'Cybermediaries': The Net's new kings

The e-commerce revolution may have received a lot of press for the way it has eliminated the middleman standing between buyers and suppliers, but at the same time it has enabled a whole new class of middlemen.

These new market makers go by a variety of names: "cybermediaries," info intermediaries, netmarkets, e-markets. But get used to them; Analyst firm the Gartner Group predicts around 100,000 of these online marketplaces will be in operation by the year 2001, up from around 300 now.

"They are doing what old-time marketplaces did -- they're bringing buyers and sellers together. But there's not a single solution. The value they bring is making sense of the market in many different ways," said Kevin Jones, an analyst at newsletter and consulting firm NetMarketMakers.com. "These sites are going into places were there's a particular point of friction -- either there's not good information, or shipping is too expensive, or something like that."

Solving the point of friction is what makes the markets work, he said, not just making the buying process electronic. The Web has removed much of the friction felt by Hank LeClaire, director of auxiliary services at Marriott Calusa Harbour, an old peoples home in Fort Myers, Florida. LeClaire used to spend hours buying products for his caretakers. Because the food service industry doesn't use standardised bar codes, he had to deal with seven or eight different suppliers, looking through each vendor's catalogue, filling out a purchase order, and then calling them to make the order. Now, he logs on to his computer once a month, makes a few clicks, and he's done.

Behind the shift is a system from Instill Corp. that allows catering companies like restaurants and hotels to electronically connect to distributors and vendors. Instill has made a business for itself by matching up buyers and sellers in a highly fragmented, non-technical industry. Andy Cohen, Instill's vice president of marketing, said that one in three orders contains mistakes, and record-keeping is spotty at best. "They all recognise that it's a waste of time for chefs to have to pick up the phone and call," he said. "The hurdle has really been having the hardware in the restaurant. A lot of them had older computers or hadn't been connected."

With the National Transportation Exchange, using the Internet allows road haulage rirms with unsold capacity to find a shipper who needs to send something along the same route. While the two could have found each other with out the Internet, the logistics made such deals all but impossible. NTE doesn't just find a load that's going the same place as the trucker, it confirms that the two loads are compatible -- so chemicals don't get shipped with food, for example -- and resolves other issues for the companies. Filling up empty space on individual trucks may seem like small potatoes, but NTE officials say it adds up to at least $31bn (19bn) in lost revenue for the industry.

So why are all these markets emerging now? There are many reasons, but a key factor is the emergence of open standards surrounding the Internet. In the past, companies that tried to set up online marketplaces had to rely on proprietary technologies, and then convince companies it was worth it to shell out for the new systems. "It's only in the last few years that the corporate intranet and the browsers have become mandatory. So everyone has access," said Dave Rome, vice president of marketing at Ariba Inc., a company that sells software intended to help buyers streamline the ordering process. Ariba also hooks up buyers and sellers through an Internet database.

Lack of standards may have been the reason that earlier attempts to computerise the process didn't work out. EDI, electronic document interchange, has been around for a while as a method for companies to talk to their suppliers electronically. "I remember people thinking it would be revolutionary. But it had issues; formats needed to be standardised. And it was really a one-to-one communication, so you'd have to create new protocols, standards and translation for virtually every partner," said Chris Davis, vice president and co-director of the e-business program at Computer Sciences Corp. "What the Internet enables is many-to-many. And organisations need to agree on a many-to-many basis."

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