Watching the B2B "hype cycle"

By Staff -- Industrial Distribution, 10/1/2000

Today, it seems that most industrial distributors are positioning themselves for inclusion in B2B exchanges (also known as e-marketplaces, vertical/functional e-markets, e-procurement sites, etc.).

Much like other recent technologies-such as speech recognition, videoconferencing, and more recently Bluetooth, peer to peer networking and fuel cells-B2B exchanges have almost predictably traced the path of the "Hype Cycle."

The B2B hype cycle began in late summer 1999 when Business 2.0 proclaimed business-to-business e-commerce, "The Web's Trillion Dollar Secret."

By March 2000, the buzz had reached a fever pitch. "B2B" was as ubiquitous (and trite) as "dot com." Experts were falling all over themselves with trillion-dollar market predictions. Ariba's stock shot up more than six-fold, VerticalNet more than eight-fold and Commerce One more than 20 times in just over six months.

The peak of inflated expectations (and stock prices) came early in March 2000. Investors started to wonder if money-losing companies with less than $50 million in revenues deserved $10 to $20, or even $50 billion market capitalizations.

The fall from peak to trough hit hard and these big exchange-related stocks fell 60-80 percent from early March through early April.

Today, we appear to be reaching the slope of B2B exchange enlightenment, although slowly.

The opportunity still looks huge, but as a general rule, industrial distributors we talk to indicate that B2B exchanges are progressing slower than expected.

And the stock market is in the process of sorting out the list of players (Ariba is almost back to its highs, while many others are still near the trough).

Will B2B exchanges eventually live up to the initial hype? Maybe someday. For now, most distributors appear to be doing the right thing by developing early relationships and preparing their IT infrastructures for exchanges, yet remaining focused on their core day-to-day value propositions.

David J. Manthey, CFA, is a research analyst with R.W. Baird & Co., Milwaukee, Wis. He can be reached at (414) 765-3774 or e-mailed at dmanthey@ rwbaird.com.