Introduction to the World Wide Web
Instructor: Lindsay Grace

Failed marketplaces not deterring businesses
Network World 05/30/01

Older and wiser, companies have a better idea of how B2B should work

Kathleen Ohlson, Network World
Len Duncan of Scientific Drilling spent six months formatting an electronic catalog for PetroCosm Corp., sending a spreadsheet with products, pricing and specifications five to seven times to the marketplace.
But his effort was all for naught when PetroCosm, a marketplace that offered procurement tools and services for the oil and gas industry, closed down last month.
"I was pretty miffed it went down the tubes - what a waste of effort," says Duncan, vice president of Scientific Drilling, a Houston company that develops systems for survey and directional drilling. The company expected to see activity from PetroCosm by this fall.
Hundreds of buyers and sellers experienced this crash when marketplaces such as PetroCosm, FreightWise Inc.,, Silicon Valley Oil and Chemdex Corp. all closed this year. In some cases, businesses lost additional revenue, or they didn't even get a chance to start raking in cash. They spent hours testing for software bugs, compiling catalogs or readying their infrastructure for additional hits, all for naught.
Now in the midst of the economic and IT spending downturns, some businesses are retreating from skittish business-to-business marketplaces. But some businesses that were involved in failed marketplaces are still participating in other ventures - with some lessons learned.
Hershman Recycling was one of the initial members of FreightWise, an online exchange for freight shippers and carriers, before it closed after only two months.
"It wound down as quickly as it started. It seemed to me they gave up," says Doug Granger, vice president of logistics at Hershman Recycling in Branford, Conn. His company didn't spend extra money to join FreightWise, but Granger spent one hour per day for about six to eight weeks testing FreightWise's online functionality prior to its public launch.
Granger found that FreightWise didn't offer the best prices. For example, Hershman Recycling would typically pay US$1.25 per mile to transfer hauls, but some quotes came back at $1.50 per mile. Though FreightWise closed, Granger now participates in, and other sites that offer the ability to edit what it's offering and are proven successes.
Even a success rate doesn't guarantee much. Chemdex, a life science marketplace, was operational for four years before Ventro closed it down while it fends off financial woes. Chemicon International, which supplies antibody reagents to the biotechnology market, saw revenues in the "six-figure range" each year for 2 years from Chemdex.
But transactions done via Chemdex became a "double-edged sword," says Harley Cohen, database manager at the Temecula, Calif., company. "We saw sales flow through to us, but we were [not sure] if it was new business or it was redirected business" that already existed, he says.
Additionally, Chemicon was hit with a 5% transaction fee for each item it sold via Chemdex. Cohen says Chemicon now participates in SciQuest, which also charges a fee, though Chemicon is currently revamping its agreement. He declined to elaborate.
Like Hershman Recycling and Chemicon, Hunting Vinson hasn't been timid to participate in business-to-business marketplaces. The Houston oil piping distributor has been involved with PetroCosm and Energy Prism - both defunct marketplaces - and is in the development stage with TradeRanger.
Marketplaces will "work 5 years from now, but they don't work that well now," says John Feuerstein, a Hunting Vinson executive. "The marketplace concept is way ahead of the times, but time and technology has caught up with them," he says. In the future, marketplaces will focus on what suppliers need, rather than what buyers need to attract a larger audience.
But Scientific Drilling's Duncan says his company would be hesitant about joining another marketplace. Marketplaces "are ideal to purchase equipment," he says, "but the validity of an engineer to click onto a Web site and 'boom' - expect the trucks, rigs and crew to show up in the jungle" isn't realistic.
Kathleen Ohlson is a senior writer for Network World.