Rivals turn to lucrative direct purchasing
General Electric took a big step last week on the path to becoming a business-to-business e-market powerhouse that could rival the likes of Ariba and Commerce One.
The international giants Global eXchange Services unit began offering its subscription exchange service, Express Marketplace, which provides a platform on which other companies can run exchanges, as well as associated services such as materials forecasting and purchase order tracking. Subscriptions average tens of thousands of dollars annually, but transaction fees could push revenue higher.
The units chief executive, Harvey Seegers, is confident GEs size will let it dominate the e-commerce market.
To date, the service has signed 10 unidentified customers. The company will look to build the business on its network of 100,000 trading partners, which currently do some $1 trillion worth of business through GEs electronic data interchange systems and other networks though less than 1 percent of those transactions are said to be Web-based.
GE has opened its service as Ariba and Commerce One try to expand their businesses into lucrative "direct" or "strategic" purchases procurement of the raw materials and parts that companies use in their products or services.
"They have all been dancing away from any kind of direct competition," said Kevin Prouty, an analyst at AMR Research, of the companies. Now time may be running out.
"The majority of money spent by any manufacturer is on strategic sourcing, which is critical," Prouty said. It also yields higher margins for companies and exchanges than indirect materials, such as paper and office supplies, that companies need but dont use in final products.
GE, with $112 billion in annual revenue, is itself a manufacturer. It makes plastics, locomotives, appliances, and aeronautic and automotive parts, among other things. It is positioned to become a formidable player in e-commerce, where it already operates, analysts said. And, manufacturing sectors are among GXS targets, along with retail, transportation, utilities and telecommunications, said Frank Campagnoni, chief technology officer at GXS.
"They can tell a key supplier, Were GE; we know how your business works. Its a very compelling message to older-type industries that have been neglected by the New Economy engine," Prouty said.
Thats not to say GE has the inside track, especially when e-commerce has penetrated so little of business-to-business trade, said Tim Clark, an analyst at Jupiter Research. "Its not saturated yet. They can work in parallel," Clark said, talking about marketplace enablers like Ariba, Commerce One and GE.
While GE is strong among Fortune 100 companies, Ariba has ties to the high-tech industry. Commerce One has a broader range of customers; it does business in telecommunications and in the automotive industry, through a partnership with Covisint an exchange launched by DaimlerChrysler, Ford Motor, General Motors, Nissan and Renault. The automakers have taken a stake in Commerce One, hoping this will strengthen the exchange and maximize procurement efficiencies.
While theres lots of room for these players in the market, some head-to-head matchups are expected in areas like automotive.
However, the competition may be decided less by industry than by business model. While Ariba and Commerce One sell and support exchange software, GE only sells memberships to its platform. The service model is faster and cheaper and saves companies from taking risks on buying technology that could become outmoded, Seegers said.