December 20/27, 1999

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Companies Invest In Business-To-Business Marketplaces
Andersen consulting, Ariba, and SAP bank on large volumes of business moving to the Web

By Clinton Wilder and Alorie Gilbert

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usiness-to-business Internet marketplaces are becoming the next red-hot E-commerce market. A flurry of year-end, big-ticket deals last week shows that major players such as Andersen Consulting, Ariba, and SAP are banking on huge volumes of business transactions moving to the Web next year.

In its largest acquisition to date, online procurement pioneer Ariba said it will buy TradEx Technologies Inc., a provider of software and services to Web-marketplace operators, for about $1.9 billion in stock. Manugistics, PeopleSoft, and SAP each unveiled initiatives aimed at expanding their presence in online marketplaces. And Andersen Consulting launched a venture-capital fund to invest $1 billion over the next five years in Internet companies, many of them focused on online marketplaces.

In addition, Chemdex Corp., a leading marketplace operator, bolstered its presence with a $115 million acquisition of SpecialtyMD.com. Chemdex also launched a company it will jointly own with Tenet Healthcare Corp., a large hospital chain that manages group purchasing of $3 billion in supplies a year. The new firm will expand Chemdex's online marketplace from specialty chemicals for health care and research labs to a full menu of hospital supplies.

In the past two years, online marketplaces have proliferated rapidly-- even by Internet standards. Almost every industry niche now has an online marketplace either operating or being built. The big question: Will business buyers and sellers generate enough transactions online to sustain them all? Some are skeptical.

"Are large numbers of companies ready to do business via online exchanges? Probably not," says David Boulanger, an analyst with AMR Research, who says the numbers vary by industry and the forces at work in those industries. "Not every company is ready to make this kind of quantum leap to the Internet," says Boulanger. "It's really just a few leading-edge companies right now."

But industry players remain bullish. Ariba chairman and CEO Keith Krach says the company was intent on being a major provider to marketplaces, and TradEx supplies the Web and transaction-processing technology to 18 of them. "Business-to-business E-commerce will not just be enterprise buy-side applications and supplier catalogs, but also Net markets," he says. "We and TradEx believed that our businesses were ultimately going to converge. Now we can hook these vertical marketplaces onto our buying network and bring all that spending to them." More than 50 very large customers, including Chevron, FedEx, and General Motors, are using or deploying Ariba's technology for procurement via the Web.

Chemdex CIO Pierre Samec, a TradEx customer, applauds the deal. "We'll get better technology by TradEx's partnering with Ariba," he says. "They understand that procurement is just one piece of the business-to-business puzzle; you also need integration, catalog management, transaction processing, and customer service."

SAP says it will develop, own, and operate a site for chemical and pharmaceutical companies in the first half of next year--the first vertical exchange in SAP's mySAP.com Marketplace. SAP is also providing software and services to Neoforma.com Inc., the operator of a trading site where health-care providers can purchase supplies from more than 100 medical device manufacturers. Neoforma.com is a pilot user of a new offering from SAP, which provides companies with the same software SAP developed to run mySAP.com Marketplace.

Users acknowledge that managing transactions among multiple companies on diverse computing platforms is not SAP's traditional strength. But B.D. Goel, VP of products and services at Neoforma.com, says SAP gives his company most of what it needs and is working to fill in the missing pieces. "It gives us close to 80% of the solution," says Goel. "It's new, but so is everything else."

PeopleSoft and its partner, Commerce One Inc., say they will provide supply-chain, procurement, and E-commerce software for a new trading community for the apparel industry being launched by clothing maker Guess Inc. The Apparel Buying Network will let apparel manufacturers and their suppliers place catalogs online, execute purchases, and participate in auctions by the end of next year.

Supply-chain software vendor Manugistics says it will partner with Burlington Northern Santa Fe Corp. in Fort Worth, Texas, the nation's second-largest railroad, to provide the software for an online exchange that will let transportation providers auction excess capacity.

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