Report: B2B Shakeout Yet To Come

E-marketplaces are not safe from the current dot-com shakeout that has seen numerous e-tailers fold and others merge, according to a report released Thursday by Forrester Research.

According to the report, the recent enthusiasm for online markets has created an "unsustainable profusion" of business-to-business (B2B) sites.

Forrester believes that the e-marketplace trade will expand rapidly, but that the growth will not be able to support all of the players. Both dot-coms and industry-specific e-marketplaces -- such as those established by the automotive, airline, retail , and grocery industries -- will go through a massive shakeout that will leave less than 200 significant companies.

"We've seen an enormous amount of hustle and bustle with e-marketplaces over the past 12 months." Forrester research director Bruce D. Temkin said. "But the changes coming over the next three years will dwarf even that level of commotion, as e-marketplaces jockey to grab the handful of significant opportunities available within different industries."

'The Purge'

Forrester believes that as companies increase their e-marketplace trading, they will steer business toward the few sites that meet their specific needs.

The resulting shakeout will occur in three phases. The first, dubbed "The Purge," has already started and will last through 2001. During this time, there will not be enough online trade to go around, and many cash-guzzling startups will be forced to fold.

Next, a fortification phase will arrive beginning in 2001 and last through 2002, Forrester said. In this period, e-marketplaces that do not meet the needs of increasingly savvy buyers and sellers will fail. Left standing will be those B2B exchanges that serve all participants without jeopardizing privacy.

Forrester is also predicting that during this period, surviving dot-coms will join forces to try and compete with the industry-specific partnerships.

After Fortification, Reconciliation

In 2002, according to Forrester, as the mystique of doing business online fades and rational business practices set in, trade in e-marketplaces will expand rapidly. Many online markets will reach a critical mass of volume.

At this point, Forrester believes that independent e-marketplaces and industry consortia will move into a third phase: reconciliation. Successful e-marketplaces will evolve into one of four roles: procurement mall, industrial facilitator, commodity mart or vertical hub.

"The explosion of eMarketplaces has created a crowded landscape within most industries," Forrester senior analyst Steven J. Kafka said. "Large firms are faced with a confusing set of options for participating in these venues: different ownership models, equity structures and product offerings. And, in this flurry of activity, firms must navigate through a free-for-all dealmaking environment."

About the Survey

For the report, titled "The eMarketplace Shakeout," the Cambridge, Massachusetts-based Forrester interviewed 50 purchasing executives from companies with sales of more than $1 billion (US$).

In addition, Forrester spoke with leaders from venture capital firms, technology vendors, e-marketplaces, and e-commerce consultants.