Bring Out The Dead
The independent e-marketplace is officially dead. Any remaining doubts were put to rest last week by some very bad news from Ventro and Internet Capital Group. Ventro, a onetime operator of vertical industry marketplaces, and ICG, an incubator that heavily invested in independent exchanges such as MetalSite, both reported huge quarterly losses. Ventro reported a Q4 net loss of $451.6 million on zero revenue, while ICG, posted a Q4 net loss of $561.2 million.
Cloudy Outlook A large part of Ventros loss$382.5 millionincluded charges related to the shutdown of two of its vertical market exchanges: Chemdex, a life-sciences exchange, and Promedix, its medical-devices marketplace. ICGs loss included a $302 million write-down of the value of its portfolio of companies, primarily PaperExchange and MetalSite, two independent vertical marketplaces.
ICG, which was able to attract many talented industry managers, has not been able to translate that brainpower into market demand. For instance, ICG managing director Tony Ibarguen was recruited in late 1999 from distributor Tech Data where he was president and COO. At ICG, Ibarguens focus is business services and he sits on the boards of six ICG partner companies including MetalSite.
But the outlook for vertical industry e-marketplaces like Ventros Chemdex has been cloudy ever since dominant players like General Motors decided to get in on the action. It formed industry-backed exchanges like Covisint, the auto industry e-marketplace founded by GM, Ford Motor Co. and DaimlerChrysler AG.
Even industry-backed exchanges have limited appeal, but a real sweet spot, say analysts and vendors, is the private exchange operated by a single company as a way to work with its multiple trading partners. AMR Research, for example, released a report last week that said private trading exchanges will become the dominant mechanism for online trading, which will reach $5.7 trillion in 2004, and "the corporate command center for B2B commerce".
Insider Pains Looking forward, neither Ventro nor ICG offer good news. Ventro CEO Dave Perry apologized to industry analysts during a conference call for being unable to disclose much information until after the company files to buy back its convertible debt at 27 cents on the dollar.
However, Perry was able to disclose the resignations of Ventros COO, CFO and VP of marketing. Ventros long-term goal is to become a "marketplace services provider," but the viability of that direction is questionable in an already overcrowded market.
Any Buyers? To keep its companies afloat, ICG will pump money into select ones. It expects to raise $25 million by selling its stakes in Blackbird, Deja, EmployeeLife, SageMake and VerticalNet Europe, says Walter Buckley, ICG president and CEO.
ICG, says Buckley, will continue to evaluate which companies to unload. Unfortunately, the market is overflowing with Internet companies looking for a buyer, driving valuations down. According to Webmergers.com, a firm that tracks Internet mergers and acquisitions, buyers spent more than $600 million to buy 60 Internet destinations in January. That compares to $3.7 billion spent to acquire 57 companies in January 2000.
ICGs Buckley also says that theres little hope it will be able to take even its most mature companies public in the foreseeable future. "Our focus is on building these companies and winning in their respective markets. And were giving little to no visibility into going public." Last year, five ICG companies pulled their IPOs due to market conditions.
Regardless of whether Ventro and ICG can rise from the ashes, the death knell has already tolled for independent vertical e-marketplaces.