depot, which sells through MarketSite.net, as well as its own extranet. "They're consolidating suppliers and looking to do single sourcing." Online marketplaces help because it's hard for customers to keep in sync with different extranets.
Speed is another advantage, says Isaac Pendarvis, a purchasing manager who buys about $100,000 in supplies a year for B.F. Goodrich Aerospace and recently began using an online marketplace. "I can place an order in less than two minutes," he says. "On the phone, it takes quite a bit longer. I can order everything from screws to pump motors. I don't have to do nearly as much researching, and I get a good price."The ability to get information from several companies offering similar products empowers buyers, according to Kevin Jones, an analyst with Net Market Makers, which specializes in tracking online markets. "The power has gone to the buyer because the buyer can demand complete information" about the products of a supplier and its competitors, he says.
Steve Grana, senior director of finance at CV Therapeutics Inc., a biotechnology company in Palo Alto, Calif., says his company saves $25 to $30 per item bought through Chemdex, an online marketplace for chemicals and laboratory supplies. Using the marketplace also cuts the time it takes to process an order by half a day, he says.
One of the biggest advantages marketplaces offer companies selling on the Web is the ability to display products side-by-side with those of their competitors. "Your competitors' information is valuable information that helps you make a sale," Jones says. "If you don't [provide it], buyers will get it somewhere else."
Marketplaces also extend a company's market reach. Imprint Technologies LLC, has been selling customized hard hats to construction, oil, and other companies on 11 Web marketplaces created by VerticalNet Inc. Brett Hanson, founder of Imprint, says the sites brought his company buyers from as far away as Saudi Arabia. Companies purchasing online are often volume buyers willing to order hundreds or thousands of hard hats, he adds.
Online marketplaces change the way business is done, and that's tough for some companies. Delaware Steel Co. of Pennsylvania, a $15 million steel distributor in Blue Bell, Pa., has been using MetalSite, a marketplace for buying excess steel, but switching to online purchasing hasn't been easy for the third-generation, family-owned business. "There's a learning curve involved," says Lisa Goldenberg, VP of sales. "We had to set up a whole department just to handle it."
Marketplace Developments
The first commercial marketplaces on the Web were aggregators that pulled together product catalogs from many companies. Several launched last year, including Chemdex and MetalSite, focus on vertical industries. Earlier this year, SciQuest.com began selling scientific products and laboratory supplies from about 100 companies, including Biosearch Technologies, Synthetic Genetics, and the Lab Depot. Several of the newest aggregator sites, including MarketSite. net and OrderZone.com, are aimed at a broader audience: purchasing managers shopping for nonproduction supplies.
In a few weeks, NECX, a computer products reseller in Peabody, Mass., will add online purchases at its NECX Global Exchange, completing that site's transformation from a conventional exchange to a virtual one. Buyers can already view prices on computer components from dozens of companies and check availability. Orders are submitted via phone to traders on the 24-hour NECX trading floor. A companion site for consumers already allows online purchases. NECX says the two sites combined have information on 200 million products from 20,000 sources around the world.
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Illustration by Celia Johnson
Photo by Barry G. Smith
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