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IT snake oil: Six tech cure-alls that went bunk

Dan Tynan | Nov. 3, 2009
Legendary promises, little delivery -- IT history is fraught with "transformational" sales pitches that fell far short

5. B-to-b marketplaces

Era: 1999 to 2002

The pitch: "By 2005, 35 percent of the Internet b-to-b trade volume will be conducted via a net market or a consortium of buyers or sellers. ... The value proposition of the Internet is on a grander scale for the b-to-b space; the sheer size of b-to-b trade, coupled with inefficient processes, makes the Internet migration of business strategies very attractive." -- Jupiter Research, June 2000

They were supposed to revolutionize the way organizations did business on the Net -- matching buyers and sellers in a dynamic, interactive bazaar that would dramatically cut procurement costs while boosting efficiency. According to Gartner, by the middle of this decade some $8.5 trillion of trades would occur annually via automated B-to-B exchanges.

Well, not quite. The b-to-b bubble burst shortly after it formed. Covisint -- a massive auto components marketplace jointly owned by the big carmakers -- stalled almost immediately. It was purchased by Compuware in 2004 and now functions as an "on-demand collaboration platform" for a wide range of industries. Dell opened its own exchange for parts suppliers in November 2000. Four months later it was shuttered. Others, such as GlobalNetXchange (GNX) and the WorldWide Retail Exchange (WWRE), survived by pooling their resources.

Philip J. Philliou, a principal at payments strategy consulting firm Philliou Selwanes Partners, was working for MasterCard during that era as VP of e-commerce product and technologies. Both MasterCard and Visa invested heavily in new systems and products to facilitate electronic payments and data transfers across these exchanges.

At the height of the dot-com boom Philliou says there were more than 2,500 major b-to-b exchanges worldwide. Today, he guesstimates 90 percent of them are gone. Part of the problem was timing; the other part was the difficulty in getting people to substantially change the way they did business.

"The dot-com implosion took the oxygen out of many of these exchanges," he says. "The other problem was that for these exchanges to succeed, you needed to achieve a certain scale. That meant convincing a lot of buyers and sellers to change well-established business processes."

He says b-to-b markets were a "red herring," but that many organizations are finally starting to realize the benefits using their financial institution's payment gateway in conjunction with their internal electronic invoicing and ERP systems.

David Freschman, managing partner of venture firm Innovation Capital Advisors, says some major VCs bet big on b-to-b markets whose potential never got realized. "Business is still a social function in many respects," he says. "I think a lot of people still prefer to do business face to face. They want to know who they're buying from and develop relationships with them."

 

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