Published: Thursday, 25 October 2001

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by Harald Thaler

One of those to survive and prosper

Along with many other industries, the power generation sector embraced e-business in the year 2000. Both equipment suppliers and turnkey contractors are looking to e-business to transform themselves from traditional equipment and service suppliers into leaner, Internet-enabled enterprises.

The power generation industry has witnessed the emergence of a number business to business (B2B) marketplaces, or exchanges, which function as centralised exchanges where sellers and buyers can interact, share information and transact over an electronic network. Although such marketplaces first appeared in the automotive, transportation and electronics industries, the power generation industry eventually also realised the potential cost savings associated with this business model.

In this article, Frost & Sullivan looks at the progress of independent electronic marketplaces. Such marketplaces are not tied to a specific industrial company but are traditional internet start-ups financed by venture capital firms and key technology partners.

The Bubble Burst

Electronic marketplaces sprang up incredibly quickly across a variety of industries. During 2001, however, it became clear that such rapid expansion was not sustainable and the end of the dotcom boom brought with it a lot of pain for many electronic marketplaces. Across all industries, the number of independent marketplaces is expected to fall from over 1,000 last year to only a few hundred this year. The e-business partners of many marketplaces are also in deep trouble, with Commerce One, the leading operator of electronic marketplaces, having announced recently that it intends to reduce its workforce by a staggering 46%.

Overview of Key Independent Marketplaces in the Power Generation Sector, 2001

Marketplace	Main Service & Focus	Key Technology Partners	Status
Freemarkets.com	Customised Online Auctions	Proprietary (BidWare)	Operational
IndustrySuppliers	Standard Industrial Equipment	Oracle & Requisite Technology	Closed
SourcingParts	Engineered Components	HP Invent	Operational
sparesFinder	Spare & Surplus Asset Management	PavTech (NZ)	Operational
RedSpark	Sourcing & Collaborative Engineering	Autodesk	Closed
GlobalPowerAssets	Spare & Surplus Asset Management	Entrade	Closed
GlobalEquipment Exchange	Spare & Surplus Asset Management	Connexions	Operational
ProcureZone	Engineered Components	Commerce One	Operational

Exchanges and marketplaces of interest to the power generation industry can be divided into 3 groups:

• Independent marketplaces
• Energy-industry-drives marketplaces
• OEM-driven marketplaces

A recent failure among European marketplaces is IndustrySuppliers. Established in France in April 1999 and specialised in transactions covering standard industrial equipment and products, IndustrySuppliers was the first marketplace of its kind to be created in Europe and thus enjoyed first-mover advantage. Although it lined up electricity giant EDF as a customer, the market place never gained long-term viability and has recently closed down.

Success stories among the independents

Such failures are not universal, however. One independent marketplace that has prospered despite the dotcom crisis is US-based FreeMarkets.com. The company was established back in 1995 and has managed to convince many power generation equipment suppliers, including Foster Wheeler and Cummins Power Generation, of the value of its services. Unlike many other marketplaces, the company will achieve profitability much earlier than expected - in the fourth quarter of 2001. Having said that, the company is not immune from the current downturn, with third quarter 2001 revenues only growing by 8% over the previous quarter. FreeMarkets, which specialises in customised online auctions, stated in September 2001 that it had driven $2.5 billion worth of transactions in Europe to date.

A number of other relatively successful independent marketplaces are based in Europe, including SparesFinder and SourcingParts.

SparesFinder is an inventory optimisation service launched in 1999, which enables multi-site companies to have

Signed up key European clients

complete visibility of the group's spares assets. Additionally, the company matches buyers with sellers and thus allows for the reduction of spares surpluses. The service has been particularly popular with turnkey contractors as they operate in multiple locations and often have spare parts from different projects running concurrently. From its original client base of one power station SparesFinder has grown to more than 250 sites across 50 countries, including companies such as Alstom Power, Foster Wheeler and Kværner Energy.

37,000 suppliers and 600 buyers

SourcingParts, meanwhile, unlike the defunct IndustrySuppliers, is focused on complex built-to-order parts for which the reverse auction model is not suitable. This collaborative exchange, which connects buyers and sellers through its interactive platform, has shown impressive growth since it was launched in September 2000 and now boasts a membership of over 37,000 suppliers and over 600 active buyers. This contrasts sharply with the fate of its erstwhile competitor RedSpark, a US-based collaborative engineering marketplace that had started marketing activities in Europe in late 2000 but was closed down recently.

Frost & Sullivan conducts ongoing research into e-business in the European power generation equipment sector and has published a strategic report on e-business strategies in this field, the details of which are located here.

Link to related articles:
Power suppliers get e-nabled
OEMs and Utilities Persisting with Marketplace Strategy