What went wrong with B2B?

Dazed and confused. That best describes the state of the e-marketplace industry today

The launch of high-profile, public exchanges has slowed from a tidal wave to a trickle. B2B stock prices are gutted and the IPO market, which was expected to fund many of these marketplaces, is shut tight.

Meanwhile, hardly anyone is convinced that Net markets are better business enablers than the phone, fax or a bottle of Jim Beam over dinner.

"E-marketplaces are rapidly sliding to the trough of disillusionment," argues Whit Andrews, research director at the Gartner Group.

What happened? In a nutshell, too much talk and too little action.

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First, there were the promises that the first wave of e-marketplaces would fit any type of B2B commerce when, in fact, the "fat butterfly" model is well-suited only for a handful of businesses, mainly spot markets for commodities.

Marketplaces got built, but suppliers saw little benefit in competing solely on price, and stayed away in droves. As a result, most Net markets lack "liquidity" (transaction volume), the factor that creates marketplace efficiency.

So now the rush is on to go after the trading of indirect materials and goods, a much bigger piece of the B2B pie.

To do that, these Net markets not only have to move beyond procurement into product design, financial settlement, fulfillment, logistics and other trading functions that add more value, but they also must integrate all of that functionality into a corporation's back-end systems, which could add the most value of all.

Still, that is a very difficult assignment, and three- to six-month deployment schedules have become a thing of the past. Two-, three- and even five-year projects will be more typical.

As for the ultimate goal of e-marketplaces—a global trading Web that vendors and pundits say will transform business—think not in terms of years, but decades.

"We believe this is a huge shift in business on the order of magnitude of the industrial revolution," says Matt Porta, head of e-market strategy for PricewaterhouseCoopers in San Francisco. "A massive technology infrastructure needs to be built, but a massive change in every other aspect of business also [needs to occur]."

This article is excerpted from a longer story "B2B sweet spot."