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Things didn't quite work out that way. While Pilkington was once a poster child for all that was positive and forward-looking about B2B commerce, today it is emblematic of a more pragmatic e-trading environment.

Looking back, Pownall says that one part of his 2001 prediction did come true - that a large portion of Pilkington's business would be done electronically. But the vast majority of its B2B commerce activities - perhaps as much as 80%, he says - are completed not through e-marketplaces, online auctions or Internet-based B2B networks, but though traditional electronic data interchange links.

"There is not the level of interest in e-procurement that existed two or three years ago, and there has not been the expected movement from EDI to web-based purchasing," he says. He now has more people working internally on EDI (the 20-year-old protocol for the point-to-point exchange of invoices, purchase orders and other standard business forms) than at any time in his experience.

Elsewhere, even some acknowledged leaders in e-procurement are still only edging their way up from the base of the adoption curve. Take HBOS, the financial services company formed through the merger of the Halifax building society and Royal Bank of Scotland. Last year, it won an award for a Kalido-based supplier relationship management (SRM) package and also earned plaudits when it made an e-procurement application from Cedar available to around 11,000 employees.

Usage of the system is rising and Des Quigley, the bank's procurement systems manager, hopes that eventually £100 million worth of goods and services will be purchased each year through the e-procurement system.

However, the move to online requisition has been far from universally applied. Quigley says that only 2% of HBOS's overall corporate spending of £2.4 billion is currently conducted through the program. Employees, he says, turn to the Cedar system for the low-value, high-volume goods and services found in catalogues and supplier web sites, such as stationery and marketing materials. Higher value items, including IT equipment and telecoms services, are bought the old-fashioned way, with Excel-based purchase orders often faxed or emailed to suppliers.

Strategy reversal

Many organisations have capped or even reversed their ambitious e-procurement and e-sourcing strategies.

Again, the example of HBOS is instructive. The bank considered getting involved in some of the thousands of e-marketplaces that sprung up during 2000 and 2001, but did not pursue the move. Like other organisations that looked at the model, HBOS quickly spotted a fundamental flaw. "We did not want anything to come between ourselves and our suppliers," says Quigley. And many finance directors have been reluctant to write off traditional ways of working with suppliers, at least until new web-based alternatives prove their robustness and greater efficiency.

Even many large companies have yet to take significant steps towards e-procurement. An Institute of Supply Management survey of online purchasing activities found that one-in-three companies with more than $500 million in spending have yet to roll out e-procurement tools.

Adoption among smaller companies is, as might be expected, even patchier: two-thirds of companies that spend less than $100 million a year have not yet implemented e-procurement technology, while almost 90% had yet to invest in e-sourcing applications (the distinct set of technologies for spend analysis, supplier qualification, RFQ management, e-auction participation and other related pre-purchasing fields).

This is partly a reflection of cost, and partly of necessity: big companies tend to have greater numbers of suppliers, which makes it easier to build a business case for e-procurement and e-sourcing applications. And few (if any) e-procurement technology and services suppliers have pushed down into the mid-market, by either offering subscription-based services or selling cheaper and more componentised versions of their products.

"The SME market is not a target market for us. There is still a lot of business to go after at the upper end," says Michael Schmitt, chief marketing officer at spend management software company Ariba.

Given these adoption patterns, there are some surprising beneficiaries within the e-procurement arena - most notably among companies such as Sterling Commerce and Global Exchange Services (GXS) that run EDI networks for businesses.

Sterling Commerce executives declare proudly that around 400 of the Fortune 500 companies now use its technologies, while GXS continues to sign up major corporate clients, including long-term deals with UK retailers Sainsbury and Tesco. It is perhaps a question of practical necessity overriding potentially potent new technologies. "EDI has been around for a long time," says Steve Mank, vice president of global communications for GXS. "It is tried and tested. And it works."

