Industry titans vs. independents

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This spring, they were the talk of the industry: coalitions of the world's largest brick-and-mortar companies joining forces to form online marketplaces. This summer, the progress of these initiatives can best be described as mixed.

Several industry consortia -- notably auto, consumer food and beverage, electronics and metals -- have moved beyond the press release stage, though they are, for the most part, a long way from conducting their first transactions.

Other industry exchanges have yet to break out of the board room, as top-level executives at companies that traditionally have been staunch competitors labor to find common ground.

Meanwhile, pioneering independent marketplaces -- the Chemdexes, PlasticsNets and VerticalNets of the world -- have been busy criticizing their brick-and-mortar counterparts. They wonder aloud if the industry-backed exchanges will get off the ground.

They snipe at their own risk, analysts say. "Yeah, that's a good idea: Criticize the companies you need to make your own marketplace liquid,'' said AMR Research analyst Pierre Mitchell.

"It would be nice for all of this to consolidate into one exchange,'' said Phil Folk, director of corporate staff operations for electronics manufacturing services company Solectron Corp., in an allusion to how the auto industry folded its efforts into Covisint. "That would simplify life for everybody. But given the history and complexity of [the electronics] industry, that's very unlikely in the near term.'' Solectron is a founding member of, a computer and electronics exchange that launched this month.

Which marketplaces will thrive and which will flounder? Some trends at last are emerging to help handicap this important question.

Good signs: A few major companies leading the effort vs. dozens of "equals'' fighting for control; defined management teams, including a full-time CEO; quick agreement on technology partners; success in attracting big-name suppliers to the market; and existing procurement-system or e-marketplace transactions that can be transferred quickly to the new industrywide site.

Bad signs: Vague press releases followed by relative silence; countless "neutral-location'' planning meetings; and the loss of founding members or key suppliers to rival efforts.

Out of the blocks

This week, the yet unnamed health care supplier exchange announced earlier this year will release more details on its planned third-quarter launch. The exchange, founded by Johnson & Johnson, GE Medical Systems, Baxter International, Abbott Laboratories and Medtronics Inc. will give a progress update at this week's Healthcare Interactive 2000 conference in Houston, where Mike Mahoney, president and general manager of the new company, will make a keynote address.

Other brick-and-mortar marketplaces have made significant progress in the past few weeks.

Auto marketplace Covisint, perhaps the most closely watched of these efforts, has landed a handful of key suppliers, even as it awaits the results of a regulatory review.

In one of the splashiest launches yet, 49 of the world's largest food and beverage companies last week debuted Transora, an e-marketplace for the consumer-products industry.

Another marketplace off to a strong start is, led by IBM Corp., Nortel Networks, Solectron, Toshiba and a few others. The company's unique go-to-market strategy involves jump-starting by folding together several existing e-markets, including Virtual Component Exchange, a private exchange out of Singapore; IBM's Component Knowledge; and the public portion of i2 Technologies Inc.'s Trade Matrix that features electronics.

The existing sites handled $100 million worth of transactions last month and more than a $1 billion in the past year, according to interim CEO John Mumford.

That makes a rare bird indeed. It may be the only brick-and-mortar marketplace handling at least some form of transactions from day one. Within a month or two, plans to deploy new technology from Ariba Inc. and i2 Technologies to add even more robust supply-chain functionality to the site, Mumford said.

The site is far from alone. In addition to independent electronics marketplaces such as VerticalNet's NECX and, Hewlett-Packard and Compaq Computer have formed a team to build an electronics-industry marketplace.

While Solectron's Folk may wish for an ideal world in which independent and brick-and-mortar exchanges live in harmony, that doesn't mean won't simplify life for computer and electronics vendors.

"We deal with hundreds of companies as customers and thousands as suppliers, each with its own unique way of doing transactions,'' Folk said. "If we can get the marketplaces down to a dozen or so, that's a huge improvement over where we are today.''

In addition to having its technology partners picked, also comes out of the gate well-funded, with venture-capital backing from Crosspoint Venture Partners and Morgan Stanley Dean Witter & Co. All told, the partners in the effort have committed $200 million to launching the exchange.

Several other brick-and-mortar marketplaces made progress recently by naming their technology partners.

