What the e-market has learnt

With hindsight, e-marketplace players acknowledge that e-marketplace technology was developed to solve a problem that didn`t exist.

"It was a technology looking for a market, rather than a genuine solution," says Mike van den Bergh, regional director of Gateway Communications, the value-added network services provider previously known as FirstNet.

"A couple of companies were convinced to spend inordinate sums of money for very sophisticated and expensive solutions, based on a business case that wasn`t properly understood or properly thought through," he notes. "That`s how we`ve ended up with an industry that`s got a bad name, because it didn`t take into account the natural dynamics of any marketplace."

Willem van Rensburg, group executive of Strategic Solutions at Comparex Africa, uses almost the same turn of phrase: "It was a solution looking for a problem, instead of looking at what problem existed and how can we solve it."

Towards the end of 2000, Comparex launched an ambitious B2B initiative - a household goods e-marketplace called The Smart Shed - with co-founders Unitrans, Steinhoff and household retailers Lewis, Profurn and Relyant.

"Smart Shed wanted to simplify the supply chain and enable demand forecasting, demand planning, collaboration," explains Van Rensburg. "But public marketplaces failed because they didn`t take cognisance of contractual relationships between buyers and suppliers. So the problem was with real business issues, not the technology."

He says the time when software or technology was a solution in itself is gone. "Just having the technology, even the best in the world, doesn`t mean you have the business."

Comparex`s e-commerce division has since abandoned its e-marketplace ambitions, refocusing on being an e-business systems integrator.

A number of other e-marketplace initiatives, some never launched, have been scrapped.

In April last year, Izodia, the B2B e-commerce solutions provider formerly known as Infobank International, decided to pull out of SA, after having announced a major drive in the local e-marketplace space. Accenture announced an e-marketplace venture but never got round to launching it.

Other players have reinvented themselves. ProcureTrade, originally an e-procurement hub started by the AST Group and McCarthy Retail, now provides supply chain business intelligence tools and e-business implementation services.

Dennis McCarthy, MD of ProcureTrade, says the problem with e-marketplaces was that they were vendor-driven. "It`s a volume game and uptake has been much slower than expected. The real world is more complex, challenges were underestimated."

He says now that the market has settled down, service providers have to answer some simple questions: "What is the problem we are solving? What specific value are we offering?"

IT industry analyst Andreas Bertoldi produced a report for research house BMI-TechKnowledge in August 2001, in which he noted: "Tthe current highly fluid state of the market means that announcements are made almost monthly, while many initiatives never get beyond the drawing board.

"Since then, the market has just disappeared," says Bertoldi. "The transaction model didn`t work and many providers are falling back on consulting and services, having recognised that it`s more about back-end integration than transactions."

Those players that have survived are now in a strong position, believes Bertoldi. "B2BAfrica and Commerce One SA are high-powered service providers who now have incredibly powerful integration skills."

Bertoldi sees no future for an open, public marketplace in SA.

Mark Bookatz, executive of new business development at Miraculum, agrees: "Public e-marketplaces do not offer a sufficiently compelling value proposition for buyers or suppliers to join, particularly in a country like SA with its relatively small business sector and the slow adoption of e-business technology."

The focus in SA, going forward, will be on procurement and private marketplaces, believes Bertoldi. "Key to M-Web CommerceZone`s success was that it was company specific, having grown from an internal need to optimise the supply chain within the Naspers Group. This means that the company`s liquidity and sustainability was assured."

The challenge for local players is that the technology adoption spectrum is wide - from very sophisticated technology users to small players with no technology infrastructure. The result, says Bertoldi, is that the challenges for operators and other players involved are far greater than expected. The majority of successful e-marketplace users adopted an application service provider model, where companies pay a licence fee to use the service rather than having to invest in infrastructure.

Another successful model is the vertical marketplace, created by a consortium of buyers - such as Quadrem, a marketplace run by 20 global mining companies, including Anglo American, De Beers, BHP Billiton and Rio Tinto.

Quadrem`s VP Brandon Spear questions "whether horizontal e-marketplaces will ever have a place in the sun within a region like SA, which just doesn`t have enough scale". He expects more fallouts or significant restructuring still to come.

"The competition in the local market has been almost violently aggressive and that`s retarded the development. I would have preferred to see a more collaborative model, with players not trying to kill one another but developing a space as a whole. If the whole space doesn`t make it, then everybody`s going to die."

One positive outcome of the shakeout is that most of the hidden problems and false expectations have been exposed. Spear sums it up with a metaphor: "Originally, everyone thought this was a sprint - a 100m dash - and whoever gets there first, wins. But the reality is, it`s a marathon - a 42km race - and it`s not about who gets there first, but who finishes and is still around."

It was a technology looking for a market rather than a genuine solution.

Mike van den Bergh, regional director, Gateway Communications

Spear believes one of the key difficulties is "changing the way people do things. You have to deal with all types of people issues among buyers and suppliers. All those things slow the process down."

For Andreij Horn, GM of M-Web CommerceZone "the people issue" is also a major challenge. "The most difficult part is the change management, both on the supplier and the buyer side. The business model disrupts relationships that people had with suppliers for many, many years."

The fear of technology also comes into play, as does the fear of losing one`s job once electronic procurement is introduced.

Van Rensburg believes e-marketplace participants were not ready for the change. "Their business processes, their back- and front-end systems need to be ready. And, they need to be ready to deal with the people factor involved in turning from traditional to electronic processes. The only way to derive real benefits from e-marketplaces, e-procurement, or e-processes is when it`s integrated into your organisation on both the business level and on the IT level. Sounds simple and yet not many people have achieved that."

The time when software or technology was a solution in itself is gone.

Willem van Rensburg, group executive: strategic solutions, Comparex Africa

Toni Sanders, GM of FNB`s Scion, echoes this view: "The biggest issue is the readiness of suppliers and the buyers to trade electronically. It is the chicken and egg situation - the biggest value to the supplier is when the e-marketplace has a lot of buyers, but we are still in an early adopter stage in the market."

Spear agrees: "It takes a serious commitment and a serious leap of faith for a buyer and a supplier to say, 'I know it`s not there yet, but this is the future`."

Over the past two years, technology buying decision processes have also drastically changed. "People no longer buy a system because a competitor has bought it," says Gordon Laverock, e-marketplaces solutions manager at SAP Africa. "Now prospective customers want us to show them the return on investment. The major value lies in that they are moving into a collaborative world, but it`s difficult to show that value straight away."

The result is that the decision cycle in the B2B e-commerce market is a protracted process. "Many companies have decided they would rather stand back and become part of the herd again than try to be brave and leap ahead," says M-Web`s Horn. "We find that we are faced with all the old economy scepticism that we used to face two or three years ago."

The only way to show them "it`s not smoke and mirrors", says Horn, "is to take the decision-makers to the current clients and prove that we have done it, and it works."