Private B2B Exchanges Finding Favor

Large public marketplaces, once the domain of online business-to-business transactions, are being supplanted by smaller, private exchanges that put single businesses at the hub of their own B2B world.

Such private trading networks, as they are called, offer increased collaboration with suppliers and a deeper view into the supply chain and as such are poised to fuel new growth in B2B.

"Public exchanges as we knew them have fallen by the wayside," Rakesh Sood, general partner at technology investment company Sprout Group, of Menlo Park, Calif., said last week at the GroundZero 5 conference here.

Riding this trend are several software developers that are enabling enterprises to become their own online trading hubs.

Oracle Corp., of Redwood Shores, Calif., next month will introduce a package designed to get procure-to-pay software up and running at a company in 15 days. Oracle is working on similar packages that provide fast implementations for managing transportation logistics and for creating product development exchanges.

Structural Dynamics Research Corp. this week will roll out two applications and a Java architecture for its Team Center product management software. Team Center provides a hub around which sit applications that let two businesses share information on products they are developing.

SDRCs technology got a big endorsement last week when Electronic Data Systems Corp., the Plano, Texas, professional services giant, announced that it will buy SDRC, of Milford, Ohio, for $950 million.

And Syncra Systems Inc., of Waltham, Mass., is planning a major revision of its Syncra Ct and Syncra Xt products for private and public networks, respectively, which will enable members of a trading chain to forecast more effectively with suppliers and buyers. Version 3.0 of the platform is due in beta this summer, officials said.

Behind the trend toward private trading networks is the desire for purchasing managers to have more control over their online relationships. Some observers contend that many companies erred in going straight to big public exchanges to begin their B2B efforts and that companies now need a smaller set of B2B processes in home-grown trading environments that can prove the effectiveness of the technology and the business model.

As a result, many public exchanges are trying to broaden their services and even host private exchanges. For instance, Omnexus, the big plastics exchange, is looking to broaden its base of services to assist private hubs. By July, the Atlanta-based exchange will launch online financial services for its customers and follow that up with design services and other online services.

Ultimately, large consortia-led public exchanges will have a new role as a connector between private trading hubs, as well as a facilitator that will have the clout to create and enforce standards for data creation and transport. That could make things easier for suppliers, once they have connected to one or two private e-markets, to then extend those connections into one or more public exchanges.

General Motors Corp., which sponsors online trading through the Covisint exchange it created with Ford Motor Co. and DaimlerChrysler AG, is exploring the creation of private networks to give its own employees and employees of its partners online access to applications and information, said Rick Vanzura, chief strategy officer for IS at GM, in Auburn Hills, Mich.

Some users are already making the move to private. "As fast as public exchanges come up, two or three more fall down," said Robert Sieger, director of e-commerce at Boise Cascade Office Products Corp., in Boise, Idaho, which runs its own exchange. "You have to look at the potential market before you go off and build an exchange or stay on a public exchange."