Pantellos Corporation, a consortium started by 15 energy and utility companies (including PG&E Corp. and Duke Energy), recently picked Commerce One as its technology vendor. Six additional energy companies have joined the effort. And Pantellos has tapped Morgan Stanley Dean Witter and PricewaterhouseCoopers to help it get its market off the ground.

Meanwhile, specialty metals marketplace MetalSpectrum chose Ariba and i2 Technologies as its technology providers. The new exchange, led by Alcoa Inc., Reynolds Aluminum Supply Co., and Allegheny Technologies Inc., among others, is set to launch its marketplace in September. It opened its headquarters, staffed with 50 new hires, last week in Atlanta.

MetalSpectrum's partners have been meeting every two weeks since the company's formation earlier this year and insisting on having decisionmakers in the room every step of the way, said Bob Wetherbee, acting MetalSpectrum CEO, formerly an Alcoa executive. That focus will enable the company also to announce decisions on system integrators and the next round of equity partners shortly.

"It's been a pleasant surprise, the level of commitment from the companies that have signed up,'' Wetherbee said. "A lot of times, companies just sign on to test the waters.''

Bump and go

Envera Corp., an e-marketplace being formed by a consortium of chemical and petroleum industry companies, did start off ahead of most e-marketplaces. At least it had a name. It also has a CEO, Robert Mooney.

But Envera has made few announcements since its initial press release on March 21. On its Web site, it has posted press releases announcing three equity partners -- Solutia, Lyondell and Equistar. In total, Envera has "about 20 equity partners,'' said Rick Chvala, VP-director of marketing, including Albemarle Corp., Ethyl Corp. and Occidental Chemical Corp.

Envera plans to begin beta testing next month and officially begin conducting transactions by Oct. 1, according to CTO Mike Giesler. The consortium has signed up about 100 trading partners, Chvala said.

What it doesn't have -- at least as equity partners -- are two of the companies mentioned "as exploring the Envera business plan'' in the initial press release. Rohm & Haas Co. bolted for the chemical-industry consortium announced on May 17 that includes DuPont, Dow Chemical and BASF. "We just felt that one had the best value proposition for us,'' said Lisa Conrads, e-business communications manager for Rohm & Haas.

Envera also had talks with Eastman Chemical Co., which has decided not to join any consortium for the moment. "For now, we have made the decision not to invest or help build those marketplaces,'' said Fred Buehler, Eastman's director of e-business. "What we're focusing our investment money on is building capability for our customers and focusing on direct customer solutions.''

Although Buehler says Eastman hasn't ruled out joining brick-and-mortar consortia, it has inked partnerships with dot-com companies, such as VerticalNet Inc. and its e-commerce site as well as ChemConnect Inc., in which Eastman holds an equity stake. The difference between this site and Enera's is obvious: "It's up and running and live,'' Buehler said of the site, which already is generating e-commerce revenues.

Elsewhere, it's difficult to say how much progress is being made on the aerospace e-marketplace being formed by the consortium of Boeing Co., Lockheed Martin Corp., Raytheon Co., and BAE Systems. The companies haven't issued an announcement since the initial press conference trumpeting the project in late March.

There has been no name announced, no CEO chosen. But a steering committee meets on an "ongoing'' basis, said Bob Jorgensen, a Boeing spokesman. Five other committees also meet every Tuesday, he said. "There's a lot of progress going on behind closed doors,'' said Deborah Anderson, a Raytheon spokesperson.

Those doors are slated to open on July 25 at the Farnborough International Air Show in England. That's when the four members of the consortium will hold a joint press conference, according to Jorgensen. Expected to be revealed on that day are the project's name, its business structure and its CEO.

Jorgensen was confident enough in the progress of discussions to predict that the site would be conducting transactions on or around Aug. 31. He said that the nature of the aerospace and defense industry, with companies constantly balancing relationships as suppliers, partners and competitors, may make the ability to work together on an e-marketplace easier for Boeing, Raytheon, Lockheed Martin and BAE Systems.

But to ensure that the companies work together and to enforce neutrality, they have retained Andersen Consulting to "be the business arm of the company,'' Jorgensen said. Andersen is currently developing the business plan, working on gaining regulatory approval for the site around the world, overseeing the naming and branding efforts, and searching for a CEO.

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