After testing the waters with the B2B Commerce Network (BCN) last year, American Express Co. Thursday dove in to the e-commerce marketplace with the help of Ventro Corp..
The two companies jointly formed MarketMile LLC, an Internet-based marketplace that will allow companies to buy and sell business products and services — from office and industrial supplies to computers and peripherals to temporary labor. The companies said MarketMile’s solution will allow companies to purchase within corporate spending guidelines at a fraction of the cost of current electronic purchasing software solutions. It will also offer robust purchasing functionality, including customizable budgetary limits, preferred supplier lists and contract pricing.
MarketMile will initially target mid-sized companies, but American Express and Ventro
have plans to expand the service into the markets for large and small firms as well. The company will focus on launching a domestic solution and will explore opportunities to expand globally in the future.
American Express and Ventro said MarketMile will profit from transactions and value added services, such as streamlining processes and providing marketplace intelligence and trend information. Buyers will benefit from the affordable entry and operating costs of a hosted solution. Also, MarketMile is expected to offer automated purchasing and payment functionality that leads to lower costs and increased productivity, increased control and visibility of employee spending levels, and procurement tools such as workflows and consortia buying programs. MarketMile plans to aid suppliers by opening new business channels with reduced costs associated with merchandising, customer service and transactions, as well as highly targeted marketing and advertising opportunities.
While the e-commerce market has been extremely volatile over the past few months, research firm Jupiter Communications Inc. predicted in June that the U.S. B2B market will surge to more than $6 trillion in online trade by 2005, representing about 42 percent of total U.S. B2B non-service spending.
“The value proposition of the Internet is on a grander scale for the B2B space; the sheer size of B2B trade, coupled with inefficient processes, makes the Internet migration of business strategies very attractive,” said Melissa Shore, senior analyst for Jupiter. “Early adopters have already made their investments, but it will be the mainstream companies that now embrace the Internet and will drive it to mass penetration.”
Also Jupiter noted that direct channels, a model of one seller to many buyers, currently dominates 92 percent of the Internet B2B market. By 2005, Jupiter predicts net markets, a model of many buyers and many sellers, will have about 35 percent of the Internet B2B trade volume together with coalition markets, comprised of consortiums of buyers or sellers.
“Lately I have seen a trend of service companies starting to open market places of their own,” said Lisa Williams, an analyst with The Yankee Group. The Yankee Group’s predictions for the B2B marketplace are not quite as glowing as Jupiter’s but they are forecasting growth to $3 trillion by 2004. “We’ve already seen tremendous growth,” Williams said.
That growth may spell some trouble for startups like Cephren and Office.com that don’t have the resources that giants like American Express can bring to bear on the market.
“It might be pretty stiff competition for those guys,” Williams said.
Ariba Inc., supplier of B2B e-commerce platforms, will provide the core technology for MarketMile.
Ariba worked with American Express to develop BCN, and Ventro licenses Ariba technology for all its marketplaces.
American Express is taking a 65 percent stake in the company and Ventro will take the remaining 35 percent. However, they plan to invite future participants and service providers to become stakeholders in the marketplace through investment in the company. They said attracting additional investors is “a fundamental part of the strategy — giving participants an opportunity to share in the success as stakeholders. MarketMile will seek strategic partners early in its evolution to help build liquidity.”
“We fully expect these ownership percentages to dilute down over time,” said Ed Gilligan, group president of Global Corporate Services, American Express.
MarketMile is American Express’ first separate e-commerce start-up. American Express first dabbled in e-commerce with BCN, a pilot project to service the indirect expense/MRO (maintenance, repair and operations) market. The company will transition its pilot participants to MarketMile, and will leverage those participants into a critical mass of buyers and sellers for the new business. And Ventro has a great deal of experience with operating companies — MarketMile will be its sixth. Its existing companies include Chemdex (life sciences), Broadlane (high-volume hospital and medical supplies), Promedix (specialty medical equipment), Industria Solutions (energy and chemical plant equipment) and Amphire Solutions (foodservice distribution). American Express and Ventro’s companies will be customers of MarketMile.
“We have enormous resources committed to this venture,” said David Perry, president and chief executive officer of Ventro. He added that Ventro’s technology will enable MarketMile to scale very quickly while American Express’ branding and customer base will allow the company to rapidly achieve market liquidity. “The business opportunity that MarketMile is going after is enormous.”
John Corsi, of Ventro, will take the helm of MarketMile as interim chief executive officer. The board will include: Gilligan; Pierric Beckert, senior vice president of Interactive Investments, American Express; and Robin Abrams, chief operating officer of Ventro. Gilligan said MarketMile is actively recruiting for a permanent CEO. The company will be headquartered in Mountain View, Calif.
American Express and Ventro said MarketMile is targeted for launch in Q1 2000 with additional rollout of functionality throughout 2001.