Not much buy-in

The market statistics tell their own story: between 1999 and 2003, according to Forrester, licence revenue for e-procurement and e-sourcing applications (including e-marketplace platforms) fell 43%. Many sectors simply could not support the glut of technology and service suppliers and the niche technologies they provided. "Spend analysis, contract management and supplier scorecarding are important, but are not major application markets in their own right," says Pierre Mitchell, at IT strategy consultancy AMR Research.

All the same, there were a variety of reasons for this particular downturn. E-marketplaces, in particular, were found to be a classic dot-com mirage. On the supply side, sellers of goods and services were worried that customers would team up to aggregate their spend and drive down prices. (From the very outset, competition regulators sought to crack down on collusion, but suspicions among some suppliers remained.)

On the buy side, companies were naturally worried that information flowing through an e-marketplace would be shared with outsiders - or worse, their competitors. And they also found that they missed the trust element that came with close relationships with their suppliers.

It was no surprise when some of the automotive giants behind the ambitious Covisint e-marketplace, for example, turned their backs on a reputed $500 million investment and established their own private exchanges instead.

"There was value to be had from industry players getting together, but it was not as great as people expected. E-marketplaces did not change our economics," admits Daryl Rolley, senior vice president and general manager of international operations for FreeMarkets, a managed e-sourcing specialist that acquired the online auction assets of Covisint in January. (FreeMarkets was later acquired by Ariba.)

Wrong order

Many e-marketplaces survive, of course, and a few - particularly those with vertical domain expertise and that tend to more closely reflect the business processes of their members - appear even to be thriving, such as Pantellos, Quadrem and Exostar. But the list of failures is much longer: AcquireX, Appliancezone, Concert, Cordiem, Farmgate, Got School and LogiCo, to name a few. And some platform companies that survived have repositioned themselves as data-synchronisation technology specialists, such as Transora.

E-procurement and e-sourcing applications have had their own problems. "The primary factor constraining growth in e-procurement and e-sourcing is their challenging cost/benefit value proposition," says Andrew Bartels, an analyst with Forrester Research. "In principle, these applications should be in great demand, due to their ability to lower the costs of goods and services and make the overall purchasing process more efficient and effective. But in practice, e-procurement and e-sourcing applications have faced some real adoption barriers."

One problem, which became apparent during the ecommerce boom, was that many companies chose to invest in e-procurement before strategic sourcing, which supply-chain experts say ought to be rolled out first.

Another drawback was software licences were often too costly for all but the biggest organisations, and they involved significant (and expensive) effort to integrate with back-office systems. Moreover, the applications themselves only delivered projected returns if their rollout was accompanied by major changes to business processes - changes that many businesses were unwilling, or unable, to make.

A recent London Business School survey of corporate spending among financial services and manufacturing companies found considerable room for improvement. The study, sponsored by Ariba, concluded that many organisations had invested in e-procurement tools and yet had little visibility over large chunks of purchasing.

What that implies is that processes largely stayed the same. Individual lines of business were reluctant to hand over purchasing responsibilities, the survey found, while 'rogue' spending (decentralised, ad hoc purchasing) remained widespread.

"Better management of corporate spending has to start with visibility of the problem," says Jamie Anderson, programme director at the London Business School's Centre for Management Development. "It is clear from the research that procurement departments in some of Europe's largest businesses cannot see what they are spending their money on, let alone if it is being spent wisely."

Deal frenzy

Faced with such realities it was only a matter of time before the e-procurement and e-sourcing markets consolidated. In a relatively short period of time, the sectors have experienced a spate of acquisitions as vendors seek to broaden and deepen their models. Since mid-2003, FreeMarkets has bought Covisint's auction platform; Ariba has bought FreeMarkets and Alliente; SSA Global Technologies has picked up Elevon and Ironside; Compuware has purchased Covisint's data-integration platform; GXS has acquired Celarix and Haht Commerce; Verticalnet has merged with Tigris; and PurchaseSoft has picked up Netshare.

