CIO — WHEN I FIRST BEGAN TO RESEARCH e-commerce networks and markets with two colleagues (Jeff Brooks and Sue Cantrell) a year ago, I was not quite as bullish as they. I wasn’t as sure that e-markets would transform business-to-business relationships, or as optimistic that huge savings from purchasing efficiencies would be created. The diligent reader of this column (Joe is his name, I believe, and I’m very grateful to him) will remember that when I wrote about the topic in the April 1, 2000, issue of CIO ("Nets Upon Nets"), I was a little schizophrenic. That column was a dialogue between the skeptic and the visionary observer of e-markets, and although I said I thought the visionary won the debate, Joe might have observed that there were more skeptical than visionary paragraphs.
In the (much less important) world outside of my own mind, it appears that the skeptics are winning out. It wasn’t that long ago that I could read a press release each day on the formation of a new e-market; now I can read a daily dose of negativism in the IT and e-commerce press about these nascent companies.
Certainly there was potential for these e-markets to reshape B2B commerce. They offered access to more suppliers and customers, the potential exchange of virtually all types of information, and the ability to dynamically price goods and services through mechanisms such as auctions and yield management. The development of e-market standards across entire industries offered the possibility of new communities of commerce in which it would be just as easy to transact with another company as with your own. Because there were some real advantages to independent e-markets and because the world loves to think that a bunch of e-Davids could slay the B2B Goliaths, the whole concept took wing with reporters and equity analysts. It didn’t hurt that B2B e-markets came along at about the time that business-to-consumer businesses were flagging a bit.
But we were all being a little naive about how B2B e-markets would take off. They have not taken off?at least most of them aren’t thriving, and some are beginning to die. Our data, based on a sample of 120 e-markets, suggest that the median e-market is doing only 175 transactions a month, with a median value of $6,500 per transaction. That adds up to about $1.2 million a month passing through the market. Transaction fees are the primary means of getting paid in e-markets, and they are at best around 5 percent or so. That means that the average e-market is getting only about $60,000 a month in revenue, which will barely pay for the maintenance of the foosball table.
