B2B Marketplaces Predicted to Thin Out

The North American business-to-business (B2B) e-marketplace grew 171 percent in 1999, propelled by “brick-to-click” distributors and established dot-com marketplaces, according to research by Gartner Group, Inc. E-market maker revenue reached nearly $500 million in 1999, an increase from 1998 revenue of $183 million.

Gartner defines a B2B e-market maker as an enterprise that brings together buyers and sellers within a particular industry, geographic region, or affinity group for the purpose of commerce. It provides content, value-added services and, at times, commerce transaction capabilities. This market intermediary market is quickly evolving to a highly competitive market that includes a variety of players with previously disparate business models, including software, portals, distributors, ASPs, and business service providers.

“Online operations of brick-and-mortar intermediaries like Ingram Micro dominated the market in 1999,” said Leah Knight, research director for Gartner’s e-Business Services. “This evidences the relative ease of migrating an existing customer base to an online model over building a new customer base from scratch, which many of the dot-com marketplaces have been struggling to do. It also shows the strength in many industries of the value-added business services model (for example, providing demand generation, quality assurance, and logistical services) versus the transaction-fee model. Still, many of the brick-and-mortar intermediaries are facing challenges themselves due to margins.”

Gartner predicts that as the market requirements drive market makers to intermediate increasingly complex buyer-supplier relationships and processes, marketplaces will constrain their focus, producing an environment populated by three unique marketplaces:

  • The commodity marketplace, which will support high-volume trade of products and services of commodity or near-commodity status, as well as financial instruments such as futures contracts.
  • Business service marketplaces, which will be focused on supporting specific inter-enterprise processes, such as those related to logistics; financial services; and maintenance, repair, and operations procurement.
  • Integration service marketplaces, which will emerge with a focus on linkages and process definitions, and between trading partners to facilitate process-to-process integration.

“Through 2005, the competitive landscape will be significantly transformed to a hub-spoke-Web model of inter-enterprise e-marketplace engagement among the three marketplace models,” Knight said. “Marketplaces that try to support all three models will fail, but marketplaces that focus with rich software and services environments as required, and a strong base of partners, will dominate their segments.”

Forrester Research also predicts an e-marketplace shakeout because the rapidly growing B2B trade will not support the number of players. The shakeout will leave fewer than 200 significant companies, according to Forrester.

“The explosion of e-marketplaces has created a crowded landscape within most industries,” said Steven Kafka, senior analyst at Forrester Research. “Large firms are faced with a confusing set of options for participating in these venues: different ownership models, equity structures, and product offerings. And, in this flurry of activity, firms must navigate through a free-for-all dealmaking environment.”

As companies increase their trading through e-marketplaces, they will develop loyalty to a few sites that meet their specific needs. As a result, Forrester predicts that the massive shakeout will roll across the industry in three phases: The Purge (2000-01), Fortification (2001-02), and Reconciliation (2002-03). The Purge will force many dot-coms to fold as they spin around in overcrowded industries and attempt to compete with industry consortia. Fortification will give rise to increasingly savvy buyers and sellers as well as consolidation among dot-coms, according to Forrester. The Reconciliation phase will see many alliances between dot-coms and industry consortia, and successful e-marketplaces will evolve into one of four roles: procurement mall, industrial facilitator, commodity mart, or vertical hub.

“We’ve seen an enormous amount of hustle and bustle with e-marketplaces over the past 12 months. But 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,” said Bruce Temkin, research director at Forrester.


North American E-Market Maker Revenue Estimates
(millions of US dollars)
Company 1999 1998
Revenue Market
Share

(%)
Revenue Market
Share

(%)
Growth
(%)
Ingram Micro 131.2 26.4 53.5 29.2 145.2
Tech Data 60.6 12.2 18.0 9.8 236.0
Arrow Electronics 59.1 11.9 25.7 14.0 130.0
Avnet 37.7 7.6 17.3 9.4 117.9
Grainger 37.4 7.6 4.9 2.6 633.0
VerticalNet 19.7 4.0 3.0 1.6 556.7
FreeMarkets 15.7 3.2 5.9 3.2 166.1
Alatra Energy
Technologies
15.0 3.0 9.0 4.9 66.7
Others 121.2 24.1 45.9 25.1 164.0
Total 497.6 100.0 183.2 100.0 171.0
Source: Gartner Group

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