Why Online Exchanges Died

In many industries, B2B exchanges were simply not to be.

By Cara Cannella | 
 

Back in the late '90s, industries as various as construction, retail, and biotech figured that buyers and sellers would use websites to find one another, disrupting traditional distribution channels and driving down prices on raw materials, parts, and other components. Yet a report published in the Winter 2003 edition of the California Management Review found that of 1,500 B2B exchanges started, only 43% remain. Study authors George S. Day, a Wharton professor, and Adam J. Fein found that most buyers placed a premium on long-term relationships with vendors. As Fein puts it, purchasing agents are "generally reluctant to change procedures that work." An exception to the B2B bust can be found in the electronic components industry, where exchanges have survived at a rate of 67%. They succeeded by offering obscure items and liquidation sales, and because, in the industry, the relationships between purchaser and vendor are less complicated and entrenched than they are in, say, construction.