Dissatisfied with e-marketplaces

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Companies are expressing dissatisfaction with b-to-b exchanges, but optimism still exists that they eventually will deliver a strong return on investment, according to a new study.

The study, prepared by Giga Information Group Inc. and Booz Allen Hamilton Inc., also found that companies’ exchange strategies are driven by CEOs more often than by e-business executives, business unit heads or mid-level managers.

The report, "B2B Exchanges: future hopes, current doubts," confirmed what many marketplace industry watchers have suspected: While company executives believe exchanges will play important roles in their sales and procurement strategies in the future, they are sour on the usefulness of the exchanges so far.

Not meeting expectations

Fifty percent of the 1,000 companies polled said b-to-b exchanges were "absolutely not" or "mostly not" meeting expectations. Forty percent of respondents said exchanges were "partially" meeting expectations, and only 10% said exchanges were "absolutely" or "mostly" meeting expectations.

The companies surveyed represented a range of industries, including advertising, aerospace, agriculture, automotive, chemicals, consulting, energy, financial services, health care, technology, transportation, metals and mining. The results clearly show that dissatisfaction is not confined to any particular industry.

There are numerous reasons for this unhappiness, ranging from skyrocketing e-business costs to competition among rival companies sponsoring a single exchange.

But perhaps the most common culprit is management’s overblown hopes for the exchanges, said Andrew Bartels, VP of Cambridge, Mass.-based Giga. "There were inflated expectations as to what marketplaces would do and how quickly they would be up and running," he said.

Bartels said companies were surprised by the complexity of the exchange-building process. "These things are complicated to create and set up," he said. "You’re forming a business. You’ve got to hire people, then market and sell to attract participation."

Indeed, a major problem has been a lack of supplier adoption, said Brian Long, a principal at Booz Allen in Chicago. Long said exchange builders have been
surprised by the scant supplier adoption.

Chris Benyo, VP of PurchasePro Inc., a Las Vegas-based exchange and procurement software developer, said: "The supplier adoption piece has foiled everyone. When you think about the size and scale of these implementations, there’s no way everyone can be happy."

CEOs in charge

The survey also found extensive CEO involvement in exchange decisions. Forty-eight percent of companies polled said CEOs were guiding exchange strategies. Some 21% said e-business heads were calling the shots, and only 7% reported that mid-level managers were in charge.

Competitive pressures have prompted CEOs to take a leading role in exchange strategies, Bartels said, as many view e-marketplace involvement as vital to their companies’ survival.

A good deal of CEO-to-CEO salesmanship between leaders of exchange-building tech companies and potential clients has also been a factor. "A CEO from Ariba or i2 or Larry Ellison [of Oracle Corp.] often came in and gave the pitch," Bartels said.

Despite the widespread grumbling, optimism regarding the future of exchanges is strong. Nearly half of all companies polled expect exchanges to improve profitability and create standard business practices, and 39% said they will increase speed to market.

Bartels attributes the resilient optimism to a realization among users that the benefits of exchanges might not come about overnight, but the exchanges may become an important part of long-term strategies.

"Companies now have a more realistic view, and marketplaces are becoming more mature," he said.

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