A new research study titled "Shakeouts in Digital Markets: Lessons from B2B Exchanges" tracked the compressed boom-to-bust cycle for Internet startups in eight business-to-business markets, including electronic components, food service and beverage, health care, paper, construction, automotive aftermarket, industrial MRO and grocery.

According to the study, conducted by George S. Day, Ph.D., a professor at the Wharton School of the University of Pennsylvania, and Adam J. Fein, Ph.D., president of Pembroke Consulting, an estimated 1,500 B2B exchanges operated in 2000, but only 700 existed in July 2002 and less than 200 of them are likely to survive through 2003.

"Our study of eight industries found only 43% of independent B2B exchanges survived between April 2000 and July 2002," said Fein. "B2B exchanges thought they had a great value proposition but actually misdiagnosed their advantage vs. existing ways of doing business."

The paper suggests that the winners were adaptive and found a protected niche supporting existing B2B relationships.

"B2B exchanges were late movers, not first movers. They couldn't replace the longstanding relationships in the B2B supply chain between customers and their distributors," explained Fein. "Only a handful of exchanges, such as FreeMarkets and eBay, have capitalized on the breakthrough possibilities of the Internet."

The full results of the study will be published in a 2003 Winter Edition of California Management Review, which is published by the Haas School of Business at the University of California Berkeley.

Pembroke Consulting is a management consulting firm assisting senior executives from wholesale distribution, manufacturing and business-to-business technology companies.