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Are most hubs doomed to fail?

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The race to announce new--and almost always un-named, un-manned, and nowhere-near-ready-to-launch--Net marketplaces has become so hectic that even the players need a scorecard.

But the question is: How many of these markets will actually prosper?

Not many, in the view of AMR Research, which late last month issued perhaps the most scathing indictment yet of the emerging e-hub market, predicting that only 50 to 100 Net marketplaces--of more than 600-plus announced to date, including recent entries in the personal computer, airline, hotel and metals industries--will survive into next year.

"The reality is that in the next 18 months, through bankruptcy, mergers, and acquisitions, that number will drop to two or three within each industry," said Scott Latham, the lead AMR analyst on the report.

The thinning out should be closely watched by companies counting on marketplaces as a key piece of their e-business plans. "It is one issue if the dot-com bookstore that sold you the latest New York Times best-seller goes bankrupt, but the stakes are considerably higher if the [exchange] your company selects as part of your overall e-business strategy goes belly-up," Latham said.

Marketplace catch-22

AMR sees a catch-22. Net marketplaces are having difficulty attracting enough buyers and sellers to reach a critical mass. So they are being forced to re-evaluate their neutral positions and take on equity industry partners. But by handing thekeys over to large industry buyers, exchanges may be forced to lower or abandon fees altogether due to pressure from their new partners. Suppliers are also putting pressure on Net markets to cut fees.

Customers are also demanding a level of technical integration that most Net markets aren't yet ready to tackle, AMR reported.

That isn't stopping more and more Net markets from rising up to the challenge. The highest-profile launch in the past two weeks came from the PC industry, where 12 companies led by Hewlett-Packard, Compaq, Gateway, Solectron, Hitachi and AMD said they will create an independent company to build a marketplace for buying and selling PC components.

The new company lacks a name, management structure or technology platform--the members promise to sort that out in the next 90 days. They said they will contribute a total of $100 million to fund the marketplace.

Computer companies could still cut as much as 7% from their transaction costs by using such an exchange, Compaq CEO Michael Capellas said. That could have a big impact on the industry's razor-thin margins.

Hewlett-Packard CEO Carly Fiorina predicted the marketplace would "revolutionize supply-chain management. We're talking about using the Internet to drive speed and efficiency," she said.

Missing from the PC industry announcement: tech giants Intel, Dell and IBM. Intel and Dell have already deployed their own Internet procurement systems. Intel, for instance, moves more than $1 billion worth of chip-sets through its e-commerce site each month. Dell has also committed to buy $16 billion of components directly from IBM in a deal that sets IBM up as its most strategic vendor. Sources said Intel and Dell were still evaluating how more open marketplaces might benefit them.

IBM, meanwhile, responded to the HP-led announcement by issuing a brief statement that it would launch its own multi-company procurement e-marketplace. Details from Big Blue should come by the end of the month.

Analysts said there was a good chance separate PC industry markets would fold into one another, much as competing auto industry marketplaces were merged into one.

Crowded skies

Just as messy is the aerospace industry. The latest marketplace venture came recently, with American Airlines, Air France, British Airways, Continental Airlines, Delta Airlines and United Airlines joining to build an e-procurement system.

The companies said they will flesh out the missing details--including management structure, technology vendor and more--and formally launch within 60 days. They expect to be live with the marketplace within six months.

A buyer-driven site gives the airlines the potential to aggregate buying and drive down costs, and potentially access to a wider array of suppliers.

But the site will debut in a sector already rich with Net markets. Indeed, the new venture isn't the only brick-and-mortar airline effort. Members of the Star Alliance--an international airline network that includes Air Canada, All Nippon Airways, Austrian Airlines Group, Lufthansa German Airlines--announced their own Net market recently.

There's also a brick-and-mortar sell-side exchange in the works, led by Boeing, Lockheed Martin, Raytheon and British Aerospace.

Independent markets in the aerospace industry include MyAir-craft.com, announced by United Technologies, Honeywell and i2 Technologies. General Electric also recently launched an online exchange--for major airlines that are GE customers--to buy and sell parts over the Internet.

"So many of these big monsters are coming into it these days. Everybody's fishing around for something that's going to work," said Barry Wightman, VP of marketing for TradeAir.com, yet another aerospace marketplace, which focuses on selling surplus and used equipment. "I imagine suppliers are going to start complaining about getting squeezed. Within a year, there's going to be a lot of consolidation. A lot of business models will be tried and fail."

Wightman is especially skeptical about large competitors--like American Airlines and United Airlines, or Ford and General Motors--getting together to cooperatively build a marketplace. "Here we've got these arch-competitors trying to figure out how to put together this sleek, cool, fast thing. That's pretty daunting," he said.

Rounding out the recent marketplace launches, Marriott International Inc. and Hyatt Corp. said they will build an open marketplace for hospitality industry procurement.

Also, a group of metal companies said they formed a joint venture, dubbed MetalSpectrum, to build a specialty metals marketplace. Among the participants are Alcoa Inc., Allegheny Technologies Inc., Kaiser Aluminum Corp. and Thyssen Inc.

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