CLEVELAND (June 26, 5:20 p.m. EDT) — The plastics and chemicals industry already has said “no way” to many of the independent trading exchanges that have sprung up on the Internet.
Now, the next battle for the hearts and dollars of plastics consumers will be fought by consortium-based dot-com companies.
One industry watcher, Leif Eriksen of Boston-based consulting firm AMR Research Inc., believes those companies could be in for a rocky road. They include hubs such as Omnexus, Elemica and the recently merged ChemConnect Inc. and Envera, as well as automotive consortium Covisint LLC.
AMR has predicted that by 2004, about 25 percent of plastics purchases in North America will be made on the Internet. The battle over who controls that market is just starting, Eriksen said.
“Even if as much as 20 percent of plastics and chemical industry purchases are done on the Web, those companies can only take about 0.001 percent on each transaction,” said Eriksen, AMR research director for chemical and process industries. “Can you survive on that? They can't all survive, but maybe one has a chance.”
For most of the companies, the honeymoon period is close to over, Eriksen said. Investors, and especially chief financial officers of large resin suppliers, are going to want to see a return on their money soon.
“No more blank checks are going to be written,” he said.
Besides distributor GE Polymerland, most of the sites have not generated enough transactions to satisfy investors, Eriksen said. He added that the case can be made that GE's site is more of a single-source distribution arm that a more-diverse e-marketplace.
The winner in the plastics industry among dot-coms could be private marketplaces run individually by resin companies or other kinds of suppliers, not the more-ballyhooed public models, Eriksen said. Like Polymerland's site, many of them are focusing on connecting the computer systems of both customers and suppliers to their Web-based products and services.
“What hasn't changed is that the customer is king,” Eriksen said. “Power has shifted to the buyer. Customers already exist for those [resin] companies, and that is why I think private exchanges will win the battle.”
Eriksen spoke June 20 at Plastics Encounter Cleveland.