Ventro Shutters Its Flagship Chemdex Exchange - TheStreet

LOS ANGELES -- Attendees at the

Ground 4 Net Market Markers

conference here awoke Wednesday to the sobering news that one of their own had died.

Ventro

(VNTR) - Get Report

, the operator of online marketplaces, said it would shut its flagship

Chemdex

exchange for the life sciences industry, one of the first and highest fliers in B2B. Chemdex took with it

Promedix

, a lesser-known exchange for high-end medical equipment, which Ventro also will shutter. The company had been trying to sell both, but failed.

To the bereaved conference attendees, who had already been told that these kinds of independent marketplaces were no longer the place to be on the Internet, the news couldn't have been more poignant.

Independent marketplaces try to get other businesses to use their online exchanges to buy and sell goods over the Internet. They differ from the exchanges set up by the companies that will participate in them, such as

Covisint

, the auto parts exchange established by the likes of

Ford

(F) - Get Report

and

General Motors

(GM) - Get Report

.

Pioneers

"This is a really bad sign for independent market players," said Tim Clark, senior analyst at

Net Market Makers

, the

Jupiter

company putting on the show here. "These guys were pioneers for God's sake." (Jupiter hasn't done consulting for Ventro.)

Shares of Ventro reacted positively to the news, which included an announcement that the company would cut 235 jobs and take a $380 million to $410 million charge. The stock rose 34 cents, or 18%, to $2.22. But that's 98% below its 52-week high of $243.50, reached at the B2B craze's height at the end of February.

Others at the conference were similarly dismayed. While everyone in B2B knew Ventro and Chemdex were in trouble -- the company announced in October that it was shifting its business model to providing services for other Internet marketplaces instead of simply running its own -- many people still thought the fledgling exchange had a chance.

"Wow, is that how fast it happens?" asked Marty McMahon, a consultant attending the conference. "I guess it's two bad quarters and you're dead."

It's Tough Being Independent

In its latest two quarters, Ventro said businesses were slower to sign up to use its marketplaces because of computer integration problems. But it also had problems getting suppliers to list their products on its exchange because of an investment it accepted from

VWR Scientific

. Suppliers feared that VWR, a major distributor in the life sciences industry, would use Chemdex to put the squeeze on their prices.

In the end, though, the downfall of Chemdex and Promedix was simply a reinforcement of what everyone here has been talking about: Independent marketplaces are going to have a rough time of it and may not succeed. Meanwhile, consortiums of old-line industry players, which critics said would fall victim to infighting, have been far more successful than the independents.

"If you're solely about lining up a buyer and supplier, I don't think you have a long-term business model," said Mark Holman, chief executive of

e2open

, a consortium of 10 major high tech companies, including

IBM

(IBM) - Get Report

,

Hitachi

( HIT) and

Toshiba

, that began doing business online in September. "You have to do a lot more than that; you have to offer some sort of way for your participants to collaborate with each other as well, and share information."

Sharing

The sharing of information, and the shift away from simple transactions in B2B, has been a major focal point here, as companies start to talk about wringing more efficiency out of their supply chains, rather than just cutting the cost of buying goods. This has led some companies to launch private marketplaces, where they can deal and communicate exclusively with their suppliers and customers.

"We're beginning to see companies wanting control over their supply chain, so we're starting to see more of a focus on the concept of private marketplaces," said James Shuder, senior director of procurement solutions at

iPlanet

, a joint initiative of

Sun Microsystems

(SUNW) - Get Report

and

Netscape

that makes B2B software. "Companies are thinking less of open exchanges, and more of limiting them to their own suppliers."

All this means exchanges like Chemdex -- or any number of the other independent exchanges in industries ranging from timber to steel to seafood -- may have been doomed from the start.

Of course, not everyone saw Chemdex's death as the end for all exchanges. A spokesman for

SciQuest

( SQST) said CEO Scott Andrews viewed Chemdex's demise as an opportunity, and that SciQuest would weather the latest storm in B2B.

Ian Toll, an analyst at

Credit Suisse First Boston

, said the move "shows that things are going to be very tough for companies that have this type of online catalog model." (Toll rates Ventro a hold, and his firm hasn't done underwriting for the company.)

Still, he said the shuttering of Chemdex and Promedix is a positive for Ventro's stock, because it shows the company is taking tough steps to move ahead with its new business focus.

But if there was a positive to see in Ventro's announcement, Toll was one of the few here who noticed. Everyone else was too busy wondering who among their brethren would be next.