Vertical direct procurement e-marketplaces: The next challenge

In the B2B space, vendors have traditionally been striving to serve companies' procurement needs for indirect products. These range from office supplies and computers to spare parts and are usually dubbed maintenance, repair and operations (MRO) products. The first large vendors into this space were the leaders of today's B2B market and include Ariba, Commerce One and Oracle, which developed or acquired the software capable to serve a wide range of industries, first through an internal application then through horizontal B2B marketplaces.

But during the last year, these software vendors have started to focus on direct materials procurement, meaning the buying of parts that contribute to companies' end products. As direct goods account for the vast majority of most firms' procurement spend, this shift not only offers manufacturing companies competitive advantages but also creates an important new marketplace for technology vendors.

However, even in the MRO space partnerships have proven essential to vendors looking to provide all the elements of a solution. Direct materials procurement - with increased emphasis on supply chain - requires an even wider range of technology in order to satisfy the needs of businesses.

In order to cope with the complexity of direct procurement, vendors have been forging partnerships with or acquiring companies that equip them with the right elements of the solution. Ariba has acquired SupplyMarket.com providing it with manufacturing customers and technology for its platform. It also has partnered with i2 Technologies to cater for the supply chain needs of direct procurement.

Commerce One has entered into an alliance with SAP leading to a joint B2B strategy. The two companies will market a new product, MarketSet, built on Commerce One technology but integrating seamlessly with SAP's MySAP suite which includes supply chain, business intelligence, customer relationship management and product data management modules.

It would seem direct goods ecommerce companies such as NexPrise, SupplyWorks, Synquest, and Tradiant and are target acquisitions for the big B2B technology providers. In addition, online e-marketplaces such as FreeMarkets, manufacturing.net, PurchasePro.com and Ventro, could also be interesting acquisitions, not because of their technology but because of their knowledge of specific industries and geographical areas.

Acquisition time?

So who are the possible suitors for these marketplaces? There are vendors in the mid-tier such as Clarus, which turned around its operation from an ERP vendor to become a B2B player, Intelisys, now re-branded as Metiom, home grown UK champion Infobank and iPlanet. However, they will need to acquire or develop their existing product sets to keep up.

Infobank has a good reputation in Europe and may have a few pennies in the bank for an acquisition, however, it is always possible that Infobank itself may have to fend off a large suitor looking for a quick way into the market. Clarus may also be in a position to acquire. Metiom may lack financial muscle. It has been planning an IPO for over a year now with little success. iPlanet, which has yet to articulate a coherent marketplace strategy, will have the funds for an acquisition through its parent companies, provided it can find a suitable and forgiving partner.

The market is entering an interesting phase in its development. New products and expertise need to be acquired in order to satisfy the needs of a much larger market than was first envisaged by B2B pioneers. Some vendors will acquire and grow. Some will not acquire and may still grow. Many will fail to do both.

Andrew Tanner-Smith is an analyst at Frost & Sullivan. http://www.frost.com