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January 10, 2000

New Options Fuel Growth In Online Procurement
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Suppliers of E-procurement software are facing similar challenges. Ariba traditionally has offered online-procurement software that lets large companies such as Chevron Corp. and Federal Express Corp. build extranets for their suppliers and partners. The company's portal, the Ariba Network Exchange, lets buyers shop with thousands of suppliers online.

But Ariba's software suite did not support the ability to hold auctions, do comparison-shopping, or conduct spot trades between multiple buyers and sellers, capabilities necessary for E-marketplaces. Though the company has introduced its Internet Business Exchange, a suite for E-marketplaces, it wanted the ability to conduct many-to-many transactions among businesses dynamically based on complex business processes and business models. To that end, Ariba last month acquired TradEx Technologies Inc., a provider of business-process and workflow software to Web marketplace operators. And in November, Ariba acquired Trading Dynamics, a maker of auction and exchange software for E-marketplaces.

Ariba executives say the company will integrate its procurement software with TradEx's Commerce Center E-marketplace software and Trading Dynamics' Market Suite, customizable business-to-business auction software for the Web. Ariba also will build 26 E-marketplaces in Argentina, Peru, and Spain under a partnership with Telefonica SA, Spain's leading telecom service provider.

"We clearly saw that corporations are starting to move procurement over two avenues--corporate exchanges and E-marketplaces--and this meant we had to roll the two together in our offerings," says Keith Krach, Ariba's CEO and chairman.

"Tight integration between Ariba's products with our software and Trading Dynamics' auction software in the next few quarters will create a consolidated E-marketplace offering for large numbers of vertical segments," says Daniel Aegerter, CEO and chairman of TradEx Technologies, who will become a member of Ariba's management team.

This trend was highlighted when Dow Chemical Co. last week revealed that it will use ChemConnect, a spot exchange, as an exclusive online marketplace to sell its chemicals and plastics raw materials.

Gregory Rocque Photo by David Joel Analysts estimate that the number of E-marketplaces has soared to more than 1,000 today from around 300 last June. For companies seeking to form E-marketplaces, the challenge is finding the right technology, creating the right business model for the market segment, and getting into the market quickly.

Early trading hubs such as the National Transportation Exchange found it difficult to build an industrial-strength site that could easily scale and link all partners. The transport hub helps more than 250 trucking companies fill space in their 200,000 trucks.

"It required nearly two years to build a technology architecture that seamlessly connects all back-end systems of our customers and truckers and required a deep understanding of the business rules," says Gregory Rocque, founder and board member of the exchange.

Today, however, there are a host of third-party vendors, application service providers, and outsourcers that will help companies set up E-marketplaces. Some will even build and operate a site and charge on a usage basis.

Outsourcers say they can build a basic trading hub in three to six weeks for a few hundred thousand dollars. Other companies say they can reduce the time to build a complete E-marketplace from nearly two years to six to eight months, and the cost from millions of dollars to hundreds of thousands.

For business managers, online procurement and the growth of E-marketplaces promise to cut the cost of buying materials and services substantially. For IT managers, however, building an E-marketplace to help a company sell products and services can be a complicated challenge.

"The formula for success is not just a brilliant business and technology strategy," says Chemdex's Perry. "It's about learning fast to evolve and, more important, getting the IT folks with the right skills to take the business to the next step."

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