Failed marketplaces not deterring businesses

Len Duncan spent six months formatting an electronic business-to-business catalog for PetroCosm, including products, pricing and specifications. 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 sales activity from PetroCosm by this fall.

Hundreds of buyers and sellers experienced difficulties when marketplaces such as PetroCosm, FreightWise, eGarden.com, Silicon Valley Oil and Chemdex closed this year. In some cases, businesses lost revenue, or they didn't get a chance to start raking in cash. They spent hours testing for software bugs, compiling catalogs or readying their infrastructures for additional hits, for nothing.

Now in the midst of the economic and IT spending downturns, some businesses are retreating from skittish business-to-business marketplaces. But some companies that were involved in failed marketplaces are still participating in similar 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. Hershman 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 features prior to its public launch.

Granger found that FreightWise didn't offer the best prices. For example, Hershman would typically pay $1.25 per mile to transfer hauls, but some quotes came back erroneously as $1.50 per mile. Granger now participates in Straightload.com, FreightQuote.com and other sites that offer the ability to edit online and are proven successes.

But even a success rate does not guarantee much. Chemdex, a life science marketplace, was operational for four years before parent company Ventro closed it down. Chemicon International, which supplies antibody reagents to the biotechnology market, saw revenue in the six-figure range each year for two 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.

Chemicon was also 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, although Chemicon is currently revamping its agreement. He declined to elaborate.

Like Hershman 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, Network Oil, EnergyPrism and OilfieldCapital.com - all defunct marketplaces - and is in the development stage with TradeRanger.

Marketplaces will "work five years from now, but they don't work that well now," says John Feuerstein, a Hunting 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 have to focus on suppliers' needs, rather than buyers' needs, to attract a larger audience.

Scientific's Duncan says his firm 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.