"For many companies, b-to-b is not about finding new trading partners. It's about working more closely with the ones they already have,'' said Dan Tiernan, president and co-founder of Atlas Commerce Inc., a vendor whose supply chain technology was built with the idea of private exchanges in mind. "Many companies don't want to be in a public exchange like Transora or the WorldWide Retail Exchange. When it comes to managing their supply chain, they already do that better than anyone else.''
Private markets have become a huge phenomenon. About 93% of all b-to-b commerce transactions today go through private or so-called proprietary exchanges, according to New York-based research firm eMarketer Inc.
For b-to-b marketers, invitation-only private exchanges offer an opportunity to again forge close relationships with key buyers. Unlike the more anonymous pairings that occur in their public counterparts, private exchange relationships are more like partnerships.
"Private marketplaces allow three things,'' said Stephen Campbell, president-CEO of CapitalStream Inc., which builds private e-financing hubs for companies completing complex transactions online. "They allow companies to control who has access to the marketplace, what kind of business gets carried out and how everything is branded.''
Indeed, many public marketplaces also offer private exchanges for key customers. This summer, e-marketplace PrintNation.com forged a deal to build a private marketplace for PIP Printing Inc.'s 450 franchise locations to privately buy printing supplies online. Net markets such as PlasticsNet.com, GoFish.com and MetalSite.com drive as much business over private links as they do via their public, open markets.
In the most notable recent example of private exchanges, DaimleryChrysler AG, Toyota Motor Corp. and Volkswagen separately agreed to work with supply chain vendor i2 Technologies Inc. to build private marketplaces-this in an industry with the most visible of all public markets, the just-approved Covisint.
Private exchanges feature many of the same capabilities as public markets, things like catalogs, auctions, supply chain tools and more. But for many types of e-business, public exchanges are often, well, "too public.'' For instance, they can create an uncomfortable level of visibility into the seller's price structure or the buyer's activities.
A blurry line
Like most things in the fast-moving world of e-business, distinctions between public and private marketplaces are being defined on the fly.
"Is there a line being drawn? It's an interesting question. If there is, it's a very blurry line,'' said Martin Boyd, director of product marketing for Ariba Inc., which has won its share of both public and private exchange deals. "Companies are much more aware of what is really strategic for them, and they are aware of how public that information gets [on an exchange].''
In the end, there may be some types of b-to-b activities, such as planning non-strategic maintenance, repair and operations spending, that simply aren't sensitive enough to warrant a private exchange. Public exchanges will handle these transactions well, and may also act as an industry clearinghouse for transactions that begin in more private venues.
Meanwhile, private markets look to be the place where companies do the buying, selling and collaborating that is core to their business, and need to be kept shielded from their competitors.
Finally, private markets allow companies to integrate e-business systems and business processes with their partners at a much deeper level.
"Marketplace owners want to build sticky sites, and participants want to derive meaningful returns,'' said Jon Ekoniak, b-to-b analyst with US Bancorp Piper Jaffray Inc. Deep integration is one way to achieve these goals, he said.
In the long run, private and public exchanges will undoubtedly co-exist.
"There's a lot of interest these days in public exchanges. When we hear it, we kind of chuckle,'' said Patrick Stewart, president-CEO of MetalSite.com, which has a public exchange for the metals industry, but also crafts private connections for the likes of Bethlehem Steel Corp. and Ryerson Tull Inc. "This is the way business has been done for years''