InformationWeek
Defining The Business Value Of Technology
March 27, 2000
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Construction Boom
Web exchange operators are building marketplaces at a frantic pace
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he sky over San Diego Harbor was a brilliant blue. But it went unnoticed by the 200 people who packed a windowless hotel room for Ariba Inc.'s user-group conference earlier this month. They were intently focused on a presentation called "10 Key Steps to Build a Digital Marketplace.""I wanted to call this session 'Who Wants To Be A Millionaire?' " jokes presenter Kevin Costello, managing partner in charge of digital marketplaces at consulting firm Arthur Andersen. "This is where it's all happening. We get 100 to 200 calls a day seeking advice on building marketplaces."
Even for an Internet industry that's jaded by quarterly installments of The Next Big Thing, the construction of electronic marketplaces for vertical industries is a major phenomenon. Goldman Sachs predicts there will be 10,000 of them by 2003. Obviously many will fail, but those that succeed have a real chance to reap rewards much larger than Regis Philbin's TV jackpot.
Nearly three-quarters of the distributors that use online exchanges will conduct 80% of their sales volume on them by the end of next year, according to Gartner Group. The IT advisory firm also predicts that marketplaces will clear $2.71 trillion in worldwide sales transactions in 2004--or 37% of all online business-to-business commerce and 2.6% of all commerce of any kind.
During the next six months, hundreds of new E-marketplaces will go live, promising nothing less than to change the way business is conducted in some of the largest and most tradition-bound industries in the world.
From Cattle Offerings Worldwide (or COW, now owned by Farms.com) to Fasteners.com, E-marketplaces are sprouting in every imaginable industry sector or niche. The paper industry, for example, has one marketplace for transactions between pulp producers and paper mills, one for dealings between paper mills and package manufacturers, and another for sales of packaging products to distributors. "Marketplaces are getting very granular," says Jon Corshen, VP of product marketing at Ariba, which supplies marketplace-building software and services to at least 40 online exchanges.
In this report, InformationWeek examines the opportunities and challenges faced by three soon-to-launch marketplaces targeting different segments of the transportation industry. Boats.com is building an exchange where boat manufacturers and brokers will sell to businesses and consumers ("Insiders Are Key For Boats.com"); AviationX.com brings together buyers and sellers of aircraft parts ("AviationX Charts Flight Plan"); and Tradiant, launching this week, will connect ocean-going freight carriers with international shippers ("Tradiant Takes Different Route").
All three have many challenges in common, including competitors already operating in their respective niches.
What does it take to be a success in the burgeoning E-marketplace arena? No matter how specialized the industry sector targeted by a marketplace, moving a critical mass of business transactions online is a complex undertaking. Crucial decisions must be made regarding funding, equity ownership, revenue models, industry partnerships, buyer-supplier-middleman relationships, sales transactions, dynamic auctions--and the technologies to support them. And, above all, such decisions must be made quickly.
"The No. 1 pitfall is a lack of urgency," says Christopher Wasden, president of WaterDesk.com, a forthcoming marketplace for industrial and municipal water-treatment equipment. "Some people might be used to doing a project like this in IT in 24 months, not four months. You have to move at about six times the speed."
So where to start? Not with the technology. "Anybody can go out and buy Ariba software," Wasden says. "Get your business plan, your money, and your partners first--then choose your technology platform."
Although creating a marketplace is a daunting task, most aspects of it can be divided into four categories: funding, business model, partnerships, and technology. The lessons learned in those areas by companies preparing to launch exchanges in the next few months can provide guideposts for other companies considering entering the world of digital marketplaces.
continued...page 2, 3
Illustration by Dennis Harms
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