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February 26, 2001 |
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Leading Companies Pull E-Marketplace Plugs
Lack of interest and weakening economy cause big-name companies to close online exchanges
By Alorie Gilbert (agilbert@cmp.com)
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perators of venture capital-funded E-marketplaces aren't the only ones being forced to bow out of their online exchanges. Even businesses with deep pockets, including Burlington Northern Santa Fe, Chevron, and Dell Computer, are closing the unprofitable marketplaces they launched in the throes of last year's online exchange frenzy.Chevron is the latest business to opt out of a slow-going Internet venture. On Feb.16, it closed Silicon Valley Oil Co., an E-marketplace aimed at buyers and suppliers of petroleum lubricants and fuels. The venture operated for just six months. Earlier this month, Burlington, the second-largest railroad in the United States, closed FreightWise, an online exchange for freight shippers and carriers, that it operated with minority equity investments from GE Transportation Systems and the Canadian National Railway. The exchange had failed to attract a significant number of participants. And Dell switched off its 3-month-old small-business marketplace, Dellmarketplace.com, in January, citing a lack of interest among customers and suppliers.
The ability of online exchanges to bring new levels of efficiency and cost savings to buyers and suppliers might seem to make them irresistible options in a slowing economy. Yet Silicon Valley Oil never made a single sale. Chevron says customers in its market simply weren't ready to embrace a different way of doing business. "It was hard to get people to switch their buying habits and their method of buying," says Peter McCrea, VP of lubricants and specialty products at Chevron.
Comtrak Logistics Inc., a $50 million transportation company that provided shipping services on FreightWise, also saw resistance among potential exchange customers. "In the transportation industry, people are comfortable with the way they do business," says Rick Blanton, VP of logistics at Comtrak. "If there was a driving factor to change, they would, but there isn't."
Meanwhile, economic pressures are taking their toll on the marquee-name businesses operating the exchanges. Faced with declining revenue in their most recent quarters, both Dell and Burlington are focusing on revenue-generating core business lines. Chevron's business is booming--revenue was up 23% year over year in its fourth quarter, and revenue for the entire year was up 42%. But McCrea, who oversaw Silicon Valley Oil, says economic conditions made it harder to find partners willing to share the costs of developing technology for the E-marketplace.
And those costs are higher than many companies expected, says Bob Parker, an analyst at AMR Research. "There's a bit of a sticker shock."
| Exchanges' Rocky Road | ||||
| Announced date | Go-live date | Shutdown date | Merger date | |
| Dellmarketplace.com |
September
2000
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October
2000
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January
2001
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-
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| FreightWise |
January
2000
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October
2000
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February
2001
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-
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| Silicon Valley Oil |
June
2000
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August
2000
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February
2001
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-
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| Rooster.com and Pradium |
October
2000
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February
2001
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-
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February
2001
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Even as startups funded by venture capitalists began to fail last year (see "B2Bs Go Bust"), many observers continued to predict success for trading exchanges with ample funding from multibillion-dollar companies. But marketplaces launched by groups of large companies are starting to consolidate, as have many independent exchanges. Rooster.com and Pradium Inc., two agricultural exchanges owned jointly by Archer Daniels Midland, Cargill, Cenex Harvest States, and DuPont, merged this month. Both companies were spun out of Cargill in October, but neither had generated any revenue until two weeks ago, when Rooster released a custom-branded online storefront service for grain dealers. Seventy dealers have signed up at $350 a month.
Analysts had expected big companies would be able to influence smaller players to adopt their Web tools, but the current round of failures and consolidations indicates a strong market position doesn't guarantee online success. "These companies are realizing they didn't have the influence they thought they would," says Parker.
Not all business-to-business marketplaces are going bust. Chevron continues its involvement in other online marketplaces, such as Retailers-MarketXchange and Petrocosm. Those marketplaces are aimed at helping Chevron and other equity investors cut costs through supply-chain efficiencies.
Other large companies continue to build private exchanges to use with customers and suppliers. "You can't equate what's happening with an abandonment of business-to-business or E-business initiatives," Parker says. "It's a shift in funding to what makes sense."
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