MetalSite had grown rapidly. With more than $35 million of investors’money, MetalSite was able to sign up 24,000 registered users and by mid-2001, was trading about$30 million worth of steel each month. However, its commissions of between 1 percentand 2 percent on each trade did not yield enough money to cover operating costs. The steelbusiness was in a downturn along with the rest of the U.S. economy, and the downwardpressure on commissions from competing exchanges was increasing rapidly. The majorsteel companies were discussing ways to form alliances to operate their own exchanges.After three years of operation and a desperate last-minute search for new investors,MetalSite closed in August 2001.MetalSite had entered a business that could not support more than a few companies,and it was unable to become one of the survivors. The lesson from MetalSite’s experienceis that a reintermediation strategy must add significant value to the supply chain, and the company pursuing that strategy must be able to construct significant barriers that competi-tors must overcome to enter the business. MetalSite was unable to do either and thus failed. Many other B2B exchange sites that found themselves in similar competitive situations
have also failed.
MetalSite had grown rapidly. With more than $35 million of investors’money, MetalSite was able to sign up 24,000 registered users and by mid-2001, was trading about$30 million worth of steel each month. However, its commissions of between 1 percentand 2 percent on each trade did not yield enough money to cover operating costs. The steelbusiness was in a downturn along with the rest of the U.S. economy, and the downwardpressure on commissions from competing exchanges was increasing rapidly. The majorsteel companies were discussing ways to form alliances to operate their own exchanges.After three years of operation and a desperate last-minute search for new investors,MetalSite closed in August 2001.MetalSite had entered a business that could not support more than a few companies,and it was unable to become one of the survivors. The lesson from MetalSite’s experienceis that a reintermediation strategy must add significant value to the supply chain, and the company pursuing that strategy must be able to construct significant barriers that competi-tors must overcome to enter the business. MetalSite was unable to do either and thus failed. Many other B2B exchange sites that found themselves in similar competitive situationshave also failed.
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