Is the B2B Shakeout Finally Over?

While the worst of times may be over for companies in business-to-business (B2B) e-commerce, the sector remains unsteady and is likely to see more consolidation and survival-oriented alliances. Some struggling companies still may fall by the wayside.

"I don't think the shakeout is over," Forrester research director Laurie Orlov told the E-Commerce Times.

Orlov noted that a number of fledgling companies will not get the next-round financing they need to stay afloat.

Other companies are likely to be acquired because their stock price is so low, she added.

Layoffs Still Loom

Layoffs remain a possibility as large players like Commerce One (Nasdaq: CMRC) and Ariba (Nasdaq: ARBA) continue to post stagnant software sales, according to Orlov.

Commerce One, for example, declared in April that it would cut 30 percent of its workforce in the face of declining sales, following a 50 percent reduction announced last fall.

In a similar vein, Giga Information Group vice president Andrew Bartels noted that companies involved with buy-side and sell-side software -- including Commerce One, Ariba, BEA and BroadVision (Nasdaq: BVSN) -- are likely to tighten their belts in the coming months.

"There's been a shrinkage in demand for their products in the past year," Bartels told the E-Commerce Times, though he added that demand could be "picking up a bit" by the end of 2002.

Troubled Marketplaces

There also could be a continued shakeout of e-business marketplaces that serve companies within particular industries. Bartels pointed out that vertical marketplaces have seen a decline in use of as much as 60 to 70 percent since their heyday in 2000, adding that the downward trend is expected to continue throughout 2002.

Some marketplaces serving similar industries could merge over the next two years to ensure their survival. Bartels said likely merger candidates include E2Open and Converge, which are geared toward technology materials buyers, and those serving packaged-goods companies, like CPG Market and Transora.

B2B marketplaces also could see their thunder stolen by services geared toward promoting collaborative activity among business partners on specific projects. Bartels said firms moving into this area include i2, EDS and SAP.

He added that market trends also bode well for larger companies geared toward e-business infrastructure and service integration, such as IBM (NYSE: IBM).

Some Life Preservers

Going forward, Forrester's Orlov said, companies in the B2B sector will concentrate on sourcing and on helping other businesses manage the demand side. Specifically, they will focus on such areas as logistics, order management and overall service, which are seen as potential growth hotspots in tough times.

Companies also are more likely to collaborate on product development in order to reduce costs while growing their business as the sector awaits a recovery, Orlov said.

More Buying Ahead?

Experts projected that most B2B-focused companies will continue to make internal changes to cut costs and streamline operations in the next few months, rather than seeking to gobble up other players.

Despite the fact that in recent months Divine and VerticalNet have acquired the assets of several financially troubled companies, analysts said they believe this "bottom feeding" trend has been played out in the B2B space.

However, they predicted that giants like Microsoft and Siebel Systems could still be interested in acquiring smaller niche firms to help fill holes in their own B2B service offerings.