E-marketplaces may have short shelf-life

Two leading analyst houses have launched separate attacks on the blossoming online procurement markets - claiming their basic business model is flawed and they face a future of increasing conflict among collaborators.

A report by IDC called 'Trying to forget the enemy: the high-tech industry exchange' predicts that IT vendors working together on the development of online exchanges will not be able to resist competitive urges and eventually fall out.

The report points to a group of 12 vendors including Compaq, Gateway and HP which are planning to create an exchange where buyers and sellers of PC components use the Internet to trade.

Richard Villars, vice president of Internet strategies at IDC, said: "While the idea is worth pursuing, the competitive nature of the IT industry will create a lot of conflict and delay."

Meanwhile, in its own independent report, analyst house Frost & Sullivan is predicting that the pricing structure employed by most companies running online marketplaces will fail. The report claims that most vendors and other businesses take a percentage of the revenue received when a supplier trades over the exchange.

The report's author Andy Tanner-Smith, said the model was devised to "encourage suppliers and buyers onto the exchanges in the first place but is not sustainable in the long term" and added that suppliers need to find alternatives fast.

Chris Phillips, director of marketing at e-marketplace specialist Commerce One, said companies are already working on a range of different revenue streams.

He also agreed with the report's claim that the physical fulfilment of orders will be central to the success of online exchanges.