Fundamental flaws in the thinking behind the purpose of electronic marketplaces, coupled with all the hype, have resulted in a lot of the visions disappearing into cyberspace. But, as Arthur Way reports, it would be wrong to conclude that e-commerce is a passing fad.
Just two years ago the evolving dotcom economy and, in particular, the development of e-marketplaces were set to revolutionise the business world. The widespread utilisation of e-commerce was poised to transform the traditional structure of commercial relationships - both business-to-business (B2B) and business-to-consumer (B2C) - leading to the emergence of a brave new electronic world which would be ubiquitous in its application.
For the motor industry, dealings across a wide spectrum of activities - from raw material sourcing to delivery of the vehicle to the end user - were in line for a radical shake-up which would marginalise and eventually crush those who did not embrace the new technology. No less a figure than Jac Nasser, then Ford's President and CEO, stated that the worldwide web would transform "every piece of our company and our industry" with the result that the world's second largest vehicle producer would mutate from an assembler of cars and trucks to a global customer service company. Another manifestation of the prevailing fever was the sight of high ranking executives with secure jobs in well established automotive companies abandoning their positions and joining fledgling and unproven internet-based operations which promised stratospheric growth prospects along with a tantalising future profits stream.
From the present standpoint, though, things appear very different. There has been a resounding failure of e-commerce to sweep all before it, Nasser's vision has evaporated into cyberspace, and a high proportion of the eager generation of dotcom entrepreneurs have faded from view while their financial backers have retreated to lick their wounds.
When examining B2B it is particularly noteworthy that,
"..of the huge number of e-marketplaces established in the heady days of 2000, only a small number are still operational. "
Clearly, such a let-down suggests some fundamental flaws in the thinking behind these e-marketplaces. Mark Smith, director of consultancy at Internetix (the specialist consulting group for e-business strategy formulation), cites three key issues when determining the reasons for past disappointments. First, two facets of B2B were confused by companies and analysts when they made an assessment of the value that e-marketplaces could deliver. The separate and distinct view of B2B marketplaces as utilities was consistently confused with the view of them as business models. Unfortunately, arguments in favour of the one did not apply to the other.
Secondly, as value propositions were defined in greater detail, a crucial distinction was missed between those e-marketplaces which released locked-in value (in other words, value which could be released through other efficiency targeted measures) and those which added value in their own right.
Thirdly, these two aforementioned deficiencies - combined with a rosy picture of the value likely to be attained and a vague third-party assessment of average transaction costs - resulted in vastly inflated estimates of the real worth of e-marketplaces. It follows that many operations which have utilised e-marketplaces are questioning whether the potential to reduce transaction costs is sufficiently large and also whether it is possible to quantify the search/discovery efficiencies. According to Mark Smith, "the long-term value of e-marketplaces lies with the potential for collaboration that they represent, leading to the cherished objective of supply chain theorists - CPFR (collaborative planning, forecasting and replenishment)". However, it is generally the case that collaboration is not accepted universally as a good thing, least of all in highly competitive industries such as automotive, and there is a niggling suspicion that e-marketplaces facilitate the sharing of secrets.
The progress of B2B in the automotive sector has been further hindered by a series of issues which have been of considerable concern to the managements of individual companies, especially those in the smaller and medium-sized component producers.
".. there remains considerable uncertainty over the merits and complexity of the differing applications. "
Some component suppliers view e-commerce as a threat more than an opportunity - notably, they see it as a means for vehicle manufacturers to apply a further squeeze on prices. This has been reinforced by the workings of reverse auctions in which suppliers are required to compete with each other against the clock by bidding for orders. An increasingly relevant worry arises over the possibility that network security will be breached, perhaps by terrorists, with a devastating impact on the workings of the global motor industry. As might be imagined, this is an aspect that has been given a high priority in North America following the events of September 11. Since then companies have been examining systems to assess their vulnerability to cyberterrorism with the result that there will be a far greater focus in future on electronic security issues.
These worries apart, it would be wrong to give the impression that B2B is a passing fad and falls into the same category as the failed dotcoms. Equally, it would be unwise to ignore the potential role that the internet will have on every aspect of the motor industry's operations. Major vehicle and component producers are taking the issue seriously and are investing heavily, not only in B2B infrastructure, but also in ensuring that their employees are fully appraised of the possibilities and are not disadvantaged as the new order takes a grip. As an example, General Motors has established an e-commerce crash course with the aim of educating all management employees in IT.
