Viva La Exchange!

Dave Stephens has been spending more time away from the beach and his board recently, attending to his new baby, Procurement Central. And it's a good thing for all of us. His daily missives have been entertaining and enlightening. Dave’s post yesterday on the exchange phenomena got me thinking about my experience from back in the day where marketplaces and exchanges were springing up almost overnight. In his post, Dave writes: "There were Catering exchanges, there were Contact Lens exchanges, there were Lumber exchanges. Perhaps the worst business plan I ever saw was the Retail Exchange (Sears and Carrefour were 2 of the principles at the time). They called themselves GNX & eventually they merged with WWRE and (wouldn't ya know it) they are still alive and kicking. So they get the last laugh."

Ah, the cynicism. I shared it as well. In July of 2000, I co-wrote an op-ed piece in the now defunct Industry Standard with my then girlfriend (and now wife) Lisa Reisman, arguing that most exchanges were a waste of time. In it, we wrote that "Now more than ever, domain knowledge and information on global-supply markets are key ... Successful marketplaces will translate deep industry knowledge into specific offerings .... Only [those] that can codify and automate their customers' individualized supply-chain and decision support requirements will create lasting value. Exchanges that simply focus on signing up partners and licensing technology to cash in on capital markets without developing a comprehensive supply-chain strategy will be left holding the bag -- one filled only with paper clips and other simple goodies their trade infrastructure supports."

That last line was aimed straight at Commerce One and Ariba, who were fooling themselves and the market at the time by pimping generic plumbing as high end Kohler fixtures. But the crap eventually floated to the surface by 2002, and Lisa and I got the last laugh (Commerce One fizzled, and Ariba killed off Tradex). Interestingly, the article we wrote started a spat between Lisa (who was in the supply chain practice at Andersen at the time) and Kevin Costello, who ran the marketplace group at the same firm. As I recall, Kevin tried to get Lisa fired over this article, worried that heretical statements such as this would harm the tens of millions of dollars his practice was taking in from trying to make Tradex work. Alas, Lisa kept her job, for the better or the worse, and the two of us continued to tack up our thesis on the wall, and eventually decided to get married . We're still raising hell and speaking the truth, however, as this blog will attest to. This is a no spin zone!

So what ever happened to the exchange model? It turns out that some exchanges did bring some benefits to participants (though most died ugly, gruesome deaths). But some that survived the Darwinist shake-out are now playing a key role in the Spend Management ecosystem by helping to lower supplier on-boarding and ongoing management costs for participants. Some are industry or vertically-based, others are not. But by allowing buyers and suppliers to connect once into a common infrastructure to conduct eProcurement transactions and manage catalog data, they all offer a similar value proposition. Exchange- and marketplace-like offerings from vendors such as Ariba (via the Ariba Supplier Network), Perfect, CC Hubwoo and Exostar actually offer tangible benefits to their participants today. But we'll leave further analysis of these approaches to a future post.

Jason Busch

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