E-marketplaces have created too much
buzz. Here's how to tell if their technology will live up
to their hype.
By Julie Bort
Network World, 09/11/00
Surely the term "e-marketplace" has surged passed buzz to become obnoxious rattle. Each day brings dozens more of them. Yet few of the hundreds announced are actually in full operation. Of those that are, many couldn't possibly live up to their own hype.
"It's a world of press releases," describes Kevin Costello, managing partner of Digital Marketplace Solutions, an Arthur Andersen practice in Atlanta. "We get 200 calls a week to come and build a marketplace. Half the time they aren't even at the stage where you can put a system in place. They still need a strategy."
A guide to infrastructure building blocks
The business side of e-marketplaces
A list of questions to ask about e-marketplace infrastructure
Tips on what to look for in administrative systems
For many, a thoughtless strategy translates into a weak technology platform: The marketplace's many-to-many topology can't absorb a variety of network connection types or handle diverse document types. Contract negotiation and security management don't exist.
Despite such potholes, everyone agrees the e-marketplace will be a business must. Soon, you won't just be deciding which e-marketplace to join but which ones.
Take PolyOne, a plastics manufacturer in Avon Lake, Ohio. It built an extranet that links SAP R/3 enterprise resource planning inventory and purchasing applications into its top five suppliers' sales and manufacturing ERP systems. In doing so, it sliced expenses by millions and halved the average time for order fulfillment to 20 days. Savings have come in many forms, from a 20% reduction in raw materials inventory to elimination of costly human babysitters of purchase orders.
The extranet has been so successful that PolyOne plans on linking to other suppliers' ERP systems, then to its customers' ordering systems and eventually including smaller suppliers in the loop via marketplaces, says Doug Grimm, the company's manager of supplier integration.
Like PolyOne, your company will engage in many forms of business-to-business e-commerce: Extranets for your largest customers and suppliers; e-marketplaces for your smaller ones and for maintenance, repair and operating equipment. These marketplaces will forge agreements among themselves, indirectly extending your company's online reach even further.
And all of it depends on great technology.
"The 1980s were all about systems integration. In the 1990s it was business integration - making your internal business processes work better. Today it is market integration - making companies talk and work together. There will be exponential benefits in this and exponential pain," Costello says.
A network executive's role is to prevent the pain. By evaluating the infrastructure of an e-marketplace, you'll see if it warrants participation.
Start by educating yourself on the technology building blocks of strong e-marketplaces.
Despite any vendor's promises, no product does it all and never will. A soundly constructed e-marketplace must piece its technology together, along with growing some of its own, says Shirley Foster, vice president of engineering for Buzzsaw.com, a marketplace for the construction industry. "We partner for the plumbing and then build the differentiation tools ourselves," she says. For instance, Buzzsaw.com uses Ariba's commerce engine, but has built its own project collaboration and bidding applications.
Zero in on these building blocks to do a thorough job: the data network, integration software, workflow, the transaction application, administration, security management and value-added services.
The business-to-business network
The data network is the servers, routers, switches and telecommunications. Network executives should easily be able to detect strong from weak in this area. What brands of equipment does the marketplace use? Does it use its own network infrastructure or does it outsource? What fail-safes has the marketplace instituted to ensure a transaction won't be dropped should the network bobble?
The network should be able to handle almost any means of connection - VPNs, HTTP, HTTPs, direct leased line, etc. - as well as any commonly used document types, such as electronic data interchange (EDI), Web forms and applicable XML frameworks. The latter includes the product-specific, such as Ariba's Commerce XML and CommerceOne's XML Common Business Library, and the industry-specific, like the computer industry's RosettaNet.
Limited connections and documents should raise red flags, says Marty Hensley, CEO of Artios, a document clearinghouse in Omaha, Neb. At the least, such a marketplace will eliminate trading partners that don't want to invest in the dictated technology. But it also could indicate that the marketplace is short on funds or technology savvy. What's more, if the site has a single big player, then dictated protocols may mean you're looking at one company's supply-chain tool masquerading as an e-marketplace, Hensley adds.
Wide support of protocols is the job of integration services or software. A marketplace may outsource intercompany integration to a clearinghouse such as Artios. The outsourcing decision is common to exchanges, such as Artios customer EnergyPortal.com, that have a mixture of old-world EDI partners and upstart Web partners.
Integration could also be performed in-house using products such as TIBCO's ActiveExchange, webMethods' B2Bi, Vignette's OnDisplay and Netfish Technologies' XDI System. PolyOne, Buzzsaw.com and Staples all chose this route via webMethods' software. B2Bi makes a real-time call to another application, instead of batch processing or store-and-forward transfers, says Charles Allen, co-founder and vice president for the Fairfax, Va., vendor. Other integration products use workflow and routing.
When a marketplace uses integration software, it can grab data from off-network applications. A marketplace could call a shipping firm's back-end system to get rates for an in-progress transaction, for example.
Still, the big role integration software plays is letting participants communicate. If the e-marketplace shouldn't dictate those protocols, you should, says Anne-Marie Keane, an e-commerce vice president for retailer Staples, a supplier in multiple marketplaces.
