DAZED AND CONFUSED. THAT BESTdescribes the state of the e-marketplaceindustry today. The launch of high-profile,public exchanges has slowed from a tidalwave to a trickle. B2B stock prices are gut-ted and the IPO market, which was expect-

ed to fund many of these marketplaces, is shut tight. Mean-while, hardly anyone—certainly not suppliers or buyers—isconvinced that Net markets are better business enablers thanthe phone, fax or a bottle of Jim Beam over dinner. “E-market-places are rapidly sliding to the trough of disillusionment,”argues Whit Andrews, research director at the Gartner Group.

What happened? In a nutshell, too much talk and too littleaction. First, there were the promises that the first wave of e-marketplaces would fit any type of B2B commerce when, infact, the “fat butterfly” model is well-suited only for a handfulof businesses, mainly spot markets for commodities. Market-places got built, but suppliers saw little benefit in competingsolely on price, and stayed away in droves. As a result, most Netmarkets lack “liquidity” (transaction volume), the factor thatcreates marketplace efficiency.

So now the rush is on to go after the trading of indirect mate-rials and goods, a much bigger piece of the B2B pie. To do that,these Net markets not only have to move beyond procurementinto product design, financial settlement, fulfillment, logisticsand other trading functions that add more value, but they alsomust integrate all of that functionality into a corporation’s back-end systems, which could add the most value of all.

Still, that is a very difficult assignment, and three- to six-month deployment schedules have become a thing of the past.Two-, three- and even five-year projects will be more typical. Asfor the ultimate goal of e-marketplaces—a global trading Webthat vendors and pundits say will transform business—think notin terms of years, but decades.

“We believe this is a huge shift in business on the order of mag-

nitude of the industrial revolution,” says Matt Porta, head of e-market strategy for PricewaterhouseCoopers in San Francisco. “Amassive technology infrastructure needs to be built, but a massivechange in every other aspect of business also [needs to occur].”

Time for a Reality Check Where do e-marketplaces go fromhere? “We’re essentially at the phase where both the suppliersand the customers or prospects are trying to figure out theirnext step,” says William Brandel, research director for e-busi-ness at the Aberdeen Group. Surprisingly, many agree on thebroad outline of the future, if not the specifics. Everyone seemsto be in accord that the next wave of Net markets will be pri-vate, although some observers, like Gartner Group’s Andrews,say public vs. private is not a useful distinction.

A private marketplace is a single enterprise’s trading partner

Smart Business

32 April 2, 2001 Sm@rt Partner: www.smartpartnermag.com

MOST E-MARKETPLACES HAVE BEENOVERHYPED AND UNDERUTILIZED.

BUT, IN ONE FORM OR ANOTHER, THEY ARETHE FUTURE OF BUSINESS. By Anne Knowles

JACK

GAL

LAG

HER

New B2B Sweet Spot?

Sm@rt Partner: www.smartpartnermag.com April 2, 2001 33

network. AMR Research in Boston calls this the “private tradingexchange” (PTX) and projects that application license fees andservices for such marketplaces will grow 68 percent annuallyinto a $35 billion business by 2005. About 70 percent of that willbe fees for services. AMR says a PTX will cost from $50 millionto $100 million to build, and the company recommends thatany enterprise with revenue exceeding $1 billion start buildingone now.

Collaboration is the second thing everyone agrees on. Thenext generation of Net markets is about collaborative commerce,say the freshly printed marketing materials of major platformvendors such as Ariba Inc. and Commerce One Inc. There are plen-ty of areas ripe for automation, from new product introductionsto supply-chain management.

“There are nearly an infinite number of uses,” for collabo-

ration between partners, insists David Kraemer, director ofmarketing at Extricity Inc., a maker of B2B relationship man-agement software. “It never really ends.”

The area generating the initial buzz is product design, whichwould include the work done jointly by partners to customizea seller’s product, such as a circuit board, for a given buyer.That application encouraged Ariba last January to pony up

more than $2.5 billion to acquire Agile Software Corp. The com-pany’s Agile Anywhere and Agile Buyer, which are being inte-grated into Ariba Buyer and Ariba Sourcing, respectively, aredesigned to let partners cooperate on a product’s content, andthen source and procure its components.

That process involves the management of unstructureddata, such as three-dimensional CAD drawings or word-pro-

cessing documents. While that is tougher than managing struc-tured data, like purchase orders, it may prove more rewardingto corporations. “Trying to control unstructured data is reallydodgy,” says Narry Singh, VP of global trading and business

development at Rapt Inc., a San Francisco-based developer ofreal-time analytic tools. “But unstructured content is really theintriguing part because it’s usually in the first part of the prod-uct life cycle that the majority of costs are committed to.”