The largest e-business exchange is Covisint which describes itself as "a global solutions provider partnering with the automotive industry" with a focus "to improve the effectiveness of mission-critical processes such as collaborative product development, procurement and supply chain management which will enhance our customers' product quality, cost structure and time-to-market worldwide". The operation was founded by DaimlerChrysler, Ford, General Motors, Nissan, Renault, Commerce One and Oracle. Since its establishment Covisint has continued to attract motor industry companies. Last May PSA Peugeot Citroën announced its intention to become an equity partner due to "the comprehensiveness and strength of the Covisint product offerings". Herve Guyot, the French company's vice president of purchasing, stated: "Covisint fits well with other B2B initiatives being developed within our own organisation. The addition of Covisint's products to the other technology initiatives we are implementing should present us with significant opportunities to gain real value for our company, our suppliers and our customers."
In December, US-based Meridian Automotive Systems - a supplier of front and rear end systems and body and trim parts to DaimlerChrysler, Ford, General Motors and Toyota - became the latest Tier 1 producer to use Covisint's procurement practices when the company conducted its first auction to purchase parts valued at over $1.5m from its suppliers. Robert Barton, Meridian's chairman and CEO, commented that "moving our business processes online will enhance the company's ability to obtain timely, accurate information from our supply base, which enables us to provide the same to our customers".
However, there is clearly a long way to go before this sentiment is accepted throughout the industry, especially in Europe. In the middle of last year Cap Gemini Ernst & Young published research findings which indicated that
"..nearly two-thirds of the Tier 1 suppliers who were canvassed had not formalised a strategy for trading through a B2B exchange.."
The same survey pointed to the expectation that membership of a B2B exchange would lead to lower transaction costs, a streamlining of the new customer development process and better access to information. Less satisfactorily, European component producers regard the cost of implementation as the main obstacle to B2B, with slightly more than half contending that suppliers do not have sufficient financial resources to invest adequately in B2B involvement. As a consequence there is a clear 'wait-and-see' mentality with 80% of respondents giving a low priority to the development of collaborative systems such as web-based product development and supply chain management.
Meanwhile, there is evidence that e-commerce is raising its profile quite strongly in B2C relationships. According to research conducted by CarPriceCheck and published in its latest Consumer Car Buying Survey (released in mid-January) consumers are exhibiting a greater propensity to initiate a new car purchase online with around one in seven - amounting to 350,000 units - sourced by this means last year. It is estimated that 5% of the total market (around 120,000 units) was supplied by 'pure' internet-based suppliers such as Oneswoop, Virgin and JamJar, while the remaining online content was accounted for by franchised dealers where the initial approach was online, although the eventual negotiation and fulfilment of order may have been face-to-face in the showroom.
This represents a doubling of online activity compared with the previous year and there is the expectation that further progress will be made during the current year. One impediment, though, could be the attitude of dealers to e-commerce enquiries. According to CarPriceCheck, car buyers are demonstrating a rising willingness to initiate a new car purchase online but are dissatisfied with the response from retailers. More than 75% of the study's car-buying respondents reported a lack of empathy and concern about their web-based enquiry, along with a lack of motivation from both online retailers and franchised dealers alike.
Steve Evans, CEO of CarPriceCheck, notes: "If retailers can put this final piece of the jigsaw in place, sales initiated online will grow exponentially this year and beyond. The car buyer has embraced the benefits of the web but too many dealers and retailers have not yet managed to implement effectively the basic rules of customer relationship management when dealing with them." In the case of the business and fleet car sector a number of developments have sought to exploit the potential benefits of using webbased procedures. Towards the end of last year, for example, Audi UK launched a new website aimed at strengthening the links between the marque's corporate sales operation and its customers. In addition to providing product and service information in an easily accessible form, eventually the site (www.audicorporatesales.co.uk) will offer an e-commerce facility enabling key customers to conduct complete sales transactions electronically. Audi states that this new online service will make "a major contribution to the simplification of the purchase process for business users".
"..it is clear that e-commerce has a growing and vital role to play in meeting a number of the motor industry's long term imperatives."
Notwithstanding the well documented dotcom boom-and-bust hiccoughs which have characterised the roll-out of e-commerce generally during the past couple of years, the crucial point is that the B2B is a young technology and, by any yardstick, has made remarkable advances in a relatively short timescale. Much the same applies to B2C where a new generation of computer literate car buyers are having an increasingly significant influence in the marketplace. As uncertainty over the future pattern of vehicle distribution becomes more apparent over the next few years in the context of changes to Block Exemption, it is probable that all participants in the retail motor trade will become increasingly dependent on using B2C as a means of reaching consumers and maintaining a close and ongoing dialogue with them.
Now that the dust is beginning to settle and the dotcom hype has been stripped away, web-based applications will be able to exert a positive and realistic influence on the motor industry's business in a calmer environment. Certainly there will be scope for innovation and the application of original thinking, but more and more there is the understanding that the main attribute of both B2B and B2C is to advance and refine what is already working rather than unleash a revolution of unprecedented dimensions.