June 7, 1999
Better claim your space: The Internet land grab will produce many minimonopolies
There's a land grab happening right now in the biggest Internet markets no one has ever heard of.
The fact is, the lion's share of electronic-commerce revenue won't go to high-profile retail sites such as Amazon.com and eBay. These are consumer commerce ventures, selling one product at a time to individual customers. Theirs is an admittedly huge market, but it's not the biggest.
The bulk of e-commerce revenue will come from transactions between businesses, in which both purchase volumes and dollar values already dwarf the consumer commerce market. The business-to-business e-commerce market presents an opportunity so big and so appealing that venture capitalists (VCs) at last month's Net Markets conference in Berkeley, Calif., were describing it without embarrassment as a "land grab."
Forrester Research estimates that $43 billion worth of hard goods were traded between companies via the Internet last year. In 2003, this online trade will swell to $1.3 trillion.
By comparison, the consumer hard goods market in 2003 is estimated to be a mere $108 billion.
Far and away the largest category of business-to-business trade is and will continue to be computing and electronics, a $20 billion market in 1998 that will expand to $395 billion in 2003, Forrester predicts. But other industries are poised for major e-commerce growth as well, including the auto industry ($213 billion in 2003), petrochemicals ($178 billion), and utilities ($170 billion). Smaller but nevertheless significant sectors include office products, pharmaceuticals, aerospace, construction, and industrial equipment -- a wide array of specialty markets that together add up to hundreds of billions of dollars in sales.
The vastness of these opportunities is what is spurring interest in online industry marketplaces -- vertical markets in which companies within a given industry can easily buy and sell goods and services with one another.
A good example is Chemdex (www.chemdex.com), an online industrial chemical marketplace that lets buyers and sellers of industrial reagents more easily find one another, look up information about the chemicals they need, and make online purchases.
What it takes to make a good marketplace is a commerce infrastructure tailored to the particular needs of the industry's buyers and suppliers, and a rich supply of information about the products available throughout the industry.
This means that entrepreneurs with intimate knowledge of specific industries have a golden opportunity to create such marketplaces and cash in on the trade they generate. If you can facilitate billions of dollars in trade -- and collect even a small percentage as a transaction fee -- you stand to make a lot of money.
The Net Markets conference was dedicated to such Net marketplaces. Hosted by Kevin Jones, the editor of a year-old newsletter called Net Market Makers, the conference provided a rare glimpse at a rapidly developing new market.
At the conference, I rubbed elbows with aspiring makers of online insurance, mortgage, steel, and even meat markets -- and the VCs who are backing them.
A panel of VCs talked about why they are getting all hot and bothered about such seemingly unglamorous start-ups as industrial chemical exchanges.
Aside from the heady possibilities for public offerings of stock and stratospheric Internet valuations, Net markets are also prime monopolies in the making. The consensus among the VCs was that each industry can only support one, or at most two, online marketplaces.
Thus, within any given industry, the company that first succeeds in creating a marketplace and locking in the industry's major buyers and suppliers will have established an unbeatable competitive advantage. It will be, as the VCs said, "game over" for other would-be market makers.
And for a venture capitalist, almost nothing is more appealing than a monopoly in the making.
Are you planning to stake a claim in the Net's next land grab? Write to me at email@example.com.
Dylan Tweney is the content development manager for InfoWorld Electric. He has been writing about the Internet since 1993.
Previous columns by Dylan Tweney
Affiliate marketing: the future of e-commerce or another hard sell?
May 31, 1999
Push: The rumors of its demise have been greatly exaggerated
May 24, 1999
Distance learning is no substitute for real-world education
May 17, 1999
Internetworkers need `synchronets' to help them work and travel
May 10, 1999
Every column since August, 1997