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Horizontal success could be on horizon

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Conventional wisdom has held that Internet marketplaces do best when they are tightly focused on a specific vertical industry. But challengers to the idea are rising and creating what some call "super horizontals"—alternative marketplaces that reach a broad number of industries over the Internet.

Backers say super horizontals are promising businesses that can deliver immediate benefits from the Internet when vertical marketplaces cannot.

Worldwide e-marketplace spending will increase from $5.2 billion in 2000 to $17 billion in 2005, according to International Data Corp. Super horizontals are best positioned to grab a lion’s share of those dollars, proponents said.

Skeptics say super horizontals have limited promise and that over the long haul the value of highly targeted vertical hubs will show, with more productive, more reactive and ultimately more profitable businesses.

"There will be horizontal marketplaces, but they aren’t going to be significant in the grand scheme," said Pravesh Mehra, consultant with the global b-to-b digital marketplaces practice of Cap Gemini Ernst & Young U.S. L.L.C., Cupertino, Calif. "The real value, long term, will be to deal with niche interactions within a vertical industry."

Notable failures

Mehra noted that many horizontal marketplaces have already failed.

For example, Dell Computer Corp. earlier this year shelved its b-to-b buying hub, and Hewlett-Packard Co. and American Express Co. have shown mixed results with their horizontal platforms, Mehra said. Also, Sun Microsystems Inc. appears to have scrapped plans to build a horizontal portal, he said.

Corporate United Corp. and TradeMC Inc. are two of the latest examples of super horizontals.

Corporate United is designed to be a buying service for Fortune 500 companies; it works with vendors in many vertical industries to create volume price breaks for its clients.

Gregg Mylett, president of Corporate United, Cleveland, has convinced such diverse companies as Sherwin-Williams Co., Parker Hannifin Corp. and Lubrizol Corp. to consolidate their purchases through his company. The suppliers pay Corporate United a bounty for each contract landed. "We’re an e-commerce solution that gets true cost reductions through leverage," Mylett said. "Suppliers are paying us for creating contracts on behalf of our members."

TradeMC, Lewisville, Texas, purchases goods and services on behalf of clients of Fluor Corp., an Aliso Viejo, Calif.-based engineering and construction company. Jim Poage, TradeMC chief marketing officer, said the exchange will handle several hundred million dollars in transactions this year. "We capture value by doing something that is difficult for Fluor to do internally," Poage said. The site works across multiple horizontal industries to cut the cost of purchases for construction projects.

"TradeMC has proven the value proposition. So it is a no-brainer to use this mechanism," said Joel Jelinek, Fluor VP-material management.

A solid chance

In general, the prognosis for horizontals isn’t good, but far-reaching super horizontal marketplaces such as Corporate United and TradeMC have a solid chance, said Shaun Greene, manager of Deloitte Consulting’s e-business unit, San Francisco.

Of 1,758 marketplaces counted by Deloitte in 2000, 538 of them were horizontal. A hundred of those have already shut down, Greene said. The strongest are able to cast a wide swath and rely on key buyer relationships to survive, he said.

"The vertical industry marketplaces are going to continue to take a lot of liquidity from the horizontals," Greene said. "And there are only three keys to a successful b-to-b marketplace: liquidity, liquidity and liquidity. The key for the super horizontals will be on the alliances they form, and how well they work with their buyers and sellers." M

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