Only three e-marketplace models will survive

With venture capital drying and competition from brick-and-mortar companies, cash liquidity becomes the key to survival.

SINGAPORE - E-marketplaces are set to make up 37% of total business-to-business (B2B) e-commerce transactions through 2004, according to the Gartner Group. As the prevalence of e-marketplaces rises, Gartner sees three business models becoming foundations of e-marketplaces

Gartner recommends that enterprises focus on developing the right set of marketplace participation priorities based on competitive pressures and opportunities to reduce costs. Gartner further recommends that marketplaces focus their efforts to seize the opportunity to dominate their segments

Consolidation
The great e-marketplace shakeout has begun. As venture capital dries up in the B2B space, and as brick-and-mortar companies launch competing initiatives, cash liquidity becomes vital to survival. E-marketplaces will consolidate quickly as many become unable to live on transaction fees alone. The marketplace value proposition must extend beyond re-intermediation to include new ways for participating enterprises to source and deploy IT resources. Operating costs are skyrocketing as new B2B technologies emerge and are integrated with legacy systems. The evolution of the technology is expensive and is not timely. Full maturity of the functionality and the appropriate technology is not expected until 2003. By 2005, global 2000 companies will see less than 15 percent of all procurement performed through marketplaces.

The issue of which companies will survive the e-marketplace shakeout largely depends on capital and on business models. By 2005, three dominant marketplace business models will control 95% of the market: business services marketplaces, commodities marketplaces and integration services marketplaces. Marketplaces that try to be all of those will fail, but marketplaces that focus and execute well will dominate their segments.

Outsourcing
Business services marketplaces will deliver buyer-supplier value by providing focused support for business process and support for trading partner relationships. Examples include financing options for goods or services purchased, as well as fulfillment and delivery services offered by logistics marketplaces. Over time, services provided by business services marketplaces will enable enterprises to outsource some buying activities, reduce the cost of buying and reduce the cost of sales.

Commodities marketplaces will replace some of today's inefficient markets that protect profit margins through asymmetric information, inefficient spot markets and excess product auctions. Those marketplaces will also allow for speculation of commodities and futures in product and service categories where that is not feasible today. Gartner predicts that for suppliers participating in commodity marketplaces, marketing will radically evolve, and price hedging and capacity management and sales will become core success factors.

Demand for simplification
Integration services marketplaces will focus on linkages between trade entities and process definition rather than on business functionality. That is because the inherent splintering of marketplace functionality will seed market demand for simplified interoperation approaches, alleviating the system integration strains for enterprise-to-marketplace and marketplace-to-marketplace communication. This powerful new player will introduce a convergence of the marketplace, application software, and application services provider business models.

"In order to survive, e-marketplaces must overcome increased operating costs and provide an extremely compelling reason for moving tightly integrated business processes to a marketplace," said Carl Lenz, a Gartner research director. "The complexity of enabling suppliers to participate in a marketplace has been overlooked. Marketplace functionality and participation are currently limited, but by 2005 more than 500,000 companies will participate in marketplaces as buyers or sellers, or both."

Asia Pacific
"In Asia/Pacific, the first wave of e-marketplaces was stimulated by overseas buyers' e-procurement implementations forcing local suppliers onto exchange networks," according to Lane Leskela, Research Director for Gartner's eMarket Intelligence Services Asia/Pacific. "In 2000, the increased necessity of operating cost reduction and global demand aggregation has lead to the creation of collaborative Asia/Pacific marketplaces in key industries like chemicals, steel, transportation and process manufacturing. By 2003, market creation and consolidation in global marketplaces will see Asia/Pacific reach the one-thousand e-marketplaces threshold."