Omnexus fall leaves big questions, void

By Joseph Pryweller, Plastics News

Atlanta, Georgia-The initial confusion about Omnexus' mission and the role of electronic commerce in the plastics industry did not take long to manifest itself.

It happened at an early meeting between resin supplier Ticona and one of its customers negotiating a contract at Ticona's offices in Summit, New Jersey. There at the conference table, along with the customer and Ticona, sat sales managers from Omnexus.

Ticona was one of the five resin-supplier founders that had created and funded the online marketplace in June 2000, with each ponying up $10 million in start-up monies. Soon after, the dot-com received well over $100 million in funding from about 20 suppliers and distributors.

Omnexus trumpeted itself as offering a new way to buy resin, one not based on multiple telephone calls, faxes or golf-course outings. Instead, processors could compare and buy materials from multiple suppliers through one website.

It billed itself as a type of telephone service, connecting resin supplier and customer to do the same work they normally would discuss. But therein lies the rub, said Karlheinz Schuster, global e-business director for Ticona.

“We never would have brought the telephone company into a meeting. It was difficult to explain why Omnexus was there,” Schuster said. “We underestimated the direct relationships between buyer and seller.”

It was clear to him how muddy the concept of e-business still was, at least in 2000.

In a traditional industry used to traditional relationships, that identity problem could have been one factor in Omnexus' demise. The trailblazing dot-com lasted three years before discontinuing its transaction platform 30 Nov and laying off its 45 employees based in Atlanta and Zurich, Switzerland.

Many in the industry believe that the future of online trading has been handicapped seriously by Omnexus' exit.

“Not many companies will be able to make a living at it,” said Colin Masson, research director for chemical and process industries with Boston-based AMR Research Inc.

“You're only able to get a small fraction of the money in chemicals and plastics generated through exchanges. It is not a business model that is particularly attractive.”

Wayne, Pennsylvania-based Elemica Inc. may try to fill the void. But whether processors see it as a viable alternative is open for debate, Schuster said.

Beyond that, even in-house resin sites are not performing as well as was advertised in the late 1990s. Online trading is not dying, but it is an animal that needs more care and feeding than first might have been imagined, said Andy DuPont, global director of electronic channels for Midland, Michigan-based Dow Chemical Co.

“Ultimately, the customers voted by not adopting Omnexus, and they're the ones who didn't support its ongoing operation,” DuPont said. “In general, this process has been harder than what was originally envisioned. E-commerce adoption has not been like a rocket taking off. It takes a lot of time.”

A perfect storm of difficulties - the tough economy and the unusual ownership setup at Omnexus - might have thwarted the company from the start. But at the end of the day, Omnexus should be proud of what it accomplished, said David Jukes, chief executive officer of distributor Distrupol LLC of Chertsey, UK, and a former Omnexus vice president.

The original mission - the grand central marketplace for resin trading and information - could not be put into practice, he said.

“We made mistakes in the early days in promoting e-commerce as strongly as we did,” Jukes said. “It wasn't blindingly obvious how much people could save, or they would have jumped on it.”

Here, then, are some of the theories why Omnexus collapsed and what implications its failure holds for the future of e-commerce and plastics:

Too many suppliers

While Omnexus maintained an independent front, it could not entirely break free of the notion that its resin-giant owners were at the controls behind an imaginary curtain.

The company's five founders were a coterie of billion-dollar resin companies that jumped into the market so as not to be left behind. Besides Dow and Ticona, they included Bayer AG, DuPont Co. and BASF AG. Each was working simultaneously to build critical mass for their own websites.

That was Omnexus' biggest stumbling block and might have cursed it from the start, said Terry Cline, vice president of IQMS Inc., a software integration provider for the plastics industry based in Paso Robles, California.

The supplier-backed company could not shake the perception that it was working for the big resin makers and not for its customers, Cline said. On top of that, it did not offer enough of a carrot for processors to use the service, he said.

At one point in 2001, IQMS was ready to start an alliance and deliver its customer lists to Omnexus, Cline said. But Omnexus backed away, ultimately creating its own software integration solution, called UltraLite, and allying with Elemica.

“They could have expedited that effort by working with us,” Cline said. “But beyond that, they were a sell-side organization that never seemed to put much emphasis on the end user doing the purchasing. My focus would be to find every last guy who might buy this material, but I never saw that as their focus.”

United we stand, divided we fall

Besides the ownership issue, not all suppliers were equal in their support of Omnexus, according to several of them that worked with the company.

Some preferred to focus on their internal sites or on non-Web-based efforts, Schuster said. That led to some spotty trading at Omnexus.

Omnexus would send resin orders to some of those resin companies, only to find them dragging their feet in filling the orders, Schuster said. That slowed down what Omnexus claimed was a quick and easy process, he said.

“It was definitely difficult to get the same level of commitment from suppliers,” he said. “One person would support it, and one would not be happy with it. It was frustrating having to deal with that.”

That lack of support puzzled Angela Charles, president of Polysort LLC, a Web developer and group resin trading company based in Akron, Ohio.

“If they threw a mountain of money into Omnexus, you'd have thought they would support it with more than halfhearted effort,” she said. “But if they're not convincing their customers to use Omnexus, the effort was doomed to fail. They decided to build a common Web site and then didn't follow through with it.”

