PC Industry's Battle Of Exchanges

In November 1999, Matt Massengill, chief executive of Western Digital, had a brainstorm. He picked up the phone and called the CEOs of two of his biggest customers, Compaq Computer and Hewlett-Packard, to tell them about it.
Written by Len Grzanka, Contributor
In November 1999, Matt Massengill, chief executive of Western Digital, had a brainstorm. He picked up the phone and called the CEOs of two of his biggest customers, Compaq Computer and Hewlett-Packard, to tell them about it.

by Len Grzanka Special To Inter@ctive Week

23 May 2000 - Soon Compaq's Michael Capellas and HP's Carly Fiorina were also working the phones. The result: A dozen major personal computer vendors and component suppliers announced on May 1 a trade exchange to standardize purchasing rules, pool component purchases and sell surplus inventory.

Among those signing on to back eHiTex, the temporary name for the work in progress, are Advanced Micro Devices, Gateway, Hitachi, Infineon Technologies, NEC, Quantum, Samsung Electronics, SCI Systems and Solectron, says Wolfgang Nickl, director of business solutions at Western Digital.

While the lineup was impressive, observers were quick to note that many other industry heavyweights - Apple Computer, Cisco Systems, Dell Computer, EMC, IBM, Intel and Sun Microsystems - were among the missing. Would they be signing on? If not, would some, or all, of the other players form their own e-market? And can the market support a number of different exchanges?

The short answer: IBM will form its own exchange, but no one is sure how many e-markets the industry can support.

Curt Francis, vice president of corporate development at Quantum and the company's representative on eHiTex, says the exchange provides "an alternative to the complications of one-to-one EDI [electronic data interchange] solutions - one with Dell, a different one with IBM. But if we have 10 or 20 exchanges, that would be tough." The problem with EDI, he says, is that a company has to develop protocols and synchronize back-end databases for each EDI hookup, and then keep them all synchronized.

IBM's agenda
David Yockelson, senior vice president at Meta Group, a technology and business advisory services company, says some won't participate in the new effort because they believe it will fail. "In IBM's view, a dozen companies trying to collaborate and construct something won't succeed, or would take too long to succeed," he says. "Also, IBM has an agenda in the industry of creating and rolling out its own trade-exchange platform to sell to other people."

IBM isn't talking - other than to say that it will announce its own trade exchange with nine other partners by the end of May, according to IBM spokeswoman Laura Keeton. "It's likely we'll be able to interact with each other," Keeton says. "There's room for more than one exchange." Steven Ward, the executive at IBM who is setting up the exchange, has said the nine companies will include "the biggest electronics companies in Korea, Japan, the Nordics, Europe, Canada and the U.S."

While IBM is a significant customer of Western Digital, a data storage company, Nickl says the company will urge all of its customers and suppliers to go through eHiTex. "The reason for the exchange is every player only has to hook up once," he says. "The ultimate goal is one perfect market. Hookups to two or three exchanges decrease efficiencies." Nickl emphasizes that the founders deliberately excluded exchange software vendors and application service providers from partnership to maintain technology independence. "We will issue an RFQ [request for qualifications] soon," he says. "We are open to hosting at a data center, or going with an ASP. We haven't made a decision yet."

It's a no-brainer that IBM's exchange will use technology from Ariba and i2 Technologies. Along with its substantial investment in both companies, IBM Chairman and CEO Lou Gerstner told analysts on May 9 that "these e-marketplaces are going to broker a lot of transactions. And we're going to build a lot of them with our partners, Ariba and i2." Dell has also made a substantial investment in Ariba. Dell wouldn't speculate on its furture plans and an Ariba spokeswoman declined to comment.

The eHiTex business plan projects at least 20 members, each contributing $5 million. Nickl says the organization is nearing its recruitment goal for founders. The group says the exchange will go live within 90 days with auctions, catalog management and value-added services like a news ticker. Enhancements planned for the future include demand forecasting, inventory visibility, capacity utilization, online supply commitments, reverse logistics, value-added services like factoring and escrow, online conventions, trading agents and collaborative product-design services.

Francis notes that eHiTex is the first exchange to be driven by suppliers as much as purchasers. "It's intended to improve supply chain efficiencies as opposed to something driven by a software vendor, consultant or hub to generate revenue," he says.

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