This case discusses the problems and potential not only for FreeMarkets itself but also for the buying and selling companies which use it.
Before last year’s dot-com meltdown, one of the most hyped areas was large industry-based business-to-business (B2B) marketplaces.
Most of these have either failed or are struggling. Instead, the growth today is in less ambitious online auctions where individual firms, increasingly having to focus on costs, seek suppliers of the products or services they need. FreeMarkets, growing fast though still unprofitable, is the leader in this growing field. This case discusses the problems and potential not only for FreeMarkets itself but also for the buying and selling companies which use it.
Since last year’s dot-com meltdown, the number of pure play business-to business (B2B) e-commerce startups has declined dramatically amidst industry uncertainty, unsustainable business models, and the evaporation of venture capital funding. Organisations such as Forrester and the Gartner Group estimate that fewer than half of the B2B e-marketplaces in existence in late 1999 will survive beyond 2001. Industry-based mega-exchanges, such as the automotive industry’s widely-publicized Covisint, are only stumbling along: complex issues relating to regulation and lack of co-ordination amongst participants have slowed implementation. The corporate world has gradually realised that integrated e-procurement and the development of industry exchanges might be a much longer and more difficult road to bottom-line savings than originally anticipated.
In this broad environment of uncertainty on the future of B2B, some companies have chosen to develop their own e-marketplaces: Walmart, for example, with its RetailLink. Another approach is the B2B online auction. Public and private sector use of online auctions is growing exponentially, with buyers and sellers using systems from vendors like FreeMarkets, Ariba and CommerceOne.
This article discusses the growth of FreeMarkets, the world’s largest B2B online auction provider and arguably the most successful B2B online marketplace. It explores the company’s business model, and the ways in which online auctions can affect B2B procurement. In particular, it draws on the FreeMarkets experience to provide lessons for vendors of online B2B e-commerce services, and buyers and sellers participating in online auction events.