SAN ANTONIO (Oct. 26, 4:05 p.m. EDT) — The good news, according to analyst David Caruso, is that electronic business remains a huge opportunity for the modern corporation.
The bad news: Don't jump in with both feet just yet — at least not into Web-based trading exchanges.
"There are not enough leaders that have sustaining business models," said Caruso, vice president and general manager for manufacturing e-business strategies with AMR Research Inc., a Boston consulting group. "A lot of them have limited capabilities. At best, many of the (existing) sites are meeting places."
For many of those companies, both good times and bad times lie ahead. By 2004, AMR is predicting that trading exchange sales will top $3 trillion, said Caruso, speaking Oct. 18 at the Plastics News Executive Forum in San Antonio.
Yet many of those sites, unable to extract profit from the Internet gold rush, no longer will be around to witness the explosion. Caruso predicted that of the 3,000 business-to-business sites launched today, only about 500 will remain in four years.
One problem is the sudden disinterest of the investment community, spurned by falling stock prices. But many sites also lead with auctions, an area that customers do not particularly care for, Caruso said.
"Many customers believe in face-to-face relations," Caruso said. "They worry what will happen to those relationships."
That thought was echoed by Richard Crawford, procurement section manager for packaging and resins with Palo Alto, Calif.-based Hewlett-Packard Co. Speaking on a later panel at the same forum, Crawford said Internet usage must be broadened beyond mere cost reductions.
"It's a tool for quality, technology and delivery of product, too," he said. "It's supposed to enhance the relationships that we have, not just set a price."
Other aspects of trading exchanges could help them survive, Caruso said. That includes product search capability, order status and tracking, product catalogs and integration with other exchanges, he said.
Web consortia such as Omnexus — the newly forming e-marketplace for molders that was founded by resin suppliers — and the automotive consortium Covisint face other challenges, Caruso said. They represent the highest risk in the industry, he said.
To date, those sites have offered no real transaction volume and the least-defined product plans, Caruso said. And competitors have not proven they can work together effectively, he said
"What is the real beef behind these sites?" he asked. He added that to succeed, many of the consortia sites will need to raise more than $500 million in funding.
Yet private marketplaces set up by individual companies could become more prominent in e-business, Caruso said. That gives major manufacterers an opportunity to model their supply chains and add such services as product design and collaboration.
During the next 18 months, those private sites could consume about three-quarters of Internet business-to-business trading volume, Caruso said.
By 2004, he estimated that Web transactions would account for 36 percent of total manufacturing business. The frenzy has ended for many dot-coms, but the good ones will prove their worth by offering more functionality, he said.
"There's a very high interest level," Caruso said. "But much work needs to be done."