The online, business-to-business trading centers known as e-marketplaces will thrive, but many will merge, shut down or be sold within the next 18-24 months as the fascination with their operating models dissipates, according to a leading technology research firm. Forrester Research Inc. of Cambridge, Mass., predicts that by 2004, U.S. b-to-b e-commerce will soar to $2.7 trillion, and 53 percent of this trade will flow through e-marketplaces. These take the form of various auction, exchange and aggregate sites, and of new portals such as the one currently being constructed jointly the Big Three automakers.
And, according to a study Forrester released last month, while less than one-quarter of firms currently participate in Net marketplaces, about 70 percent of both buyers and sellers expect to engage in online trade via such sites within the next three years. For the study, titled "eMarketplaces Boost B2B Trade," Forrester interviewed 80 executives at Fortune 1000 firms — 40 leaders each from purchasing and from sales and marketing organizations.
Ninety-three percent of companies interviewed said by 2002 they expect to transact some type of business over the Internet.
As robust as the future appears for these online business malls, Forrester foresees a shakeout among the players. Another of its studies, "Net Marketplaces Grow Up," released in December, interviewed executives from 50 online vertical marketplaces as well as software vendors, integrators and services companies.
This shakeout will be driven by the disappearance of virgin markets, the escalating race to provide sites laden with features and function, and by the entrance into this space by giant companies such as the Big Three U.S. automakers that are determined to grab their share of this valuable turf.
Alice Miles, president of Ford Motor Co.'s B2B Con- sumerConnect project, underscored this point at a March 6 e-business conference in Detroit. As a member of a panel that included executives from longtime rivals and new online joint-venture partners General Motors Corp. and DaimlerChrysler AG, she declared: "This was just too big. ... The automakers won't cede the b-to-b market to Web players." Other industrial markets can expect some of their old-line players to react in a similarly aggressive manner.
Forrester believes "these e-marketplaces must evolve from today's isolated niche offerings to become highly interconnected one-stop shops." Networked marketplaces will afford purchasing agents instant access to comparisons of various products, thereby saving time and money compared with today's practices of making multiple phone calls to various suppliers or enlisting the support of a costly broker.
Beginning next year, the study suggests, the focus of online trading sites will move beyond racing to gain critical mass, and will begin aggressively to partner with other such sites in an effort to provide customers with one-stop shopping for a multitude of products and services.
"These sites will tie together services like risk management, financing, and logistics into a single, integrated purchasing flow that is orchestrated with other sites," according to the research firm.
There are signs of this happening already, including in the plastics and chemicals markets. For example, Commerx Inc., Chicago-based developer of PlasticsNet.-Com, has teamed with Schneider Logistics to provide online freight quotes and tendering, has a relationship with eCredit.com to eventually provide online financing, and is looking also to provide the types of landed-cost and export-compliance services associated with international expansion. At the same time, Commerx announced March 8 it was bolstering its e-procurement capabilities by teaming with Commerce One Inc., the Walnut Creek, Calif., firm building Ford Motor Co.'s online AutoXchange marketplace.
Tim Stojka, chairman and chief executive officer of Commerx, says of today's e-marketplace trends: "It's about integration ... [with the objective being] to communicate and collaborate with each other more efficiently." Citing PlasticsNet's portfolio of services, he said, "We're not an auction model, like a ChemConnect [the Houston-based online service that hosts the World Chemical Exchange]. They're good at that."
In a March 10 telephone interview, Stojka did not rule out the possibility of an e-marketplace like PlasticsNet eventually partnering with such an auction site.
He also believes the shakeout among online players will come even sooner than Forrester expects. "In the next six months," Stojka predicts, "the winners and losers will be determined."
There certainly is plenty at stake, said Steven J. Kafka, a Forrester e-business trade analyst who was the primary author of the most recent report. In the five-year scenario cited earlier, Forrester projects online trade in petrochemicals — which includes most plastics industry activity (excluding industrial equipment and supplies) — will hit nearly $300 billion in 2004. That trails only the computing and electronics sector and motor vehicles among the 13 industry sectors it assessed.
The growth line will be steep — from $27 billion in online petrochemicals trade this year to more than $100 billion in 2002, spurred by commodity spot exchanges such as CheMatch.com. In five years time, Forrester sees 17 percent of all petrochemicals trade occurring online.
It also expects future commercial b-to-b practices to look considerably different, as a result of this anticipated rise in interconnected Net exchanges. Forrester's projections for 2004 include:
Contract lengths shorten — With nearly half of all e-marketplace trade then taking place through pricing venues such as auctions, bids and exchanges, companies will move away from long-term contracts in favor of more flexible agreements.
Online trading transcends price — Despite fears that online selling will devalue products, "this single-minded focus on price isn't the endgame," according to Forrester. Purchasers will make decisions based on real-time analysis of nonprice factors such as availability, delivery time, quality levels, financing, service contracts and insurance.
E-marketplace powerhouses emerge — Despite the rise of a multitude of Internet marketplaces, the finite trading volume available in any given vertical industry means that only a very few will grow up to be commercial giants. Kafka expects only two or three such exchanges per market will acquire the necessary liquidity and heft to be big-time players.
Linear industry structures unravel — Existing supply-chain networks "will get blown apart," predicts Forrester. "The exploding number of interconnections will create a new market structure — e-business networks — in which partners can switch allegiances without cost; information and best practices spread like wildfire; and the market feedback flows in real time."