InformationWeek

As the ASP market grows, many software vendors will concentrate on selling to the services companies. For example, ERP vendors such as SAP and Oracle have already partnered with service providers such as Qwest Communications International Inc. to provide hosted applications. Software vendors Siebel Systems Inc. and Lawson Software have partnered with USinternetworking, while BroadVision Inc. has partnered with Corio. Even Microsoft is providing its tools to ASPs.

Step Two: E-Marketplaces Take Hold
The second major trend that will be part of the free-trade zone is the growth of electronic marketplaces that bring multiple buyers and sellers together in a many-to-many trading relationship. Establishing such relationships in the physical world is very expensive. In the virtual world, it is merely a function of the marketplace's capabilities.

Forrester Research predicts that $1.4 billion in sales will flow through online markets in 2004. The electronic marketplace host builds and supports the commerce infrastructure for multiple buyers and sellers, then generates revenue from hosting, subscriptions, transactions, and advertising.

Most of the successful business-to-business electronic marketplaces cater to a specific industry or vertical market, such as ChemConnect for chemicals, MetalSite for metals, or even AgDirect.com for horses--just about any distinct market you can imagine.

The business models vary. One is a seller-controlled market such as MetalSite, in which sellers offer a defined set of products from which customers may choose. Another model is a buyer-controlled marketplace such as Priceline.com, which attracts buyers who know what they want, how much they want to pay, or both. Still another is a dynamic supply-and-demand model such as ChemConnect, in which availability and prices for goods and ser-vices are determined by the market participants themselves.

Step Three: What The Future Holds
Today's dot-com businesses and ASPs are gaining plenty of attention. But in the future, hosts of free-trade zones will become the true "category killers"--delivering a combination of a marketplace for an industry, the value proposition of outsourcing, and the back-end integration that will simplify transactions among trading partners.

For companies using these free-trade zones, many policy challenges will come with the technology. For example, if a buyer and a seller are using the same back-office SAP system hosted within a common free-trade zone, there may be no major technical obstacle to allowing the buyer to check the seller's production schedule to see how work is progressing. Yet the seller may bristle at such an intrusion.

We believe that the convergence of ASPs and vertical marketplaces into free-trade zones will take at least three years to evolve. Business-to-business E-commerce has been somewhat slower to catch on than business-to-consumer trade. Likewise, for as much press as the ASP trend has received, many companies are taking a wait-and-see attitude. It will take time for both of these trends and markets to mature.

One area worth noting is ownership--and we don't expect a single dominant form of ownership to emerge by 2003. For example, some free-trade zones may be owned by service companies that specialize in the solution category. Others may be owned by cooperatives of buyers and sellers, just as certain financial-equity markets are today. Others may be owned by trade associations, nonprofit organizations, or even government.

Even with the convergence several years in the future, now is the time to begin planning for the drastic changes that free-trade zones will bring to your technology acquisition and commerce practices. By positioning your company to take the best advantage of the two new market realities--rentable applications and electronic marketplaces--you put it in a position to capitalize on the inevitable convergence of the two.

James K. Watson Jr. is president, Jeetu Patel VP of research, and Joe Fenner senior technical writer for Doculabs, an independent advisory firm for E-business technology. They can be reached at (312) 433-7793, www.doculabs.com, or info@doculabs.com.