The Day Ahead: Why some consortia B2B exchanges won't work

Industry titans -- and sworn enemies -- are joining forces so the dot-com crowd doesn't encroach on their turf. Can these giants work together?

Seems like every industry giant these days is forming a business-to-business e-commerce exchange. Industry titans -- and sworn enemies -- are joining forces so the dot-com crowd doesn't encroach on their turf. Death to the middlemen, they proclaim.

Don't believe the hype. In the last two months, there have been roughly 20 consortia B2B announcements. Every company from the Big Three automakers to Wal-Mart to IBM, Compaq and Hewlett-Packard and the steelmakers have announced B2B ventures.

Here's the question few are asking: Can these industry titans work together?

Wall Street thinks so -- at least for now. That's why shares of B2B incubator Internet Capital Group, VerticalNet, CommerceOne, FreeMarkets, Ariba and a host of others have come down from nosebleed heights. Folks, that's one ugly B2B stock chart.

It's not surprising investors are worried about B2B Net stocks. General Motors, Ford, Chevron , Wal-Mart, Proctor & Gamble and Boeing announced B2B ventures. IBM announced a B2B component exchange just hours after Compaq, Hewlett-Packard and Gateway formed an alliance.

On the surface, it appears the dot-com B2B crowd could be cooked. However, Patrick Walravens, an analyst at Lehman Brothers, said these consortia B2B ventures may not have much of an effect.

Here are a few reasons why:

  • Many of the old economy ventures aren't even launched. Before any company really gets rolling it needs a few things -- a name, a CEO and a Web site. Many of these alleged B2B killers don't have any of the above. Wake us up when you build a site. The automakers' venture has no name, no CEO, no regulatory approval and no site. Some threat.

  • Old enemies won't get along. Do you honestly think the Big Three automakers will get along without any problems? Are a bunch of rival PC vendors suddenly going to combine forces in the name of cheaper components? These companies don't need a B2B site, they need a referee. "Can you imagine the board meeting with these guys?" asked Tim Getz, an analyst with Prudential Volpe Technology Group.

    Dell has already asked the question -- it didn't join the IBM or Compaq B2B alliance. Chances are pretty good some of these old economy exchanges will unravel just because the big players won't get along. Sure, Oracle, i2 and CommerceOne can supply the e-commerce software, but are they going to manage the infighting too?

  • Antitrust concerns. When industry titans get together, regulators notice. In fact, middlemen begin to look a lot better. Regulators are still looking over the Big Three automakers' venture. The auto honchos said they expect approval from the US Federal Trade Commission by September. Don't count on it. The FTC is holding a public workshop on the rules of the B2B game June 29. That indicates regulators are still cooking up the criteria for approval.

    The antitrust issue -- many dominant players joining forces -- could derail the whole consortia movement.

  • Conflicts of interests -- There's profit to be made for neutral players. Exchanges will turn into consortia fiefdoms. Dot-coms that remain neutral still have a role as either a go-between or exchange operator.

    Of course, some of these old economy exchanges will do just fine once they get rolling. However, many will fail because of the reasons listed above. In his fireside chat last Tuesday, IBM chief Lou Gerstner said many e-marketplaces won't work. "As usual, there's this Net craziness and confusion over B2B," he said. "There's a big difference between sexy announcements and actually driving costs down."

    And many industry titans are still in the sexy announcement stage.

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