How Analysts and the Business Press Got Everything Wrong on Marketplaces

 Executive Summary

• IT analysts help create a bubble about marketplaces.
• After they got the story so wrong, they moved on hype up other topics.

Advanced Planning 2.0?

During the tech stock bubble that had formed around technology companies, some companies were focused on electronic collaboration through the concept of an online marketplace. This development was spearheaded by two companies, Ariba and Commerce One.

The media focus on the competition between these companies caused the emphasis on B2B marketplaces to occur very rapidly and caught the major supply chain companies off guard. It appeared when overnight companies from Dallas to Singapore were beginning to think, promoted by media outlets and analysts, that they needed to join one of the developing marketplaces that seemed to be announced weekly. SAP, i2, and Manugistics were considered laggards in the collaboration space. Therefore all these companies were criticized in the press for missing the boat on B2B marketplaces. A quote from Fortune in 1999 stated the following. The quote below is illustrative of the perception held by many at the time.

“Both i2 and SAP have something to prove in the area of marketplaces.“ – Forbes

Analysts and software companies were painting quite a beautiful picture of the future of marketplaces. The fact that B2B marketplaces were completely unproven at the time of the quote did not stop these highly speculative statements from being written.

At the time, the concept was the vendors would get a transaction fee on every fee that went through the marketplace. Many analysts wrote on this topic, but this quote from Forbes from the period illustrates the mindset.

“Since the companies that build and host online marketplaces get a cut of the transactions, the importance of securing these large industry leaders is obvious. As evidenced by soaring stock prices, investors have placed a great deal of faith in companies that can flaunt their marketplace capabilities. Shares of Commerce One, with its General Motors deal neatly in the bag, have risen more than 570% from $61 to $423 since the company went public in July. And Ford is planning to take its marketplace joint venture with Oracle, called AutoXchange, public in the next 12 to 18 months, with revenue expected to hit $5 billion in the next three to four years .” – Forbes

The problem with Forbes’ analysis is that by this time, the old-line companies were tired of seeing all the stock appreciation go to the technology firms and now negotiating very aggressively during this period. The terms of these deals were customer-friendly; it is a matter of debate about how much the software companies would have financially benefited. Secondly, the old-line companies were using the announcement of these marketplaces to drive their share prices. Thus the corruption from the technology sector was beginning to infect other parts of the economy.

All of this naturally created expectations that SAP would respond to. SAP, despite its strong revenues, was beginning to be discounted in the market.

“The sad thing is, without knowing it, (SAP)R/3 has become a legacy platform.“ – AMR Research 2001

Nice one, AMR. I would like to have framed and placed this statement on my wall as one of the most inaccurate statements ever made about enterprise software space. SAP R/3 is still humming along quite nicely and will be for humming along for some time. The number of confident statements that AMR makes that later turn out to be wrong is amazing.

SAP Responds to the Pressure

SAP responded by creating an alliance and taking an equity stake in Commerce One that was also highly touted. In 2001 this equity stake was increased to 20%. Several press releases indicated that SAP had gone live with Commerce One to clients, Samsung being one of them. The strategy was based on completely integrating their product with SAP. By 2002, the alliance was unceremoniously terminated. As early as 2001, Hasso Plattner, then CEO of SAP, made the following statement that indicates SAP’s dedication to marketplaces was about to decline significantly.

“Software companies should stick to what they’re good at and leave trading networks to the Nasdaqs and Wal-Marts, ” – Hasso Plattner, SAP

There was an enormous number of false statements about marketplaces at the time, and the projections were massive. There is a serious question as to whether these predictions were believed by the people who made them or if there was something else on their minds at the time. There is also the pressing question to ask whether these marketplaces were actually about the business side of improving procurement efficiencies or about stock options. Both Ford and GM slowly distributed stock options to executives for these marketplaces.

A Personal View of the Time and Projections

At the time, I was working at i2 Technologies, and we had introduced something called TradeMatrix. Mainly this was a series of vertical or sector-directed marketplaces. The i2 executives thought this would result in great riches for i2, and within the company, there was jockeying to get into one of these matrixes to enhance one’s career. You were supposed to lobby to get into one of the Matrixes.

However, things did not work out as planned. TradeMatrix ended up being one of the great boondoggles in supply chain software history and is a firm example of a marketing idea with no product. There was nothing new with TradeMatrix, just the same old i2 applications, which would have to be stitched together to talk to a web front end. However, i2 pitched the idea relentlessly inside and outside the company. I once complained to a Vice President that after six months, I still had no idea how to explain what TradeMatrix was to clients, and that was a problem. He told me not to worry about it and that this is how SAP started, they also (according to the VP) quietly announced products, and look how well they had done (actually.

The VP was incorrect on that count; SAP began with rather conservative marketing strategies and only started making things up in the late 1990s).

The marketplace frenzy negatively affected projects in other ways. I was in Singapore at the time, and because of overselling by i2 sales, I was doing things like explaining to executives that XML (a backbone technology for marketplaces). I was not going to provide the complete integration for them, and that it was merely a document standard and that an entire integration middleware layer would be required. Our sales team had explained that XML would perform the integration for them, a tall order for a markup language. (At some point, I will need to write an article on how XML was originally pitched vs. what it ended up doing.) As with many i2 sales divisions, the Singapore sales office never cared whether anything they said was real. They lacked the technology expertise themselves to validate ridiculous statements issued by-product management.

Conclusion

Marketplaces eventually brought down every company that attempted to work in the space. Companies like SAP that dabbled it in got burned, for companies like i2 that dedicated their businesses to the concept were major distraction and revenue and energy-sapping experiments. For companies like Ariba and Commerce One, they virtually disappeared after the trend declined, with only the executives and employees that sold their stock early actually benefiting. The marketplace boom was a crazy time, and none of it could have happened without the stock market bubble. This is another example of how overly financially remunerated people can create an environment that ends up resulting in a lot of waste.

As for analysts and business press outlets similar to Forbes and many others, they were utterly wrong in their projections. Nothing that they discussed or projected came true. The only real success from marketplaces is Covisint, an automotive marketplace, which is a very modest success and never met its projections either. However, it at least is still in operation, unlike other marketplaces that are defunct.

As for analysts, it’s straightforward; the principal analyst firms are too greedy and too corrupt to have their projections trusted. As soon as a wave builds and there is enough financial motivation, their “rationality” will be thrown out the window, and they will begin projecting incredible growth for an area. It is guaranteed to happen again.

For me, I still never seem to get any calls from the salespeople that I worked with at i2 Technologies who were so sure they were changing the world with TradeMatrix, and I never get any apologies. I have found out that when people are wrong, they don’t apologize. They move on to the next thing.

References

https://www.forbes.com/1999/12/21/feat.html

https://www.informationweek.com/790/sap2.htm;jsessionid=WDOXQGFHANHYLQE1GHPCKH4ATMY32JVN

https://www.sap.com/about/newsroom/press.epx?pressID=1374

https://www.sap.com/france/about/press/press.epx?pressid=68

https://www.informationweek.com/790/sap2.htm;jsessionid=WDOXQGFHANHYLQE1GHPCKH4ATMY32JVN