InformationWeek

uyers' clubs that let companies pool their purchasing power and get lower prices on commodity items--including office supplies, PCs, and the like--were supposed to be a central function of online marketplaces. But difficulties in organizing and automating group buying have derailed many of those plans. Despite the bumps in the road, exchanges focused on aggregating purchasing power across industry sectors, such as ICG Commerce Inc. and EDS CoNext, are pushing forward. CoNext has expanded its exchange into Europe and Canada, and last month ICG Commerce signed a deal with Sara Lee Europe, growing its buyers' club base to more than 100 customers.

ICG Commerce hasn't yet turned a profit, however, and CoNext has dropped plans to become an independent company. Clorox Corp., a CoNext member, says the group has been slowed down, as some of the initial 12 members left to join consortia exchanges. CoNext wouldn't name those customers, but Bobby Zachariah, Clorox's director of global procurement, says it's critical for CoNext to add more participants and types of commodity supplies for Clorox to achieve the savings it expects.

ICG Commerce customers are waiting for more positive results, too. Home Properties of New York Inc., a $319 million real-estate management company, joined ICG Commerce last fall and says that taking advantage of the service has been tougher than expected. Home Properties admits that part of the problem is that its own highly decentralized procurement operations have made adoption challenging, an issue also faced by large companies.

But Home Properties also says that the variety of supplies available through the system is limited. Plus, "we're getting a paper bill from an E-commerce company" for transaction payments, says Andy Burke, VP of marketing and procurement at Home Properties. "This was supposed to be electronic commerce. The technology hasn't quite caught up yet."

Coordinating different shipment methods, delivery times, and destinations of a group order also poses problems. "It's difficult to break an order apart, bring it together, and break it apart again," says Yankee Group analyst Jon Derome.

Meanwhile, group-buying efforts have come to a halt on most consortia marketplaces, which bring together the largest companies in a sector. The Federal Trade Commission is closely watching these exchanges to make sure that their heavyweight members don't use buyer-side power to create advantages at the expense of suppliers.

Auto consortia exchange Covisint LLC has decided not to offer group-purchasing capabilities to any customers, large or small. It's focusing its efforts on building supply-chain planning, integration, and collaborative-design capabilities. Covisint and E2open, an online exchange for electronics components formed by IBM, Lucent Technologies, Nortel Networks, and others, say the main value they can offer is removing inefficiencies from the supply chain. "We don't hear that companies aren't able to achieve good pricing," says Nevan Elam, VP of corporate strategy at E2open. "The value that's achieved through a buyers' club is minimal."

That may be right. The market for group-purchasing services has already suffered one fatality--Metiom Inc. closed its doors last month.