E-commerce sees rebound

Networks: Internet marketplaces that survived 2000 expect a rebound and long-term growth.

January 21, 2001|By Dan Thanh Dang | Dan Thanh Dang,SUN STAFF

Despite the beating that business-to-business e-commerce companies took last year, Internet markets are expected to quadruple in size by 2002, according to industry analysts.

But as the more than 1,000 Internet markets - or digital marketplaces that electronically link buyers, sellers and business partners online - grow, the number of players could dwindle .

Last year, Wall Street support for high-tech start-ups evaporated when they failed to meet earnings expectations. By December, several business-to-business Internet sites closed shop for good, including a pioneer, Chemdex.com, which brought together more than 1,200 buyers and sellers of life science products.

Experts say survivors of the shakeout will most likely be companies that have substantial expertise and sophisticated tools to help buyers and sellers price products, and have the backing of a major player in an industry.

"Anybody that says B-to-Bs are dead is crazy," said Jean-Gabriel Henry, senior analyst for business-to-business marketing at Jupiter Research. "They're merely morphing. These things take time. But there will be an explosion in the industry."

Jupiter projects that markets will account for 35 percent of the country's business-to-business commerce by 2005. Other research analysts forecast similar numbers for business-to-business growth ranging from $188 billion by next year to $2.7 trillion by 2004.

"But the road to that is a bit rocky," said Venky Shankar, a Ralph J. Tyser Fellow and professor of marketing at the Robert H. Smith School of Business at the University of Maryland College Park. "Investor sentiment is a bit negative about B-to-B exchanges right now, and Wall Street is very impatient. They want to see results.

"B-to-Bs had huge promise and potential in the beginning of 1999," Shankar said. "Unfortunately, the hype was very high. Now, the pendulum has swung to the other side. So only the tough will survive."

Just in December, Ventro Corp. shut down Promedix.com, along with its Chemdex site. Hsupply, a hotel industry e-marketplace, and EC Cubed Inc., which offered technology to build e-marketplaces, also shut down.

Other companies suffered significant losses, as well. Lucent Technologies Inc.'s fall stems partly from a downturn in its e-marketplace efforts, analysts said.

Shares of Onvia.com, an e-marketplace for small business buyers and sellers, hit a 52-week high of $78 on March 3, only to close at $1.12 on Dec. 7.

Closer to home, Usinternetworking Inc., which implements, operates and supports packaged software applications that can be accessed and used over the Internet, experienced similar problems. USi's stock fell from a high of $71.67 on March 8 to $4 at the end of December. But compared to others, analysts say the Annapolis company is doing well.

"What happened with Ventro was very important," said Henry, the Jupiter Research analyst. "They built Chemdex, which was one of the three or four most well-recognized Net markets. Chemdex was the gold standard. But in the end, when Ventro tried to sell Chemdex, no one would buy it. It ended up just being a throwaway."

Ventro had originally planned on building an Internet market for every industry, from steel to apparel. Despite investing millions into its exchanges, however, Ventro just couldn't get companies integrated into the market quickly enough to start generating transaction revenues.

"We've heard about more exchanges being created than we've heard of transactions really flowing through them," said Jonathan W. Palmer, professor in decision and information technologies at the Smith Business School. "There are no transactions taking place on a lot of exchanges."

Many exchanges are merely Web sites with a list of companies and information, but with no actual transactions taking place through the Internet, Shankar said.

That fact alone could help the numbers of exchanges dwindle in size, experts say.

Those that remain will be companies that can demonstrate that they have domain expertise, the ability to bring critical mass to the table and a big name player to support the venture.

"It's about having decades of industry experience," Henry said. "An independent, neutral company walking in without a power player probably has no long-term, existing relationship with buyers and sellers to speak of.

"Why should I take a risky leap merely for a short-term cut in price from you when I've had a strong relationship buying from this other company? To be successful, you must have buyers and sellers."

Companies with the best position to do that are industry heavyweights such as General Motors Corp.and General Electric Co.

GM, Ford Motor Co.and DaimlerChrysler AG are setting up an online purchasing exchange that deals in the billions of dollars of parts and materials the auto industry uses every year.

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