Report: Most Online Marketplaces Will Vanish

Bankruptcy, mergers, and acquisitions could swallow up as much as 90 percent of the current crop of online business-to-business (B2B) marketplaces, according to a new report from Boston, Massachusetts-based AMR Research.

The company predicts that the number of exchanges will shrink from today’s 600 to fewer than 100 firms by 2001.

“Independent trading exchanges are finding it difficult to drive business,” said AMR analyst Scott Latham in the report. “Most have not processed their first transaction.” In fact, the report points out that even some of the top-ranked exchanges are finding that most of their revenue comes from advertising.

Heady Predictions

According to Forrester Research, e-marketplaces will reach $2.7 billion (US$) by 2004, accounting for 53 percent of all online business trade.

Forrester has also reported that 71 percent of U.S. businesses plan to extend their operations to e-marketplaces by 2001. However, AMR is predicting that only two or three such ventures will survive in each industry to claim their share of the e-commerce pie.

Liquidity is Elusive

The exchanges are dealing with the liquidity problem in several ways. Some are choosing to consolidate with competitors, while others are following Amazon.com’s lead by expanding into new markets with additional product offerings.

Some exchanges are choosing to give up their neutrality by partnering with existing brick-and-mortar companies to gain funds, validity, and transaction volume. Others have given away equity in return for promises from buying organizations to sole-source through them. The problem is, according to Latham, that the e-marketplaces are being driven to accept deals that offer heavily discounted terms or no revenue at all.

Some exchanges are “giving away the farm to anchor customers,” Latham said.

Suppliers Balking

Another major problem for independent exchanges, according to the AMR report, is that suppliers are balking at the high transaction fees that some exchanges are charging, and are choosing to establish their own marketplaces on their own terms. These supplier-driven exchanges carry both the suppliers’ own goods and related products.

The initial model introduced on the Web required transaction fees, but when buyers balked at paying for the privilege of purchasing through exchanges, the burden was shifted to the sellers. Now, sellers are balking at being required to bear the entire transaction fee burden.

Other suppliers have expressed concern about putting “the new Internet middleman” between themselves and their customers. Understandably, they do not want their products and services to become simply brand-less commodities that are easily interchangeable with other merchants’ wares.

The Top Five

AMR ranked the top 20 independent exchanges on strength of business model and functionality.

The top five, according to the report, are Altra Energy Technologies, Inc. in Houston, Texas; Ventro Corp. in Mountain View, California; CheMatch.com, Inc. in Houston; SciQuest.com, Inc. in Research Triangle Park, North Carolina; and PlasticsNet.com in Chicago, Illinois.