Before committing to a marketplace, Keane first verifies that the site includes a Staples customer that would use the marketplace to purchase its office supplies. This ensures the site will generate revenue for Staples from the get-go. Then she asks if the site can parse XML. If so, she provides the marketplace with a copy of the webMethods' application program interface Staples uses and says, "Here you go. Hook into webMethods and we'll meet you on the other side." If an e-marketplace can't build to Staples' technology standards, Keane won't do business with it.
Competent content
Integration should also be done at the content level, in the form of catalog management. Companies such as Requisite Technology and TPN Register specialize in catalog management service.
"The wrong thing to do with content management is to be passive. Exchanges shouldn't just say to suppliers, 'Give me your content,'" says Chris Beall, chief strategy and corporate development officer for Requisite, in Westminster, Colo.
Instead, a marketplace must ensure that XML tags for content are consistent so search engines are useful. It must tag information specific to the item - a computer printer from one company may need different tags than a competitive product. Suppliers get angry when a marketplace strips out product-specific information to create a consistent XML style. They think the marketplace is stripping them of their differentiation and beating them up on price.
Catalog management services and software solve this problem. Requisite, for example, hires ontologists, scientists in the field of language structure, to develop XML tagging systems for e-marketplaces. It couples human talent with a sophisticated search engine that takes advantage of the more precise tags for better searches. It can display data hosted on the supplier's site, which ensures accuracy. Or, if a supplier in multiple e-marketplaces contracts directly for the Requisite catalog management service, it can update the information once, and distribute it to all e-marketplaces.
Most e-marketplaces can't perform such intense content management for the thousands of items they sell, particularly if they host their own content rather than linking to supplier sites, Staples' Keane says. Manual updates are nearly impossible because manufacturers change their product lines daily.
Staples uses Requisite on an extranet it launched in April to serve midsize to large business customers. Requisite ensures that accurate data is sent to all marketplaces in which Staples participates.
"Some buyer-hosted catalogs won't provide users with the Staples shopping experience. They don't allow us to differentiate ourselves. We've spent years organizing categories based on how our customers shop, like putting whiteboards with pens and reminding people they must buy a cable when they buy a printer," she says. "We like supplier-hosted catalogs."
To evaluate a site for good supplier management, ask if it uses the supplier's photos and product suggestions. If the e-marketplace hosts its own content, ask how the site will handle changes.
Under contract
Another evaluation point is how the site handles workflow. The biggest factor here is contract negotiation, which is available as software from start-ups such as I-many and TradeAccess. Yet few sites do this critical function well.
At least one e-marketplace user, Procter & Gamble, has taken matters into its own hands. Its Commercial Products Group sells brand-name products, such as Folgers coffee, to businesses, such as food service companies. The commercial products market is larger than retail, but fragmented and filled with small businesses. This makes it ideal for marketplaces, says Charles Michael, the group's global e-business director. Because this industry operates on contracts, not one-time purchases, Proctor & Gamble will bring online contract negotiation technology with it to the marketplaces it joins. It has licensed I-many's technology to do so, Michael says.
"A lot of the exchanges today focus on auctions and reverse auctions. But that's not how the B2B world operates," he says. "Most commercial markets are contract-oriented."
When using an e-marketplace, participants will negotiate online, and have those messages documented. Once a contract is signed, the e-marketplace needs to ensure that transactions comply with contractual terms, such as rebates and volume-pricing discounts. The e-marketplace can host its own contract negotiation application or, through integration software, tap into those hosted by partners.
Workflow should also include after-contract items such as routing approvals of purchase orders. This may be a capability of a transaction engine or it could be running on its own development platform, such as TradeMatrix by i2 Technologies.
Evaluating a marketplace's transaction engine is much simpler. Most analysts agree that as long as the marketplace is relying on an established player, with many e-marketplace implementations completed, it will handle transactions well. Such vendors include Ariba, CommerceOne, Open Market and Oracle. Even iPlanet (the Sun/Netscape alliance) should eventually make your list of acceptable transaction engines, although its Market Maker software won't ship until later this year.
Needs an admin
Another critical, but often overlooked component, is administration, says Arthur Andersen's Costello. Ask how the site hands off payments among the buyer, itself and the vendor. Likewise, verify that it uses an authentication server for the tricky business of security management.
On top of these six infrastructure items, a site must have value-added services. This is how the site will stay in business.
They could be industry-specific applications, like Buzzsaw.com's bidding application, or they could be logistics handling, such as mating partial orders to fill whole containers for overseas shipping. They could be financial services such as escrow accounts or consolidated payments. Whatever the service, your job is to check to see that it is built securely and reliably.
Finally, work with corporate managers to evaluate an e-marketplace's business goals. These are items such as what type of marketplace model it follows, its revenue structure, how it differentiates itself from others.
Knowing a site's business goals will guide your judgment of its technical ability, says Richard Gordon, vice president of Predictive Systems, a network consulting firm in New York. "Understand the client base. What kinds of products is it selling? Will it be a long or short sales cycle? Will there be lots of transactions or few transactions but big ones?" Gordon says.
By screening infrastructures, you can soften the business-to-business rattle to a soft din.
