Are coBAMS late to the e-market?

BY DIANE TROMMER

In the beginning there were Web sites. Then came portals, exchanges, e-market-places and now coBAMs (consortia of brick and mortar companies). While it’s easy to get confused by the new vernacular of the online world, when it comes down to it, the vast array of business-to-business (B2B) Web sites in the electronics industry can be broken down into two basic categories - those that seek to create demand and those that seek to satisfy demand.

By and large, the electronics industry players have focused their efforts on the demand satisfaction portion of the equation.

The primary methods employed by B2B sites in the industry are auction, reverse auction or RFQ, catalog aggregation and exchange (see Who's who).

Each method, with its pros and cons, has a place in the B2B world, said Bruce Temkin, research director for Forrester Research Inc. (Cambridge, Mass).

"If you look at all the processes in the electronics industry, there are different players with different needs," Temkin said. "And these different needs must be serviced by different offerings."

For example, Temkin noted that the auction model, which features real-time bidding and selection and on-off buys of new or used products, is ideally suited for excess components. The reverse auction, or RFQ method, may work better for spot market needs.

In the off-line world, a buyer has a need and seeks sellers to satisfy that need. This method is most popular in cases where there are several potential suppliers for the same type of component, Temkin said.

And while the term "exchange" has been used widely in the online world, an exchange is a very specific and limited method of trade. An exchange offers neutral and anonymous trade where supply and demand is typically time sensitive. The exchange drives market liquidity by providing visibility into the seller's available inventory and the buyer's sourcing needs.

Because exchanges are geared for commodity products, there are few opportunities for a true exchange in the high-tech space since most products in electronics are too complex, said Jon Ekoniak, senior analyst for usbancorp Piper Jaffrey (Minneapolis, Minn).

The aggregator, or catalog model, typically features a relatively static product offering with either fixed or prenegotiated pricing. This model is important since most companies buy the majority of their requirements through price contracts, Temkin said. "The ease of use of putting a whole bunch of catalogs in one place is definitely compelling," he said.

The most recent entries into the B2B space, coBAMs like the Hewlett Packard-led eHITEX.com and IBM's e2open.com, don’t fit neatly into any of the existing models. At press time, neither marketplace was operational, but both reported plans to facilitate the trade of components and services throughout the electronics supply chain using a variety of methods including auction and RFQ.

While these coBAMs, eHITEX.com and e2open.com, enter the market with some distinct advantages, including abundant resources ($100 million and $200 million, respectively in startup funding) and the ability to offer instant liquidity in their market-places, they also have some major obstacles to overcome, according to a recent B2B analyst report from usbancorp Piper Jaffrey.

The first obstacle for these new sites is timing. "CoBAMs are late to the game. While we are still in the very early stages of B2B development, many pure-play companies have been building out their offerings for more than three years and have a significant edge in experience," the report noted.

Another issue is culture. Unlike the entrepreneurial, virtually-focused dot.com start ups, these new entities are created by organizations laden with layers of management structure, burdened with infrastructure, and staffed with long-time workers who are more typically resistant to change.

And finally, and perhaps most critically, these groups, like their dot.com counterparts, must wrestle with the issue of information sensitivity. For instance, the report queries: Will Ericsson rest assured that Nokia will not be privy to its contractual terms and negotiation tactics?