InformationWeek

The companies carrying out the vision are hardly radicals. Boeing, General Motors, and Union Pacific are among companies investing vast amounts in research, software development, and cooperative marketing to make business-to-business E-commerce reach its potential. At the same time, hundreds of small and midsize businesses along their supply chains are being asked to toe the line.

Online trade exchanges are taking center stage, but extranets and procurement software are providing the essential glue behind the revolution. Simple corporate portals grant unprecedented ways for suppliers to present their products to users and for staffers to gain real-time procurement access. Fully 37% of 375 business and IT managers polled by InformationWeek Research for a survey released this week say they use E-marketplaces for buying and selling. Also, 54% use extranets or supply chains and 40% use portals.

That's heady stuff. But some air is being let out of the business-to-business commerce balloon. Many see the visions on a collision course, and for an increasing number of ventures, customers and suppliers are proving hard to find-and revenue-generating matches are even more rare. It's re-evaluation time.

"Nobody has managed to build a community around a market of any size," says Otto Kumbar, VP of business-to-business services at GE Global Exchange Services, a unit of General Electric in Rockville, Md. Kumbar says many E-commerce tools are so new that they haven't been refined yet. Although GE has made great strides over the years moving supply-chain partners to electronic data interchange and now to Extensible Markup Language technologies, it hasn't completely transformed the company to E-business as many would like.

Those who operate E-business exchanges are wary as well. "Right now, there are 25 trading companies that offer auctions of chemicals. We think that will drop down to two or three," says Chad Steigers, managing director of ChemPoint.com in Bellevue, Wash., a subsidiary of Royal Vopak, a chemical distributor in the Netherlands. In its first quarter of operations, the company reported $24 million in business transactions. It has 127 customers and sells 1.3 million products provided by 2,200 suppliers.

ChemPoint aggressively signed up 3,000 users-fully 10% of its potential marketplace-in its first 10 weeks of operation, but now it's a slower sell. Steigers acknowledges that his parent company's deep financial pockets will prove essential to expansion, but nothing is guaranteed.

What's gone awry? Basic business behavior, such as the desire to keep proprietary information private and loyalty to certain suppliers, is slowing the growth of some online exchanges. For others, it's a matter of the initial feverish growth cooling off as marketplaces analyze their returns and determine where they want to go next. In a survey of 50 E-marketplaces earlier this year, Forrester Research found that 95% were doing fewer than 10,000 transactions a month-fewer than a decent-sized grocery store might do in a week. Fully 63% of the marketplaces surveyed were logging 1,000 transactions a month or fewer. In part, that's because the industry is so young-and, in part, marketplaces target segments where there simply isn't enough room to generate huge numbers of transactions.

The market may be equally tough for established companies trying out E-business models. DaimlerChrysler, Ford, and General Motors teamed up to create a trading exchange market focused on the automotive world in February, but suppliers didn't rush to join it. Analysts say GM's dream could become a fantasy if partners balk. "If you talk to the tier-one companies, they say, 'No way am I ever going to give the automobile companies access to my suppliers,'" says Staci McCullough, a senior analyst at Forrester Research's E-business applications teams.

However, since May three major tier-one automotive suppliers-Meritor Automotive, Johnson Controls, and Magna International-have confirmed their participation in the Covisint Internet Exchange, as it is now known.

"Being one of the first suppliers to join Covisint underscores our commitment to take the lead in E-business initiatives," Meritor chairman and CEO Larry Yost said in a statement. "This will allow Meritor to communicate more efficiently in real time with our own suppliers and transact business via the Web to improve the overall speed and efficiency of our supply chain. As a result, we anticipate enhanced revenue streams, reduced supply-chain costs, and compressed cycle times."