The stunning demise of eConnections has sent shock waves through the broader supply chain services market, where more casualties may be imminent.
The same factors forcing eConnections to throw in the towel-the slumping electronics industry and slower-than-expected adoption of its services by high-tech users-are likely to hit other providers, analysts said.
Start-up companies in this space, once the darlings of the venture capital community, are under pressure to meet return on investment expectations and attract a better mix of mid- and top-tier players as quickly as possible, even in tough financial times.
"We had traction and important relationships were being forged, but there were bigger questions to ask: What is the health of the industry, how will the industry buy parts, and where will it buy parts from?" said eConnections chairman and chief executive Rob Rodin.
Those that have a hard time answering those questions will go out of business or be merged with stronger players, analysts said.
"There are companies going out of business today and there will be a whole pile more going out of business when they come up for additional funding," said Laurie Orlov, an analyst at Forrester Research Inc., Cambridge, Mass.
Although eConnections, a well-funded company backed by the likes of Arrow, Avnet, Integral Capital Group, and Silver Lake Partners, was gaining ground in portions of its business, it was not signing the deals that would sustain the model going forward, analysts said.
eConnections' bread and butter came from its RFQ engine, Quotility, which generated $10 billion in quoting activity this year, Rodin told EBN.
How well Quotility worked depended on where users sat in the supply chain. OEM and EMS customers, particularly smaller companies, said they signed up because of the ease of communicating with the distribution channel and the low cost associated with a hosted, subscription-based service.
"From a quoting perspective, it was the best tool out there and was inexpensive. We were running all new and existing RFQs through Quotility," said Curtis Campbell, vice president of sales at EMS provider Flash Electronics Inc., Fremont, Calif.
But distributors did not always see the results of those quoting activities. For instance, David Herring, president of Projections Unlimited Inc. (PUI), Tustin, Calif., experienced "quite a bit" of daily quoting activity from its partnership with eConnections, but zero sales funneled through the service.
"When PUI first signed up with Quotility as a distribution partner, there was a monthly service charge," Herring said. "As time went on and no orders came in through the site, we went to eConnections and explained the partnership was no longer cost-effective. eConnections understood and said they would waive the service charge until industry conditions improved."
Though Quotility was bringing users onto the site, the company's inability to sell forecast, inventory, and supply modules to better connect trading partners became fatal, analysts said.
Vinay Asgekar, an analyst at AMR Research Inc., Irvine, Calif., said, "They needed to add more capabilities in forecast and inventory areas. They never had full-fledged functionality there. And in the last nine months, they were not able to sell those new modules. If you haven't sold new products in nine months, investors take that pretty seriously."
"If customers are not spending money on infrastructure and other tools, it doesn't make a difference what [software and service providers] have," said Bill Brandel, an analyst at Aberdeen Group, Boston. "It's a tough market for supply chain service providers focused on the high-tech sector."
While acknowledging more guarded spending habits among users, executives from companies such as Tradec, which competed with eConnections' RFQ tool, and E2open, RiverOne, and Viacore, which like eConnections are trying to develop collaborative trading environments, said customers will invest in tools that bring value and efficiency to the supply chain.
"All of the business we have won has been done in 2001 and 2002, which are the toughest years I have seen in my whole career," said Tradec Inc. chairman, president, and chief executive Edwin Winder.
The San Jose-based company recently received $11 million in venture capital and acquired PowerMarket Inc., another software vendor.
However, there is growing recognition that developing community-connecting platforms will take longer than expected.
"It's beyond what anyone thought it would take to build scalable communities," said Fadi Chehad??, co-founder, chairman, and chief executive of Viacore Inc., Irvine. "Like everyone else playing in the space, eConnections had great solutions, it was just early."
Searching for alternatives
eConnections' customers are now looking for viable alternatives to keep their businesses going.
"Many of our customers that use Quotility have advised us they will transition to Tradec," said Ben Schwartz, vice president of strategic marketing at Jaco Electronics Inc., Hauppauge, N.Y. "We had a lot of quoting activity and sales through eConnections, but the uncertainty of the company's future has led many to make the decision to switch."
Others will route customers through internally built quoting mechanisms.
"Sager recently implemented a bill-of-materials quoting team where customers send in their quotes in an Excel format. The RFQs are uploaded into Sager's PeopleSoft environment for part price, availability, and attributes," said Frank Flynn, president of Sager Electronics Inc., Weymouth, Mass., adding that less than 40 customers used Quotility to send RFQs.
Last month, eConnections' four-member board decided to wind down business and lay off about 75 employees because of weak market conditions, Rodin said.
"Many companies in the supply chain are struggling now," he said. "As we looked at alternatives, we decided this was the best [one]."
eConnections will shut down services July 31, according to Rodin. Approximately 15 employees will run operations during the interim and are working with customers to establish a transition solution, he added.
Meanwhile, the two-year-old company based in Pasadena, Calif., is looking to sell its IP assets to other software and services vendors and has been approached by several parties, which Rodin declined to name.