Study: B2B Marketplaces Coming To Life

Jupiter found that 41 percent of the 58 business-to-business (B2B) ISMs launched this year are able to conduct transactions online and another 33 percent are expected to go live before the end of the year.

"From this vantage point, ISMs stand out as a bright spot in a disappointing digital landscape," said Tim Clark, senior analyst for Jupiter's business-to-business research. "However the real test will be for these businesses to create real value and functionality for marketplace users."

Major marketplaces launched this year include the auto industry's Covisint, the aerospace industry's Aerospan and the retail industry's Worldwide Retail Exchange.

At an Advantage

According to Jupiter, ISMs have an advantage over independent marketplaces because of the deep pockets of their corporate sponsors. Other advantages for ISMs include built-in reservoirs of talent and transaction liquidity.

The research firm said that there are five major milestones that an ISM must achieve before going live: establishing leadership, choosing a technology vendor, forming a separate legal entity, establishing a capital structure, and creating business and revenue models.

ISMs have made "remarkable progress" toward achieving these milestones, Jupiter said, and have "overcome the early perception that industry leaders would focus on the relatively simple processes of forming a legal entity or choosing a technology vendor, instead of establishing ways to share business processes that are slowing down their industries."

Competitive Streaks

Despite the advantages ISMs have, however, industry competitors have had some amount of struggle as they strive to become collaborators.

"Competitors often have a lot of trouble agreeing on business model priorities that lead to a valuable marketplace," Clark said, "especially when one of the ultimate goals of the ISM is to eventually go public and cede control over the rules of operation to outsiders."

There is plenty of incentive for ISM sponsors to work through their issues. Credit Suisse First Boston estimates that B2Bs will control US$3 trillion in purchases a year if all evolve as planned.

In order to track the emergence of B2B marketplaces, Jupiter has established a searchable database of both independent and industry-sponsored marketplaces. The database can be accessed for free through the Net Market Maker Web site.

Regulatory Approval

B2B e-marketplaces have garnered the support of the U.S. Federal Trade Commission (FTC). Commenting on an October commission report, FTC chairman Robert Pitofsky said business-to-business marketplaces offer "great promise" in terms of cutting costs, better organizing business processes and improving competition.

B2B marketplaces that are formed through alliances by competing companies need to obtain regulatory approval from the FTC and, in some cases, foreign regulatory bodies.

"Successfully completing every phase of the ISM development process may prove an impossible task for some players, but the rewards of going beyond basic squabbles to reach the finish line will be worth it," Clark said.

Covisint Breaks Ground

One of the first ISMs to gain approval was Covisint, the automotive B2B formed by General Motors Corp., Ford Motor Co., DaimlerChrysler AG, Renault SA and Nissan, together with technology partners Commerce One, Inc. and Oracle (Nasdaq: ORCL) .

Although approved by both the FTC and its German counterpart, Covisint's approval was not unconditional. The FTC said that it could not determine whether Covisint would cause competitive concerns because it has not yet adopted rules or terms.

The FTC also said in its report that competitive concerns raised by collaborations between competitors could be addressed by existing antitrust laws as well as "well-crafted B2B operating rules."