Emarkets race ahead

Keeping up with the latest industry jargon is a full-time job: the latest catchphrase to be championed by the vendors is 'online exchanges' or 'emarkets'.

The trouble is that the technology is developing faster than the terminology. The speed at which the technology is being adopted was evident at the emarket conference in Stockholm last week.

Services firm Computer Sciences Corporation (CSC) presented statistics which claim that goods and services worth 100bn euros (£60.5bn) will be traded online this year, with about 5bn euros going through specialist electronic markets, or emarkets. These markets will see 45bn euros passing through them next year, and 210bn euros in 2002. While they will only account for five per cent of the total value traded on the internet this year, CSC predicts it will rise to 30 per cent by 2002.

Come together
The idea behind emarkets is to create a frictionless market where buyers and sellers have access to all the information together - theoretically cutting inefficiency and lowering costs. CommerceOne, a supplier of emarket technology, predicts the average emarket can reduce the cost of items by three to five per cent, reduce the cost of administration from $50 to $4 per item, and speed up delivery from seven to three days - benefits that any business would want access to. Hence the interest.

The focus is shifting from simply bringing buyers and sellers together to value-added services. Rather than simplifying the supply chain, emarkets become application service providers. Anthony de Luca, director of CSC Netmarkets in Europe, says: "The revenue for just matching buyers and sellers will decrease in value over time, and services will take over as integration with customers systems increases."

Build-Online is one such startup, aimed at the $830bn European construction market, which accounts for 11 per cent of the European economy. Build-Online says it can cut 23 per cent from the total cost of construction work and cut project completion times by 15 per cent - saving the construction industry as much as $190bn a year.

Build-Online chief executive Mark Suster, says: "Business-to-consumer commerce focuses on price, and business-to-business should focus on process efficiency."

Only a small amount of the benefit of exchanges such as Build-Online to users will derive from lower prices, according to Suster. Most benefit will come from process efficiencies which the internet can introduce, but which the building trade has shied away from. "The benefits will be in finishing quicker and then getting the revenues faster. The market has to make business easier for the participants," he says.

The construction industry spends $500m a year on overnight shipping of documents. To capture that market, Build-Online will offer online document storage and other services such as online credit.

Europe and the US
At the moment, the US is ahead in development of the technology - it had 250 emarkets in October last year, rising to about 460 this month, according to research from Berlecon Research.

The European market only had 50 emarkets in October, compared with about 120 now. However, the number of European markets is growing at a faster rate (35 per cent compared with 20 per cent growth in the US), and there are at least another 100 in development.

There is still space for more, and hype has a strong role to play. Lex Douze, chief technology officer of PaperX, an online paper market, says: "First mover advantage isn't about being the first to have the idea or the first to get to market. There is at least another two years before any market reaches critical mass - so there is still time for late starters.

"If you create the perception that you will be the first to create critical mass, then that is a first mover advantage in itself. You grab perceived first mover advantage and then you use that to grab the actual first mover advantage. It's really about creating mindshare early on."

Others are less positive about the future. Petra Gartzen, principal analyst at Gartner, says: "This isn't any different to any other IT market - there will be lots of companies jumping in but then there will be a wave of consolidation. In most cases, the top three companies will have 70 per cent of the market and there's no reason why emarkets will be any different.

"Europe has added complexity that is a real inhibitor to global trade, both in terms of local trading conditions and legislation, according to Gartzen. "The European Union will watch this closely to make sure that there is no price fixing or cartel creation going on," she says.

The spectre of government intervention has already appeared in the US - last week Ford admitted that antitrust issues raised by the US Department of Justice (DoJ) are likely to delay the launch of the trade exchange it is developing with General Motors and DaimlerChrysler.

"I'm bullish on these markets. Are they going to change the way that business is done? Yes, because the value proposition is so compelling," says de Luca.

Whatever they are finally called, emarkets will have to integrate with their business customers core systems such as enterprise resource planning systems to avoid adding a whole new layer of complexity to an already complex model.