Perhaps the most significant deal, though, was Ariba's $493 million acquisition in January of FreeMarkets. This deal created the biggest e-procurement and e-sourcing software and services company, with about $360 million in annual sales, more than 400 customers and a product offering that comprises hosted e-sourcing, managed service e-sourcing, e-sourcing software, e-procurement, spend analysis and contract lifecycle management.

"This merger is a big stone dropped in the pond of e-procurement and e-sourcing, with ripples affecting other vendors," says Forrester's Bartels. "It is an indication that the market is starting to mature, that differentiation in product offerings is diminishing and that further consolidation among suppliers is likely."

But customers should broadly welcome, rather than fear, more consolidation, says AMR's Mitchell. Less choice will at least make it easier to build collections of best-of-breed applications, he says, and it will also eventually reflect the dominance of more mature supplier relationship management (SRM) suites from major enterprise resource planning (ERP) software companies, such as SAP, Oracle and PeopleSoft.

"Five vendors represent half the $1.7 billion sourcing and procurement market, with more than 100 vendors representing the other half," he says. "This type of market consolidation culls the herd and provides users with valid options."

The marriage of Ariba's software and FreeMarkets' services business and vertical domain expertise also points to the fact that enterprises tend currently to fall into two camps: those with the expertise in e-procurement and e-sourcing to manage an application behind the corporate firewall, and those lacking such expertise and needing suppliers to host applications and offer strategic sourcing on the Internet.

Most analysts agree that it is right that enterprises choose, at least for the medium term, to outsource e-procurement or e-sourcing functions while they build up the necessary in-house experience and expertise. The new Ariba straddles both camps.

Suite spot

Ariba is perhaps best known for championing the concept of 'spend management'. Others are also trying to built up equally comprehensive suites, responding to growing customer demand. Within the next few years, say analysts, spend management suites will cover the entire sourcing and purchasing process, from supplier identification and qualification, contract negotiation and management, procurement, fulfilment management, invoicing and payment, though to supplier performance assessment and spend analysis.

"The purchasing process involves a series of related process steps, and there are advantages in terms of data models, application integration and pricing in buying pre-integrated applications to support each step from a single vendor," says Bartels.

But suites will not suit everyone. For one thing, surveys of users of so-called spend management suites - the closest thing today to complete end-to-end purchasing applications, combining e-procurement, e-sourcing, spend analysis and contact management - have found that businesses tend not to implement all the various modules. And most companies simply do not carry out sourcing projects regularly enough to justify buying an integrated suite.

In any case, application suites that not only address all categories but also, critically, excel in each category may not be available for several years.

At present, technology suppliers are still building out their offerings - one big factor behind the wave of consolidation that has swept over the industry. SAP, Oracle, PeopleSoft and i2 are closest to realising this aim, but still arguably lack the technical or domain expertise of e-procurement or e-sourcing specialists, such as Ariba, Emptoris, Frictionless, Procuri, Perfect Commerce and AT Kearney Procurement Solutions.

Kick-start

Once the shakeout is over, perhaps around 2006, the expectation is that businesses will be more inclined to buy integrated suites of applications. But for that to happen, as Ariba's CEO, Bob Calderoni, has admitted, e-procurement and e-sourcing must cast off the damage caused to its reputation by the recent turmoil in the industry.

Asked what it would take to kick-start the market again, Calderoni said recently: "The frontier will arrive when spend management becomes a CEO initiative. Companies see and believe spend management can be the next frontier, but when it becomes a chief executive initiative and a top-10 priority, and it is dealt with in a much broader way, that is when that frontier will be conquered."

Calderoni thinks this will start to happen by the end of 2005. Perhaps it will. But persuading those CEOs who lost money in e-marketplaces, or who recall the turf wars that seem to accompany most e-procurement projects, to make it one of their initiatives might take longer.