B2B: A Reality Check.

• Author: Marshall, Jeffrey
• Position: Business-to-business exchanges had been experiencing huge growing pains

Long before the September terrorist attacks devastated a key hub of world commerce and brought financial markets to a halt, business-to-business exchanges had been experiencing huge growing pains. Ballyhooed in the heady days of the tech boom of 1999 and early 2000, they have so far failed to approach the dramatic projections made by some industry analysts.

That's not to say they won't, in time. But the process is likely to be far more gradual than many initially thought, according to a pair of Deloitte & Touche's leading e-business consultants who were interviewed this summer. The shocks to the financial system triggered by the events of Sept. 11 are likely to push that time frame back further.

"Our overall position is that they are at the front end of their evolution," says Steve Wagner, e-business leader for Deloitte's assurance practice in the United States. "We know that 12 to 18 months ago, there was a proliferation of exchanges. The expectations were extraordinary -- people thought you could create instant value through the entire supply chain," Deloitte's numbers show that some 1,500 exchanges have been created, about 250 of them foreign-owned and operated.

But the rush of enthusiasm didn't translate into rampant growth. "The ultimate reality is that this is vastly more complicated than was generally believed," he adds. "Many of these exchanges have been struggling," even though Wagner believes that B2B exchanges "are here to stay, and a great vehicle for value creation."

Many of the pioneers have been hamstrung by a lack of funds, Wagner says. "Even those with a good business plan and a viable offering are encountering a resistance to funding. Second and third rounds are not there," he says. "Payroll has to be met, and these are lean organizations to begin with."

He adds: "We think many private exchanges will die due to lack of funding and lack of a value proposition. It's up to the exchange to demonstrate it has a viable value proposition. That's not an easy thing to accomplish -- ultimately, the power of collaboration will be key."

In Wagner's view, the larger industry-backed exchanges should survive. He mentions Covisint, the major network created by the Big Three automakers, which "has scale and expertise." Ultimately, he adds, the biggest...