Exchanges: Will They Survive or Die?

Jun 18, 2002

In the summer of 2000, nearly 200 transactional e-marketplaces were forecast to double by 2004. However, many folded or consolidated when financing dried up with the cooling of the technology market trend. Fewer than 100 e-marketplaces remain today, estimates Dan Garretson, analyst with Forrester Research. Many of the survivors have changed their business models.

“The biggest failure was people started from scratch when the big payoff is to improve existing relationships,” says Rick Villars, vice president for Internet research at International Data Corp. in Framingham, Mass., in a Boston Globe report.

In the original e-marketplace picture, too much money invested chased too little revenue. E-marketplaces oversimplified inherently complex interactions. Constituents did not buy into the technology. The wrong people were put in charge. Sometimes, clicking turned out to be less flexible than phoning. And with commodities such as foodstuffs, where profit margins are razor thin to begin with, much of the excess cost had been extracted from the process long ago.

Moderator Comment: How are the major retailing and CPG industry exchanges
performing in your view?

You may have seen other reports announcing that Linens ‘n Things has joined GlobalNetXchange. Bill Giles, CFO, of the N.J.-based retailer said, “Linens ‘n Things views online negotiations as a promising new tool that will assist us in streamlining and driving down costs in our procurement.” Clearly, retailers believe they are realizing benefits from the exchanges.

Wringing out costs that unnecessarily drive up product prices is an effort to be commended. We can’t help wondering, however, if retailers are spending half as much time figuring out how to merchandise and sell product as they are trying to save it on the purchasing end.

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