Dell pulls plug on ballyhooed b-to-b exchange

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Citing customer resistance and a dearth of suppliers, Dell Computer Corp. quietly disbanded the small group of employees who had been working on Dell Marketplace and pulled the plug on the public b-to-b exchange this month.

The move, coming only four months after it championed the site as a b-to-b blockbuster-in-the-making, drew mixed reactions from observers. Some saw the decision to close Dell Marketplace as an indication that such high-profile public exchanges as Covisint L.L.C. and others have little future. Others argued Dell was an isolated example, brought down by its own missteps.

In September Dell announced plans to open the b-to-b site, which was designed to capitalize on its enviable online traffic for computer sales. The computer manufacturer does more than 50% of its $30 billion in annual sales online through Dell Marketplace was to parlay this traffic into an exchange able to sell all sorts of goods and services to businesses.

However, only three companies—Motorola Inc., 3M Co. and Pitney Bowes Inc.— signed up as partner suppliers to Dell Marketplace.

"We felt there was a lack of maturity in the collaborative commerce marketplace and limited customer readiness," said Dell spokesman David Frink. "The fact is, we remain strongly committed to b-to-b initiatives and our customer focus remains committed to reducing purchase costs."

Dell’s strategic decision to pull the plug on its marketplace indicates that corporations are increasingly going to build private exchanges that focus only on providing commerce services to their supply chain and customer base, said John Harris, VP at e-commerce infrastructure specialist EC-Gate NV.

"Private exchanges offer real value propositions and an organized platform," said Harris, arguing that consortium exchanges, which seek a "lowest common denominator," make it difficult to achieve competitive advantage.

But this view isn’t shared by IBM Corp. Big Blue has successfully participated in the electronics marketplace, which draws together several large electronics suppliers and computer equipment buyers, said Rory Read, general manager-electronics high-tech industry for IBM.

"In the high-tech industry, marketplaces are clearly a viable proposition," Read said. "The leading exchanges are expanding beyond transactions to include value-added services around collaboration and demand. The general consensus in the industry is that marketplaces play a key role."

Critics sound off

Mark Holman, president-CEO of e2open, Belmont, Calif., said Dell Marketplace died because one company, which stood to profit the most, drove it. "The Dell announcement means no one company can really do this by themselves," he said.

But Mark Stabler, VP-marketing for WebCollage Inc., New York, suggested Dell’s real difficulty was the way it implemented its marketplace.

Initially set up as a place to make purchases, the failure to deploy other interactive applications on the site was a critical error, Stabler said. Lacking a drawing card to make buyers more successful, the site was doomed to fail, he said.

"Dell should have looked carefully at the business partnerships it has in real life and tried to expand those partnerships to the Web," Stabler said. Moreover, he faulted Dell for doing little to syndicate applications across the Web, which would have made it easier for business buyers to find the site.

According to Bob Kramer, senior VP-corporate development and strategy at marketplace developer Metiom Inc., New York, three mistakes brought the Dell b-to-b site down. First, Dell lacked a critical mass of suppliers and the products it offered were not greatly varied. Second, Dell never went beyond simple purchasing applications to provide news, analytical applications or other features that would have made its marketplace stickier. Third, there was no liquidity because Dell did not provide financial instruments or adequate post-transaction support.

"Those three factors are generic to the success of all marketplaces," Kramer said. "A public marketplace can work if you bring to the table those three things."

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