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Let's Keep This Exchange To Ourselves

News: Analysis & Commentary: The Internet

Let's Keep This Exchange to Ourselves

The B2B boom moves from the general to the company-specific

Since last autumn, Trane Co., a maker of air-conditioner parts, has been red-hot with the business-to-business Internet crowd. Each of the horde of B2B exchanges targeting the construction industry wants Trane to join. ",, get up to five calls a week," says James A. Bierkamp, head of Trane's e-business unit.

But after some consideration, Bierkamp did not see what any of those e-marketplaces could offer that his company couldn't do itself. So in May, Trane rolled out its own private exchange, which allows its 5,000 dealers to browse, buy equipment, schedule deliveries, and process warranties. The site lets Trane operate with greater efficiency and trim processing costs--without losing control of the presentation of its brand name or running the risks of rubbing elbows with competitors in an open exchange. "Why let another party get between us and our customers?" asks Bierkamp.MY WAY. He is hardly alone. Since last year, scores of third-party and consortium e-marketplaces have appeared that were supposed to be a boon to suppliers. But it hasn't turned out that way. Many are floundering, while private exchanges are mushrooming. Internet researcher eMarketer Inc. estimates that 93% of B2B e-commerce will be conducted through private sites in 2000. "In the next three years, there'll only be two or three open exchanges per industry running--vs. hundreds or thousands of private marketplaces," says John J. Fontanella, a senior analyst at AMR Research Inc.

There's no mystery behind these numbers. Whether a company opens its own exchange or joins a consortium, it has to put in much the same work and front roughly the same costs. But with their own e-marketplaces, companies can offer perks such as better volume pricing, instant inventory checks, and online customer service. Companies with their own marketplaces also benefit more from the lowered procurement and processing costs that come from using B2B exchanges. Earlier this year, for example, truckmaker Paccar Inc. launched but quickly shelved plans to make it an open B2B marketplace. "Reducing [processing] costs gives us a competitive advantage," says Paccar Chief Investment Officer Patrick F. Flynn. "Why just give that advantage to our competitors?"

At the same time, companies with their own systems don't face the hassles that can come from joining an open exchange. Chief among them: the struggle to build a consensus among rivals about business practices or a common technology platform. Many also worry about sharing pricing and inventory information with competitors. Airline industry exchange Orbitz LLC and agricultural B2B are still in a holding pattern, thanks to internal haggling. "The need for agreement among competitors really slows down the consortium B2Bs," says Paul A. Penler, at Ernst & Young LLP.

Beyond that, many executives fear they can't promote their brand names in open e-marketplaces. "All customers will see on an exchange is a supplier name and a price," says Charles R. Rich, director of strategy and planning for Internet software company InterWorld Corp. And at Emerson Electric Co., Executive Vice-President Charles A. Peters worries that the benefits of its power-supply products, such as their greater efficiency and reliability, will get short shrift on a shared site. "We feel that we're brought down to a common denominator in a public exchange," he says.

Of course, in some industries, it's not an either-or proposition. A Merrill Lynch & Co. survey of 19 large auto parts suppliers found that most intended to join Covisint, the planned e-business exchange supported by General Motors, Ford, and DaimlerChrysler. "Covisint will be too big to ignore," says Kevin P. Moyer, director of e-business at parts maker Dana Corp. Nevertheless, more than half the suppliers plan to build private exchanges as well. For now, they have little choice. While Dana's site has been up and running since August, industry watchers don't expect Covisint to open until mid-2001.By Darnell Little in ChicagoReturn to top

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