|

Find this article at: http://www.business2.com/content/magazine/indepth/2000/10/16/20809

Old Dogs Learn New Tricks

From the October 24, 2000 issue

Walid Mougayar

Whether they are run as new companies (the "newco" model) or as co-operative marketplaces (the "co-op" model), the new breeds of industry-sponsored ecommerce alliances have one common characteristic: They all are driven by old, traditional companies. Observers have expressed a range of speculation and expectation on their role, future prospects, competitiveness, and sheer survival as we wait for their eventual face-off against the 800 or so independent B-to-B exchanges.

MYTH: Saving costs is the driving factors.
REALITY: Cost savings is only the first rationale for launching an industry alliance, but it does not produce an immediate strategic advantage. Reducing transaction costs or cost of goods is one thing, but cutting product development or build-to-order cycles in half through efficient supply chain collaboration is a greater goal. Most B-to-B coalitions are now focused on the cost-cutting benefits of the alliance, and that makes their case easier to swallow. A subsequent phase of evolution will allow any company to emulate Boeing's virtual design of the 777 airplane. And it will allow any company to mirror Dell's tightly integrated supply chain execution. Still, it may never make a difference in consumer prices.

MYTH: B-to-B coalitions are monopolies.
REALITY: Just because the FTC organized a much-publicized workshop on antitrust issues does not mean it has reached any conclusions. The FTC clearly indicated that "learning" was a primary objective of its initiative, and that because of the complexity of B-to-B marketplaces, it would be premature to attempt an antitrust analysis of B-to-B e-marketplaces. Given the microscopic attention being raised, B-to-B exchanges will end up delivering formidable pre- and post-competitive benefits to all participants in terms of speed to market, and operational efficiency. Today's FTC actions are preventive, not punitive.

MYTH: B-to-B coalitions will compete against dot-coms.
REALITY: A year ago, it was a one-to-one battle between specific exchanges and the brick-and-mortars they were targeting. Pure dot-coms were funded quickly because it appeared that industry giants were sleeping. But their awakening was brutal. Now, most dot-com exchanges are boasting any progress made as currency for jumping into co-operative arrangements with B-to-B coalitions and brick-and-mortar initiatives. (e.g., Ventro and American Express)

MYTH: B-to-B coalitions are on the offensive.
REALITY: Defense is the order du jour. Having been attacked, it was logical they started by organizing the defense. By allying themselves as a team, and mobilizing a majority of loyal suppliers, coalitions erect instant entry barriers against pure dot-coms who don't cooperate. In a second phase, we will undoubtedly see them on the offensive.

MYTH: B-to-B coalitions need dot-coms.
REALITY: If each side thought the other was bluffing, unveiling today's cards will reveal that B-to-B coalitions walk away the winners. They hold most of the existing customer loyalties, hence their inventories and transaction commitments. It is the dot-coms that need established brick-and-mortars because it is harder to build liquidity than technology.

MYTH: B-to-B coalitions don't have dot-com know-how.
REALITY: Watch. They are getting it, and getting it fast. In today's hyper-learning environment, there is enough available knowledge to allow any company to catch up in six months on the equivalent of a two-year lag. In retrospect, dot-coms could be the pioneers that either bring back arrows or valuable lessons learned. Either way, wounds and knowledge become publicly available almost instantly.

MYTH: B-to-B coalitions are the saving grace for brick-and-mortar companies.
REALITY: Most forward-thinking traditional companies have several Internet initiatives under way, and a B-to-B coalition may be just one of them. For example, Honeywell has partnered with United Technologies and i2 Technology to form MyAircraft.com, but also has launched MyPlant.com and three other initiatives. DuPont spearheaded Rooster.com, an agricultural coalition exchange, but also has many other initiatives.

MYTH: Standards make it easier for B-to-B coalitions to prosper.
REALITY: Only if they are quick enough to agree on them and to deploy them. Otherwise, standards become permanent anchors that will sink the boat. A lot of work still must be done.

MYTH: B-to-B coalitions don't partner well.
REALITY: The Internet makes partnerships easier, because of the virtual nature of the work. One cannot extrapolate past failed experiences in making coalitions happen in an era when the Internet was not widely deployed.

MYTH: B-to-B coalitions can be modeled after one another.
REALITY: Although there are only 100, each is very different from the others, as they focus on their own challenges. While making the partnership work is the most visible and pressing challenge, other real challenges will emerge, and although they may seem similar, the approach to solving them will be different.

Related: "Dangerous Liaisons "

Walid Mougayar ([email-masked]) is a consultant and angel adviser. He may hold positions or interests in some of the companies mentioned.

Content copyright © 2000 Imagine Media Inc.