Interviews with some survivors
February 14, 2002
Making the Internet pay has proven more difficult than a lot of first movers in the metals business made it sound in the late '90s. Thefabricator.com talked to a few people trying to capitalize on the lessons learned from all those no-brainers that turned into no-gainers.
The other shoe started to drop for the First Wave of Internet start-ups nearly two years ago now, and keen observers could have forecasted much the same fate for first-mover Internet players in the manufacturing sector such as e-STEEL, Suppliermarket.com, Metfabcity, and aluminium.com.
Now, a Second Wave of sites is keeping the faith, knowing that the ease of communication and collaboration offered by the Internet are sure to yield huge benefits to those lucky few companies that can come up with an easy-to-use product that gives customers what they want in a business-to-business network and actually improves on the trusty standbys of the manufacturing world, the ol' phone and fax.
And they're doing it with the benefit of hindsight.
"We got started as a marketplace, specifically focused on the steel industry. The market evolved, and it became clear what companies really wanted was private networks," said Ken Thompson, president and COO of NewView, formerly e-STEEL. "I don't think people are out there looking for Internet solutions. What we're seeing in the market is that people are looking for the opportunity to improve their level of competitiveness, particularly in the supplier management side of the business."
e-STEEL was one of the few First Movers that actually was able to morph itself into a new company with a new mission statement, without filing for Chapter 11. And with customers the likes of Ford Motor Co. and Australian steel interest BHP Billiton, the company hopes to cater to the market's desire for a product that eases the process of forming and maintaining private business relationships.
That tactic is a far cry from the company's original business plan—to create a wide-open, transparent marketplace for anyone and everyone.
"The fact is, large companies don't want all of their transactions available to the public," said Thompson, who has been with the company for about two years. He noted that his company was able to survive because it had a product that people liked—just in a package that they didn't.
"They wanted it in the form of a software solution in more of a private setting, more of a private relationship," Thompson said. "What helped us out a lot is, the technology you need and the business process knowledge you need to run a public marketplace is the same technology and expertise you need to set up the kind of solutions we [offer]. That was what allowed us to make the transition."
Where NewView took a turn in the path, SteelBoss.com kept right on going, keeping in hand a record of the potholes that predecessors such as e-STEEL and MetalSite tripped over.
SteelBoss.com, a service of Steel Marketing Inc., is subscription-based online exchange for steel and steel products. If that sounds a lot like other exchanges, think again, Steel Marketing President Ken Hensey said. Where some other players charged a fee for transactions conducted on their sites and tried to dictate how and where people connected, SteelBoss provides a spot for buyers and sellers to converge and do business how they see fit for a monthly subscription fee of no more than $50—and offline, if they want.
"It has to be easier than picking up the phone or fax," Hensey said. "Steel marketing was a transaction-based service. That, by its nature, continuously erodes your customer base-people are going to find a way to not use you. The biggest benefit to [our] members was to go to a subscription-based service."
One problem that Hensey sees is that what people want out of the Internet and what works "are really two different things."
What many people want is the ability to throw their junk online and have it magically bought up, he said. Another pipe dream is the virtual warehouse, where buyers enter a quote, hit "send," and get the product they want, when they want it. But because of all the different data platforms and crossing interchange points, "there's no way to make a virtual warehouse like that work," Hensey said.
"It's very cost-prohibitive to exchange data between companies like that," Hensey said. "You may see conformity over time. That's the logical way for things to go. We're a long, long way from that."
Well, not too, too far away. At least that's the hope at Covisint, the online auto supply exchange established by Ford, General Motors, DaimlerChrysler, Nissan, and Renault in early 2000.
And rather than fall back and regroup in anticipation of a suffering auto market in 2002, Covisint is pressing ahead with five product suites that cover the major facets of business in the automotive industry-a product development and collaboration tool, material procurement tools, supply chain management tools, quality assurance tools, and a portal that is designed to provide a gateway to Covisint applications and any proprietary apps that a participating OEM might offer on the site.
For example, Ford has more than 80 software applications that it uses to deal with its suppliers stored behind an electronic firewall (Ford, DaimlerChrysler, and Delphi Automotive are the three OEMs supporting the portal right now). If a supplier wants to use some Covisint tools and a couple Ford applications in the same user session, a person can log into Covisint and get access to the Ford tools, as well.
"We're trying to get everyone on a common portal, or front door, to e-business," Covisint spokesman Thomas Hill said. "It gives us penetration to the lower tiers, especially through Delphi."
The portal is just the beginning of Covisint's efforts to reach deeper into the automotive supply pool than just Tier 1 companies. Granted, Tier 1s represent a lot of business, but about 30,000 U.S. companies are involved in the auto industry, and a lot of them are Tier 2 or below, Hill said.
"The idea behind Covisint was to level the playing field for everyone," Hill said, noting that smaller companies may not feel the trickle-down effect of the cost savings that Tier 1 players can retrieve from the Internet.
For example, electronic data interchange (EDI) used to be the name of the game. But phone and fax remained the main tools for most companies below Tier 1, Hill said. Now the proliferation of e-mail has rendered old, costly tools obsolete.
"You don't have to worry about purchasing it and rolling it out to your operation," Hill said. "We'll help you. We're taking all the integration hassle out of it for you."
And eliminating hassle for customers is the name of the game, according to NewView's Thompson.
"What we provide is a technology that allows them to manage [their businesses] much more effectively than they do today," Thompson said. "In 1999 and 2000, companies were rushing to the marketplace without any sense of what their core competency was, other than getting there first. At the end of the day, getting there first doesn't matter a whole lot if you don't have supporting materials and a very strong sense of what your core competency is.
"For us, we have a core competency in terms of technology and a core competency in domain expertise," he said. "We understand the network business processes our customers want to execute in the marketplace."
Whatever route fabrication shops and OEMs decide to take to online bliss, at least one entrepreneur is betting that the proverbial end of the rainbow is out there, with a pot of gold waiting for the finder.
"The logic is clear," SteelBoss.com's Hensey said. "There's got to be a way [for] a medium like the Internet to link up with the steel industry and actually have it provide value."