There's a vast difference between the hype and the reality when it comes to building online marketplaces, according to attendees at a conference on business-to-business applications that's being held here this week.
The Web remains years away from realizing its full potential as a corporate business tool, despite all the publicity about supply chain efficiencies that companies can get by investing in online exchanges and private business-to-business integration projects, said speakers at the conference, which is being sponsored by The Delphi Group, a Boston-based consulting firm.
In fact, most companies venturing on to the Web to do business are likely to fail, said Shikar Ghosh, president of Internet portal vendor iBelong Inc. in Waltham, Massachusetts. Poker games provide better odds of success, Ghosh said yesterday.
Moreover, he added, the companies that do realize supply chain savings by using the Web -- Round Rock, Texas-based Dell Computer Corp., for example -- often also see the profit margins of their products shrink. That offsets much of the expense reduction, Ghosh said.
Illustrating the dangers that lurk on the Web, Ravi Kalakota, chairman of Atlanta-based Hsupply.com, announced during a speech at the conference that the 11-month-old business-to-business exchange for companies in the hospitality industry had just gone out of business.
Hsupply.com, which had 90 employees, had managed to sign up 400 hotels to use its online marketplace. But getting an exchange to function profitably is tricky and expensive, Kalakota said. For example, he noted, HSupply.com's systems required a large amount of human intervention on the back end to process invoices and orders for customers.
"It got really messy," Kalakota said. Products that are back-ordered, or orders involving multiple suppliers, also were a nightmare for the exchange to deal with, he added. Web-based technology isn't automated enough yet to handle things such as reconciling invoices and orders, a situation that forced Hsupply.com to hire 15 accounting workers to manually handle orders and calculate the relevant state, county and federal taxes.
In many cases, achieving the benefits of business-to-business applications ceases to be a competitive advantage and simply becomes the cost of doing business for companies, said Debin Benish, a consultant at Delta Systems Group, which is owned by Columbia Inc. in Columbia, Missouri. Technology users who don't understand that could be "in for a rude awakening," she said.