Private exchanges muscle in on B2B markets

Industry consortium exchanges could face stiff competition from private trading hubs as consolidation and industry rivalry drives companies to establish their own marketplaces.

Industry consortium exchanges could face stiff competition from private trading hubs as consolidation and industry rivalry drives companies to establish their own marketplaces.

Despite a new survey from analyst house Jupiter Research, which classifies industry sponsored marketplaces (ISMs) as the fastest growing internet market, analysts say that private marketplaces - those owned and maintained by one company for the purpose of trading with their own partners - are set to become a significant force. James MacAonghus, research analyst at Jupiter and one of the authors behind the report, explained that developments in the US market are fuelling ISM growth. However, he said higher levels of small to medium sized enterprises (SMEs) this side of the Atlantic means European B2B circles could be more receptive to independent, vertical marketplaces and private hubs. He said: "In the short term there is room for either private hubs or ISMs. It will be a delicate balance. ISMs give liquidity and private hubs allow customers to chose their trading partners, but for cost savings you just want one. Whatever happens, I think we'll move from companies trading with companies to markets trading with markets." Nigel Montgomery, an analyst with AMR Research, said private hubs may play an increasingly vital role but financial and technical constraints could see the emergence of a hybrid model. He said: "If I was heading a big corporation I would be sceptical about maintaining my own exchange when I don't know what I'm doing. I'm going to go out and find someone to give me that funtionality. Instead of hundreds of private exchanges I think we'll see the independent verticals offering value-added services, such as private trading capabilities, and we'll see companies using that." Dan Tiernan, CEO of B2B software vendor Atlas Commerce, has already provided private marketplace technology for customers such as HP and Walmart. He said that while large enterprises will continue to participate in industry driven exchanges, many of them realise the competitive advantages of private exchanges. "Consortium marketplaces require a business to change the way they source suppliers, even change the suppliers they work with, and to change the way they've competed over the past hundred years. It might create a level playing field, but if you're a leading market player, you might be quite happy to keep the playing field uneven," said Tiernan.