One supplier, who requested anonymity, said the signs of limited support were evident at the K show in 2001. Several Omnexus investors had huge signs trumpeting their in-house Web sites. In smaller print, the same signs would tell people they could go to Omnexus too, if they liked.

“It wasn't the most enthusiastic endorsement,” the source said.

Another supplier called it game strategy. The firms wanted to keep up with their competitors, so they worked together and separately to hedge their bets. “I'm thinking while I'm in Omnexus that what I'm doing behind my competitor's back will work better,” the source said.

Blame the economy

Even with those hurdles, Omnexus could have succeeded if the economy had not turned for the worse soon after the site was launched in October 2000, several sources said.

Omnexus' customers and suppliers both were faced with critical financial factors that put them in a sour mood to try something new, Charles said.

“You combine the economy, foreign competition and the requirements that these companies turn a profit quickly,” Charles said. “That's too much for a company to bear and then adopt new Internet technology too.”

Elemica, where some of those companies now could go, faced similar issues, said President and Chief Executive Officer Kent Dolby. Although Dolby said his company is growing at a 15-20 percent compounded clip each month, Internet adoption is nowhere near what he expected three years ago.

“Everybody forecast it to grow faster,” he said. “We didn't realise how much companies would need to clean up their own acts internally.”

With many suppliers forced to consolidate and reorganize, they had less time to fret over Internet adoption, said Jean Sirois, North American marketing director for Clariant Masterbatches in Holden, Mass. The additives company was an investor in Omnexus.

Investors grew impatient with Omnexus and could not put more money into it, he said.

“The recession started hitting, and none of us were spending money like we used to on [information technology],” Sirois said. “I still think it's going to happen, but we're probably not going to see big growth in the Internet for five to eight years.”

Blame the model

One issue that generates debate is whether Omnexus' business model itself was viable. Many suppliers said that it was, while others with dot-com companies were more hesitant.

It all sounded good in theory, as an easy way for processors to generate multiple purchase orders from many suppliers through a single site. It even offered features to compare resins and discuss technical details.

But with resin companies offering a similar bevy of information, the latter element did not seem crucial, Dolby said. And Omnexus struggled to convince processors of the bottom-line savings in using the site, he said.

“This was a very difficult model to make work,” Dolby said. “They had all the capabilities, and Omnexus didn't fail for what it delivered. But many felt the value was not sufficient to generate the returns to stay in business.”

Dolby also pointed out that few other trading marketplaces - besides a few buyer sites focusing on office supplies - have worked.

One that also failed in 2001 was Chicago-based PlasticsNet Inc. Former chief Tim Stojka, now chairman of hot-runner supplier Fast Heat Inc., said the multiple-supplier model has never been proved to work.

“We and others ran the basic business like a resin brokerage,” he said. “Everyone thought it was low-hanging fruit. That may happen in the travel business, but online sites are now more of an additive channel but not a replacement for working directly with companies.”

Others, including Andy DuPont at Dow, disagree.

“People do have to figure out which way to go,” he said. “But the Internet is still more about efficiency, productivity and eliminating routine activities. It's been somewhat misunderstood.

“We probably won't have this discussion 10 years from now."

Education and perspiration

Finally, even those within Omnexus wonder if they could have done more to make processors understand the value of using the Internet.

The savings are real, especially with the company's UltraLite technology, Jukes said. That eliminated having to key orders into an internal system after placing it online.

But the company spent considerable time initially just convincing customers that Omnexus was not getting in the way of relationships with suppliers or distributors, Jukes said. Omnexus wanted to be the go-between making the transaction easier, not a roadblock, he said.

Plus, the savings became difficult to pinpoint directly for buyers, especially those looking for a quick return, he said.

At the same time, the company continually had to convince its suppliers to pay subscription fees to stay with Omnexus, Sirois said.

Still, Cline said he does not think the company could have don a lot differently.

“They failed to educate the end user what the value was,” he said. “There wasn't the hardball savings where someone could say, 'Wow, I reduced raw material spending by 5 percent a year.' That was a big, open question with them.”

Switch to Elemica?

After Omnexus, where does the plastics industry go? There is no central marketplace, only a bevy of other sites.

ChemConnect Inc. of Houston offers spot trading and exchanges of resin. And Elemica, a former partner with Omnexus, hopes to pick up those buyers wanting to trade resin online, Dolby said.

The company offers a service called Elemica Buyer Direct that is similar to UltraLite, he said. Customers filling in data files or Excel spreadsheets can use those to place orders. The system also ties into warehouses and shipping stations, he said.

But Elemica is a bit different from Omnexus. Elemica provides a way to connect directly with resin companies. But it does not provide a marketplace where resins can be compared from multiple companies or orders placed quickly from multiple users. It does not help arrange contracts, but supports ongoing transactions.

In fact, Elemica does not even offer a Web site for placing orders, just the software to support connections, Dolby said. It is a different model, but one that has been successful with chemical companies trading with each other, he said.

“The idea of switching to someone else is never easy,” Dolby said. “And we don't want to celebrate what happened at Omnexus, and we're not happy about it. The overlap between us and them was minimal.”

Wherever the industry goes, e-business adoption could take a hit with the fall of Omnexus. The promise of three years is now diluted, Jukes said.

“It's taken one step back from where it's been,” Jukes said. “I'd like to have seen it go a bit longer at Omnexus.

“But we, like everyone else, didn't want to pay more millions to keep it going.