In another sign that competition from below is heating up in the business-to-business sector, the
Global Steel Exchange
has chosen tiny
to power its site instead of the likes of
The decision by Global Steel Exchange, which is backed by
, follows a
string of deals in which smaller B2B software companies have snatched business away from bigger incumbents. For instance, Idapta also recently landed a deal to power
, an online marketplace for the shipping business.
Lou Schorsch, Global Steel Exchange's president and CEO, says its backers have committed to spending $2.5 billion annually over the exchange, and that it's targeting the market for steel shipped internationally.
Global Steel Exchange conducted an extensive review of B2B software, including that of Ariba and Commerce One, before picking Idapta, Schorsch said. The decision ultimately came down to the lower cost and increased flexibility the smaller Idapta offered, Schorsch said.
While he wouldn't go into specifics about how much less Idapta's software costs, industry consultants said Ariba and Commerce One typically charge $1 million to $5 million, while smaller companies like Idapta charge less than $1 million.
No Need for a Network
In addition, Idapta is concentrating on building software, not elaborate networks of companies doing business on the Internet. Both Ariba and Commerce One often stress the "network effect" of connecting different businesses that use their software.
"I think a lot of the more well-publicized incumbents in B2B view themselves as ultimately being the hub of an all-encompassing business network," Schorch said. "That's a big strategic decision to make, and I don't want to make a big strategic decision when making a software decision."
Global Steel Exchange isn't the only additional company lately that's decided to choose a smaller software partner. On Tuesday, an exchange for the specialty converting industry called
said it chose Washington, D.C.-based
to power its marketplace. Specialty converting firms turn raw materials into actual components for specialized products such as electronics, telecommunications and appliances.
Chuck Donchess, Commerce One's chief strategy officer, says while smaller firms are winning some deals in B2B, he's comfortable with his company's position.
"You know, this is the normal maturation curve in any market," Donchess says. "A bunch of companies jump in at the beginning and generally a gorilla and one or two other companies emerge. We feel like we've established the gorilla position, that we're winning the biggest marketplaces. I think it's interesting, and we always have to be on our toes with these smaller people coming into the market. But we think there are tremendous barriers to entry that they'll have to overcome."
He added that the exchanges Commerce One has landed, such as
in the aerospace industry, are backed by companies that have enormous market share in their industries. For instance,
, which are backing the Exostar exchange, have a combined 78% market share in the global aerospace industry. And on Tuesday, Commerce One and
said they landed the
construction industry exchange in Europe, the pair's first joint customer since they announced a
strengthened partnership in September.
Keith Krach, Ariba's CEO, says his company is "always paranoid about the competition" but that it sometimes has had to walk away from potential opportunities.
"I don't think Ariba is an arrogant company," Krach says. "We've walked away from customers, but hopefully, we do it in a very professional way."
Still, as recent quarterly results from
Commerce One show, neither company is exactly hurting for business, and picking and choosing their spots does seem to be paying off. In that sense, what these deals by smaller firms may show is that there's still abundant opportunities in B2B.