Competitors finding opportunity, perils in Nets Inc. demise

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These vertical niche marketplaces may be the chief threat to the array of horizontal online malls The demise of Nets Inc. last month underscores the importance of a narrow focus and transaction-processing capabilities to the online industrial mall business model.

Cambridge, Mass.-based Nets Inc., which operated the online mall serving the maintenance, repair and operations market, last month filed for Chapter 11 bankruptcy protection after financing it expected never materialized. The company is maintaining its site with a small staff and is examining restructuring options.


The move shocked Nets Inc.'s customers - who paid anywhere from $1,000 to $200,000 to post their catalogs on - and is forcing competitors following similar business plans to rethink their strategies.

Nets Inc. spokesman Richard Eckel says, run by former Lotus Development Corp. President Jim Manzi, was moving toward MRO transaction-processing when it ran out of money, forcing customers to scramble for other Internet outlets.

One Nets Inc. customer, Bob Chenoweth, supervisor of technical communications for the Ultrasonics division of Dukane Corp., St. Charles, Ill., is moving to a niche online mall, Deerfield-based Commerx Inc.'s PlasticsNet.

"It may end up being better for us anyway," Mr. Chenoweth says. "They are very focused in the plastics industry."

These vertical niche marketplaces may be the chief threat to the array of horizontal online malls offered by publishers, distributors and others, says Chris Selland, research director, Yankee Group, Boston. "There are opportunities for smaller vendors" in MRO.


But there are also advantages to size, experts say. And, at least in the short term, a major beneficiary of Nets Inc.'s problems is likely to be the Rockville, Md.-based TPN Register electronic marketplace, a joint venture between GE Information Services and Tho-mas Publishing Co.

TPN Register President Anna Mickiewicz says her service will handle $1 billion in online transactions by this year's third quarter.

"We believe our volume will grow to $4 billion within 18 months," Ms. Mickiewicz says.


Thomas Register's 55,000 product headings and 23,000 advertisers provide great synergies, she says. The online mall has 42,000 pages of product information and links to another 150,000 pages.

"The service will reduce cycle times [in purchasing] as much as 50%, and cut procurement costs 30%," she says.

Distributors such as ProcureNet from Fisher Technology Group, Pittsburgh, and Grainger.Com from W.W. Grainger & Co., Lincolnshire, Ill., have also built large, broad sites that offer commerce services to members.

On Grainger.Com, pricing can vary with quantities purchased, says Martha Frye, director-electronic commerce. The transaction engine must integrate with systems Grainger uses when companies buy from 1,000 suppliers in 350 branches, or by phone from paper or CD-ROM catalogs.

The solution, Ms. Frye says, is the Grainger Open Account Number, which customers are required to have to make purchases online. Two million businesses already have them. "To initiate with a credit card you call or visit a local service center. We're planning to add credit cards to Grainger.Com, but we haven't done that."


Fisher's ProcureNet added buyer ID and password access in May, says Bob Gryzb, VP-marketing.

It will also add "local price books for small providers, we'll support EDI for larger distributors to get contract prices, and we'll have direct connects for those who don't support EDI or want to do something sophisticated - we'll link ProcureNet to their legacy application."

In response, Grainger has added Web-only information services to its mix, which offers checklists and links to help companies prepare for disasters like earthquakes and hurricanes.

The Grainger site has been online for two years and has taken orders online for a full year, but Ms. Frye says it's still a work in progress. "We believe that we need to monitor carefully what customer needs are as they change with the new Web culture."


That, Yankee Group's Mr. Selland says, is a wise attitude.

It's also the attitude at Cahners Publishing Co., Newton, Mass., which will soon introduce transaction capabilities on its Manufacturing Marketplace.

Executives at the broad-based industrial online mall are considering retooling the site as a series of vertically oriented subsites housed under the Manufacturing Marketplace umbrella.

Another publisher, Cleveland-based Penton Publishing, is getting into the online mall business, too. The Penton Design, Engineering & Manufacturing Network will open in July but will not offer transactions.

"We want to be known for linking buyers to sellers through all spectrums of manufacturing areas, in the fastest and easiest way," says Rick Seibt, group business manager, Penton's Design, Engineering, Manufacturing and Food Service Group. "Our business is in publishing and communications, getting readers to reach advertisers. We'll play on those strengths."


"The magic key to making money hasn't been found," says Mr. Selland.

But with the MRO market highly fragmented and estimated to be worth between $60 billion to $300 billion in annual sales, it's not surprising that a lot of players are jumping in.

This story originally ran in the June 1997 issue of Business Marketing.

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