Onezone demise silences e-commerce advocate

Gartner Group analyst Lane Leskela coined the "trough of disillusionment" description of the current phase of e-business development. By his estimate, made before the world went to war against terrorism, the "plateau of profitability" is still several years away.

A local victim has fallen into the trough of disillusionment that engulfs the e-business world.

Onezone, the e-marketplace set up at the start of the year by Auckland-based laboratory supplies company Biolab Scientific, is the casualty. More to the point, 12 staff, including chief executive Catherine Calarco, a strong proponent of e-commerce, lose their jobs through the closure.

Biolab Scientific called it quits earlier this month saying Onezone was neither attracting investment support nor customers in sufficient numbers to make it a going concern. So after spending a few million dollars on the venture – Biolab boss Bruce McKinnon won’t say exactly how much – it was decided to close it down.

Biolab puts the failure down to bad timing. While there was some interest from potential investors, on whom the marketplace’s business plan depended, none was willing to commit to it. That was true both of possible “clip-the-ticket”-type partners – telcos, banks or suppliers – and venture capitalists. The first group couldn’t be shown that transaction volumes were high enough to give them the return they wanted, while the second group appear to have become more risk-averse than their name implies, telling Biolab they were only interested in putting money into sure bets.

Customers – which included a hospital and a university, among others – were apparently not persuaded that the marketplace would be financially rewarding for them, either. Biolab’s McKinnon puts it wryly, saying saving money by buying electronically is a lower customer priority than Onezone wanted it to be. Consequently, transaction volumes were much lower than projected (although claimed to total hundreds of thousands a month), earning much lower fees than required, and not able to reach levels attractive to ticket-clipping investment partners. In another couple of years, all might be different, McKinnon believes.

Gartner Group Hong Kong-based analyst Lane Leskela would probably agree with McKinnon on the timing issue. Leskela coined the “trough of disillusionment” description of the current phase of e-business development. By his estimate, made before the world went to war against terrorism, the “plateau of profitability” is still several years away. Before reaching that happy state, we need to ascend the “slope of enlightenment”, during which e-business becomes business, and the e-businesses that last the distance will actually be click-and-mortar-concerns.

According to Leskela’s reading of the tea leaves, despite Onezone’s demise it was on the right track in at least one respect: he predicts vertical e-markets will defeat horizontal ones. Onezone set out to cater to Biolab customers, initially supplying them the scientific equipment for their medical and teaching laboratories. It had subsequently succeeded in adding various other office supplies to its porfolio (including essential items like booze and coffee). One customer, however, lamented the fact that Onezone had so far failed to sign up the medical equipment suppliers with which he spends millions of dollars a year.

Success or failure of an e-marketplace, says Leskela, hinges either on enabling participants to make savings or get new sales. With Onezone charging a 2.5% transaction fee (of both buyer and seller), and connecting suppliers to only a handful of customers, it doesn’t look as though it was meeting either condition.

Another local e-business effort, e://volution, might take issue with the claim that vertical markets will beat horizontal ones. E://volution runs an exchange connecting a range of suppliers – of from vehicles to booze, again (a risky combination) -- with buyers from a variety of industries. While Onezone disappears into the trough, e://volution claims to be keeping its head above water. It has just committed to investing a further $5 million on the business, on top of millions already spent since its 1999 launch. Its general manager, James Dale, says a key difference between it and Onezone is e://volution’s lesser dependence on transaction fees.

E://volution makes a big thing out of the supply chain audits it performs for prospective customers, by which it aims to demonstrate potential savings of up to 20% from electronic purchasing. This is just part of a range of services it sells that make up its exchange offering. Rather than a straight charge per transaction, fees are flexibly arrived at based on the number of end-user buyers within a customer organisation, and on a negotiated basis according to what the buy-sell service is worth to exchange participants.

E://volution is disappointed at Onezone’s demise. While in a sense competitors, the more prosleytisers there are of e-commerce’s benefits, the better it is for all its pioneers.

Doesburg is Computerworld’s editor. Send email to Anthony Doesburg. Send letters for publication to Computerworld Letters.

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