Still, it will take time for companies to be convinced that col-laborative product design is worth the massive effort. “It’s notone of those things you can give ROI [return on investment]on beforehand,” says Andrews. “The most you can say is, ‘I

think we can improve the process.’ That’s going to be a toughsell to the board.”

That is why Framework Technologies Inc., a developer of soft-ware similar in function to Agile’s, has surveyed its customersand developed an ROI calculator to measure reductions inproduct delays and engineering changes. “Everyone has a sense[that] collaboration has benefits,” says Dave Halpert, VP ofresearch and development for Framework. “But I think you canshow [ROI] even in six months.”

It’s the Supply Chain, Stupid Proving ROI will be key for bothpublic marketplaces trying to attract members, and for vendorstrying to sell the private Net market concept to corporate cus-tomers. As a result, vendors and Net markets will focus on twothings in the near term: analytics and inventory control.

“I’m very interested in trading partners and analytics,” says >>

Sweet Spot?

or real-time analytic tools, are designed to work in an extendedsupply chain. The tools are aimed at culling information frommultiple sources and partners, analyzing it in real time, and giv-ing access to the results to users at disparate locations.

Datasweep Inc., for example, aims its Advantage software suiteat industries that employ a lot of contract manufacturers; Flex-tronics Inc., an electronics manufacturing services giant, is a cus-tomer. Another vendor, Spotfire Inc., maker of DecisionSite, hasgone after the process industry, signing on pharmaceutical sup-plier Eli Lilly, which has extensive extranets, and ProcessCity, achemicals industry exchange.

The goal is a more efficient supply chain, which is what mostprivate Net markets are looking for. “Once you move into theprivate arena, it’s really about supply-chain demand reengi-neering,” says Aberdeen’s Brandel. Corporations mulling over

>> Frank Campagnoni, CTO and VP at GE Global eXchange (GXS)in Gaithersburg, Md. “It turns out the interactions have huge val-ue if you can map those and data-mine them.” Campagnonienvisions analytics as a value-added service for users of GXS orother exchanges.

That may help Net markets prove their worth to participantsand is certainly part of the reason Ariba hooked up with See-Commerce, a maker of supply-chain performance managementand improvement tools, for its value-chain initiative unveiled inFebruary. “We see huge enthusiasm from systems integratorsbecause this is the first software that they can embed to show acustomer the impact of what they do,” says Paul Albright, pres-ident and CEO at SeeCommerce. “We provide a similar type ofvalue for the marketplaces.”

Like the latest collaborative tools, these so-called e-analytic,

34 April 2, 2001 Sm@rt Partner: www.smartpartnermag.com

A Sophisticated Net MarketThe illustration below delineates Net market features/functions and vendors.(The list of vendors is not exhaustive, and any vendor may provide productsand/or services in several areas.)

FinancialAucxis, Bottomline Technologies,CertCo, Derivion, eCredit.com,escrow.com, FinancialSettlement-Matrix.com, VeriSign

ERPJ.D. Edwards, Oracle,

PeopleSoft, SAP AG

Supply-Chain Management

i2 Technologies,Industri-MatematikInternational, Intershop Communications,Manugistics Group,SeeCommerce, Spot-fire, Syncra Systems,WorldChain

Supply-Chain Management

i2 Technologies,Industri-MatematikInternational, Intershop Communications,Manugistics Group,SeeCommerce, Spot-fire, Syncra Systems,WorldChain

Partner IntegrationGE Global eXchange, Viacore

Systems IntegrationAccenture, AMS, Cap Gemini Ernst & Young,

CSC, Deloitte Consulting, EDS, Hewlett-Packard, IBM, KPMG, Lante, Pricewaterhouse-

Coopers, Proxicom, Sterling Commerce

Application IntegrationAttunity Ltd., Bea Systems, CrossWorlds

Software, Extricity, Mercator Software, NeonSystems, Netfish Technologies,

SeeBeyond Technology, Tibco Software,Vitria Technology, webMethods

their next B2B move in a down economy, headds, will focus on inventory control as away to cut costs.

That has raised the profile of supply-chainmanagement software makers such as i2Tech-nologies Inc., which was working with Aribauntil last month when it announced plans to

acquire RightWorks Corp. Right-Works software provides the pro-curement and sourcing function-ality that i2, which focuses ondemand planning and forecast-ing, needed to start competinghead-to-head with Ariba andCommerce One.

A Wide-Open Field Thechanges in direction—from pub-lic to private, direct to indirectgoods, pure procurement to col-laboration—have leveled theB2B software playing field. Aribaand Commerce One may havewon the first battle, but there’s

no guarantee they’ll win the war. Expect a lotof consolidation, especially in the comingyear, as smaller companies run out of moneyand the bigger players continue to look foropportunities to round out their arsenals.“Agile is not our last acquisition,” notes JonCorshen, Ariba VP of corporate strategy.

