B2B retail hubs join forces

WASHINGTON – When the dotcom bubble burst five years ago, many business-to-business online marketplaces flamed out like so many bottle rockets. Now two of the survivors–retailing exchanges GlobalNetXchange (GNX) and the WorldWide Retail Exchange (WWRE)–have decided to pool their resources, announcing a merger in April.

Gartner Research Director Andrew White suggests that the merger should have happened earlier. “It’s really two companies admitting what they should have all along,” he says–that their efforts overlapped.

GNX and WWRE were formed separately in 2000 by different groups of retailers interested in streamlining their procurement processes and supply chains. GNX, founded by eight companies–including Sears (which is now merged with Kmart) and Kroger–today counts Ace Hardware among its customers. WWRE was founded by 17 retailers, including Target and Best Buy. While each consortium developed unique product lines, both also offered IT tools to help retailers improve their supply chain efficiency and hosted auction sites in which retailers could negotiate with suppliers for goods and services.

While some other B2B exchanges struggled in recent years, both GNX and WWRE reported profits last year. Neither of the privately held companies provided details.

By merging, the two groups hope to set standards for how information technology is used by retailers, says Joe Laughlin, CEO of GNX and of the new company, which at press time did not have a name. The two companies will combine their technology into a single platform that connects retailers, manufacturers and their trading partners. The new company also plans to reduce costs to their customers through economies of scale.

In 1999 and 2000, companies within the same industry–often an industry’s biggest players– formed joint ventures called B2B marketplaces or trading exchanges to develop a technology platform for interacting with suppliers or customers. Members would pay a fee to use its services and be able to buy, sell and even design products with multiple trading partners. One popular feature of many B2B exchanges was the auction or reverse auction, in which sellers would offer products to the highest bidder, or buyers would seek low bids for raw materials, parts or finished products.

The competition between exchanges was driven partly by fear of an eBay-like monopoly in each industry and partly by greed for “dotcom-like financial killings,” says Andrew Bartels, vice president and research analyst with Forrester Research. But “none of these things really panned out,” he adds. Many exchanges also stumbled because their products competed with packages offered by big-name software vendors, and because midsize companies that could benefit from the exchanges were slow to join them.

While other B2B exchanges, like the metal industry’s Quadrem, survive on their own, Bartels expects more consolidation among B2B groups that have carved out modest successes with specialized technology. He expects some exchanges to sell out to vendors who can profit by offering hosted procurement, hosted sourcing and global data synchronization products.

In the proposed merger between GNX and WWRE, there is likely to be little immediate impact on customers. What happens over the long term is less clear.

White notes that GNX, with no real competitors among its founding members, has been more innovative. It may be tougher to develop new services quickly after the merger because WWRE members are less willing to share strategic ideas with each other. WWRE is “full of mortal enemies,” he says.

NOTE: This story originally appeared in the June 15 print edition of CIO (US). It is now available for immediate use in online and print publications.