E-MARKETPLACES: Meltdown 2001

Who predicted that a B2C dot-com was bubble and a B2B one
rock? Time to make corrections as leading research agencies hint at a shakeout
even in the supposedly solid B2B segment.

Forrester Research predicts that 2000—01 will see a
significant meltdown in the online marketplace space. It estimates that the
current figure of over 1,000 marketplaces will be cut down to about one-fifth
during this period. Forrester believes that e-marketplace trade will expand
rapidly but the growth will not be able to support all players. Both dot-coms
and industry-specific e-marketplaces such as those established by the
automotive, airline, retail, and grocery industries will undergo a massive
shakeout that will leave less than 200 significant companies operational. Bruce
D Temkin, research director, Forrester says, "The changes coming over the
next three years will dwarf even that level of commotion, as e-marketplaces
jockey to grab the handful of significant opportunities available within
different industries."

The purge

According to Forrester, as companies increase their
e-marketplace trading, they will steer business toward the few sites that meet
their specific needs. The resulting shakeout will occur in three phases. The
first, dubbed "the purge," has already started and will last through
2001. During this time, there won’t be enough online trade to go around, and
many cash-guzzling startups will be forced to fold.

A fortification phase will start in 2001 and last through
2002, according to Forrester. In this period, e-marketplaces that do not meet
the needs of increasingly savvy buyers and sellers will fail. Left standing will
be those B2B exchanges that serve all participants without jeopardizing privacy.
Forrester also predicts that during this period, surviving dot-coms will join
forces to try and compete with the industry-specific partnerships.

Reconciliation

In 2002, according to Forrester, as the hype of doing
business online dies out and rational business practices set in, trade in
e-marketplaces will expand rapidly. Many online markets will reach a critical
mass. At this point, Forrester believes that independent e-marketplaces and
industry consortia will move into a third phase–reconciliation. Successful
e-marketplaces will evolve into one of four roles–procurement mall, industrial
facilitator, commodity mart or vertical hub.

The Indian scenario

In India, a number of e-marketplaces have emerged in various
B2B categories. Says Harsh Vardhan Roongta, CEO, Apnaloan.com, "The
e-marketplace scenario in India can broadly be broken up into two areas–supply
side marketplaces and demand side marketplaces. Indian B2B marketplaces are
still to take off in a big way with industry acceptance still not being complete
and technology still in the evolutionary phase."

What are the current constraints? "The only constraint
that we see is lack of awareness and education. It’s only a matter of time
when people and corporates get aware and ready to use marketplaces," says
Anurag Saraf, CEO, Steelrx.com.

Many e-marketplaces in India are offering an initial free
trial membership period in the hope of getting maximum possible registrations.
But it is unlikely that such an approach will be viable.

Mani Sam, executive VP, Auctionindia.com feels, "In
India anything given as free gets no value and hence most of the listings are
not serious. People just list to check the response. The need of the hour is
places that facilitate fulfillment in an active manner. Free listings will
vanish slowly." Adds Saraf, " If a member perceives value in the
e-marketplace, he is ready to pay anything".

This trend seems set to replicate itself in India. Says Sam,
"There will be a shakeout in India also, which will lead to consolidation
and an end to free service. Marketplaces will have to own responsibility for
revenue generation which is possible only when responsibility for order
fulfillment is undertaken by marketplaces."

Adds Saraf, "India can comfortably support two players
in each segment. In the Internet space, only the best two matter, the third and
fourth don’t count." Roongta says, "At most, a couple of
marketplaces will survive and the rest will either close down or be taken over.
Some large and diversified markets may support larger number of marketplaces as
well."

Pavan Sood, MD, Itna-tion.com feels that the ability of an
e-marketplace to withstand the shakeout will depend on the e-marketplace’s
existing business and revenue model and its ability to build a community. He
also feels that the segments that are highly fragmented and having a high level
of IT penetration will fare better.

What lies ahead?

IDC projects the value of B2B e-commerce transactions flowing
through the e-marketplaces to rise to $1.2 trillion by 2004.

IDC also feels that companies might need to follow certain
criteria when making decisions concerning e-marketplaces. They should look for
an e-marketplace founder that:

• Has deep vertical and process expertise so that he can
  build communities and attract customers

• Is quick to market, because there’s only room for a
  limited number of players

• Can rapidly replicate success. The survivors will be the
  ones that move beyond vertical expertise to operational efficiency to create
  e-marketplaces in new industries and geography

The Boston Consulting Group (BCG) predicts that over the next
few years, e-marketplaces will need to bridge a gap between falling transaction
fees and a growing demand for investment in collaborative services. Transaction
fees are expected to fall

significantly without being offset by other revenue streams like financial
services and logistics. But collaborative services like supply-chain forecasting
and planning tools are expensive and difficult to implement, though critical to
the long-term sustainability of e-marketplaces as they could account for up to
half of the total revenues over the next few years.

According to Gartner, e-marketplaces will take on the role of
both the traditional distributor as well as the application service provider
(ASP). E-marketplaces will also need to take on customer relationship management
(CRM) through other channels apart from their Internet initiatives.

Globally, e-marketplaces seem inclined to follow a period of
weeding and consolidation. The third-party players might be the ones to be first
hit. Since e-marketplaces will be a major form of B2B e-commerce, companies of
all size will have to develop the capability to link to them. What form these
e-marketplaces take or what revenue and business model they adopt, remains
difficult to predict. 

• AMR Research Findings

• 'B2B
  e-com growth will be incremental and not exponential'
  
  Rohan Ajila, CEO, Indiamarkets.com, expresses his views on the constraints
  that e-marketplaces in India are facing in gaining acceptance

DQ