“This game is far from over,” secondsAberdeen’s Brandel. “There is enoughtime for other vendors to enterand have a lot of impact—IBM,Microsoft, the ERP vendors.”

There also is room for lesser-known vendors to make their

marks. Take Netrana in Houston, for instance. The com-pany was founded by Rusty Braziel, who previously foundedAltra Energy Technologies, a successful online energy tradingexchange. Altra is what Braziel calls a classic center-basedexchange that provides the technology and sets the rules for buy-ers and sellers. “A center-based model requires some sort of rev-enue model to pay for the infrastructure,” says Braziel, Netrana’spresident and CEO. “With SpotDealmaker, there is no exchange,so there’s no need for the revenue model.”

SpotDealmaker is the trading platform Netrana expects tohave ready this summer. It will enable buyers and sellers totransact business directly without going through an exchange,and it’s based on peer-to-peer technology. “We don’t want to gethung up with people thinking of Napster because underneath,it looks quite different,” says Braziel. “SpotDealmaker has the

ability to be machine-to-machine, a directory, store and forwardservice on an ASP basis.”

FirstPeer is doing something similar. In January, the companyunveiled its Personal Servant P2P ASP service, and in Februaryit launched GnuMarkets, which it classifies as a peer-to-peer mar-ketplace. “In the real world, many markets have tens of thou-sands of participants that are already interacting,” says BrentGutekunst, FirstPeer’s president. “Instead of saying, ‘Let’schange the way you do business,’ P2P is a technology that reflectshow people do business already.”

It remains to be seen whether P2P technology will banish theneed for an underlying exchange. “In Ariba and other platforms,it is peer-to-network, and participants follow the rules of that com-munity,” says Extricity’s Kraemer. “But you can use P2P after youagree to adopt the prevailing standard, whatever that is.”

“P2P will not obviate the need for Ariba and CommerceOne,” says Val Sribar, senior VP at the Meta Group in Reston, Va.“They’ll start building it in.”

Another interesting company is Viacore Inc., started by thefounder of RosettaNet and funded by Arrow Electronics, Avnet,FedEx, Ingram Micro, Softbank and Tech Data. The company hasdeveloped what it calls ProcessTone, a managed collaborativeinfrastructure for connecting hundreds of trading partners to oneanother. The hub in the middle does all translation between—and validation of—documents. The technology is currentlybeing tested at a number of customers, including one that’s pro-cessing a million documents in a three-hour daily period.

“A lot of our customers have [enterprise application-integra-tion software maker] webMethodsand a systems integration part-ner,” says Fadi Chehadé, CEO and chairman. “WebMethods pro-vides the middleware, the SI connects all the apps, but then howdo you connect to all your partners? You need a network and infra-structure to do all the routing, translation and management.”

Viacore’s only realcompetitor right now isGXS, which has a similarmodel. The exchange istalking to “many, many

players,” says Campagnoni, to provide translation software andservices. “We call it our liquidity play,” he says, alluding toGXS’s one billion transactions annually, worth $1 trillion. “Weleverage that to help them provide liquidity.”

“We think Viacore has the right model,” says Pricewater-houseCoopers’ Porta. “Integration is the complexity in all this.”

Long, laborious integration is what it will take. “We under-stand the technology we provide is nothing more than anenabler,” says Kevin Shick, VP of product marketing at Com-merce One. “It’s bringing together the technology and the pro-fessional services that will provide a much richer solution.”

That’s why systems integrators are counting on Net markets,whether public, private or something in between, to surpass theERP boom. The Net market business, says Porta, “is the moststrategic initiative at the firm.” yy

Sm@rt Partner: www.smartpartnermag.com April 2, 2001 35

LogisticsArzoon.com Inc.,DHL, FedEx, Logis-tics.com, Right-Freight.com, UPS

Purchasing/ProcurementAriba, Calico Commerce, Clarus, Com-merce One, CyBiz, FreeMarkets, Fric-tionless Commerce, GE GlobaleXchange, Metiom, Moai Technologies,PurchasePro.com, Rapt, RightWorks,Selectica, VerticalNet Solutions

Catalog ManagementBlue Martini Software, fourthchannel,Martquest, Trilogy, Webridge

Collaborative CommerceAgile Software, Click Commerce,Datasweep, IntraLinks, MatrixOne,SiteScape

Content ManagementArsDigita, BroadVision, ec-Content,Interwoven, SAQQARA Systems,Vignette

Smart Business

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