Marketplace Shakeout Predicted - InformationWeek

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Marketplace Shakeout Predicted

Just when you came to terms with the fact that a lot of onlineretailers could be in bankruptcy court this time next year comes the prediction that many--maybe most--marketplaces will join them there. A study by AMR Research released Monday assessed the future of today's hot E-commerce niche and predicted big trouble if fundamental changes are not made.

"Two guys and a dog could receive funding for an online marketplace right now," AMR senior VP Bruce Richardson says. But, he says, most marketplaces studied will fail because of errors in revenue strategy, technology integration, and liquidity. "The fee per transaction, advertising, seller vs. buyer--all these revenue models are getting bounced around because they don't work. Membership models would." According to AMR, exchanges will have to adopt revenue models similar to those of application service providers.

In the study, AMR tracked 600 exchanges over 18 months. A similar study next year might find that bankruptcies, mergers, and acquisitions have killed off all of them but 50 to 100, according to the survey. Dean Dorman, VP of business development at Ventro Corp., an umbrella company for five vertical market exchanges, is more pessimistic: he predicts only 10 to 20 will survive the year. "Most of the Net markets--even the big names--haven't completed their first transactions. When do they plan on getting into business?"

And the standalone exchange might soon be a thing of the past. Take Ventro, for example. It's operated Chemdex, one of the front- runners of the exchange phenomenon, since 1997, but the company recently created five new exchanges. It's difficult for single exchanges to operate and have a return on investment. We needed to spread our assets across several markets, concedes a Chemdex spokesman.

Richardson further predicted that the neutrality of independent exchanges would be sacrificed for the bottom line. Exchanges will need equity investments from major partners to draw all players in. "I look at it as a mall: You have to have an anchor store to bring in the transactions."

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