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November
21, 2000 By Edward Robinson For most of the year the B-to-B story has been dominated by the birth of giant public online marketplaces such as Covisint, the automobile parts exchange formed by GM (GM, info), Ford (F, info), DaimlerChrysler (DCX, info) and Nissan/Renault, and MyAircraft.com, the aerospace marketplace founded by United Technologies (UTX, info), Honeywell (HON, info), and other avionics players. Yet, even as these exchanges develop, another tribe of online marketplaces has quietly made inroads on their turf: private exchanges. According to eMarketer, so-called one-to-many exchanges controlled exclusively by one company are blowing away the many-to-many public exchanges devoted to establishing vast online bazaars with as many players as possible. This year, eMarketer projects that private exchanges will process $172 billion in transaction revenue versus $13 billion for public marketplaces. Obviously, big public exchanges haven't truly begun to flex their muscles. But there is another force driving this trend: Many companies want to wring the enormous cost savings and efficiencies from a B-to-B marketplace without hopping into bed with their competitors. Last year, for example, GE Aircraft (GE, info) acquired a marketplace engine from Spaceworks, a closely-held software maker near Baltimore, to sell its engine parts to customers such as Delta (DAL, info), and United Airlines (UAL, info). Rather than form a public marketplace; however, GE fenced it off. This year the $10.5 billion division expects to sell almost 12 percent of its products through the exchange. "Why swing the door open for all of your competitors when you don't have to?" asks Spaceworks CEO Dave MacSwain. In fact, one of GE Aircraft's prime competitors, United Technologies' Pratt & Whitney, saw how well the private exchange was working for GE so it also acquired Spaceworks' private marketplace engine. Now MacSwain's big challenge is to keep two big customers happy in their own private domains.
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