The construction industry is proving reluctant to embrace e-commerce. It sounds good, but many firms are confused by the sheer number of e-ventures touting for their business. Funders have got cold feet and many dot.coms are struggling to survive. James Atkinson reports.

New technology companies have taken a battering and funders are deserting the sector in droves. Even the model for the rest of the US new technology sector, Cisco Systems, has recently lost a third of its market capitalisation and has laid off 8,500 employees. If the great new technology success story is in trouble, then what hope for the rest?

The sober fact of the matter is that internet-related ventures tried to run before they could walk. It has taken 50 years for computers to become part of the everyday business environment. Business practices are very entrenched and it will take time to shift the current inertia to a point where commercial transactions over the Internet are also common practice.

Chris Downing, e-strategist with BT, says: "We've got a long way to go on e-commerce. We are only 5% into developing this market so far".

So where does that leave the brave new world of e-commerce? In a pretty shaky position, is the answer.

E-marketplaces relying on transaction fee revenues are not working. Even the business to consumer ventures are struggling - look at Amazon.com's losses, let alone the business-to-business (B2B) organisations.

The take-up is just too slow at the moment. No one doubts that the principle is sound, it's just that the market isn't changing the way it does business fast enough to make dynamic e-market places commercially viable.

The question is, will the current crop of companies survive while consumers make their mind up about whether to take the plunge? The indications are that many will not, as funders prove reluctant to stump up more cash to keep them going.

The e-commerce revolution was predicted on the basis of being able to provide faster, more efficient business services. The more fragmented the market, the more efficiency benefits Internet B2B ventures are supposed to bring by uniting the disparate elements of the supply chain.

The fragmented construction industry ought, therefore, to be the perfect sector for e-commerce ventures to thrive in, as it has a number of major players and thousands of smaller ones.

But by a strange reversal of the prevailing wisdom, e-commerce ventures are in fact narrowing their focus onto the major players, rather than trying to provide greater efficiency across the fragmented supply chain.

Neil Shaw, marketing manager with construction e-procurement outfit eu-supply.com, says: "We are focusing on the top 200 construction companies in Europe. We are working with 60 of them, 30 on a regular basis. We would rather have strong, deep relationships with fewer, better clients. There is far more value to us in getting them to roll out our system across their business, than in chasing thousands of separate companies."

eu-supply.com is one of the few construction e-commerce organisations to stick to its guns as a genuine dynamic e-market place. But others are following the global trend and beating a hasty retreat from being stand alone owner marketplaces, either by forming alliances with traditional companies or by restructuring themselves as marketplace service providers. In short most e-ventures have shifted away from charging transaction fees based on traffic through their sites, to charging set fees for services provided as a host or by licensing their software.

The trouble is there are still far too many of them out there, which makes it extremely difficult for any contractor, trade specialist, supplier or manufacturer to properly evaluate them.

BT's Chris Downing says: "This market is seriously immature. It's a much more complex market than people thought. Supply chain management is a lot more complex than just going online. But who's got it right? No one knows. It's very difficult to pick who to work with, so why pick one company at the moment, when you don't know how viable it is going to be?"

Back office software provider Ramesys reports that many of its construction customers were totally confused by the horde of dot.coms buzzing around them.

Marketing and communications director Julian Barlow says: "They wanted to know if the dot.coms' systems would integrate with our back office software and asked us why we didn't supply something. So we launched our Xchange hub in February, which will allow all of the 2,000 firms that use our technology to trade electronically by June."

It's no easy task to choose an e-commerce partner, but the UK construction industry's reluctance to rush into online e-procurement systems is causing some repositioning in the market. What's happening is that the broader-based suppliers are starting to specialise.

Graham Cunningham-Walker, vice president of marketing at Causeway Technologies - the firm behind Buildingwork.com - says: "We are certainly now starting to see groupings of initiatives within the same organisations. They are grouping together different products and services, or they are taking the most successful service as a supplier and trying to focus on that area.

"We may do the same and target those areas where the market is ready, such as project collaboration. Procurement in construction is complex and we realised that e-procurement systems would take time to set up and take off. I think critical mass for this is nine to 12 months away yet."

The narrowing of focus is driven partly by the reluctance of funders to support broad-based ventures and partly by which services the market is prepared to pay for.

Colin Smith, chief executive of project collaboration firm Building Information Warehouse (BIW), says: "The only proven area of e-commerce business at the moment is project collaboration. So broader-based suppliers are starting to concentrate on fewer areas such as this."

Certainly Buildingwork.com and BuildOnline seem to be taking this approach, easing back on their marketplace tender and e-procurement side to push project collaboration.

Smith, aside from being irritated that they are muscling in on his specialist territory, professes to be a bit bemused by the move. "I'm surprised Causeway and BuildOnline are moving in our direction, as it's an area that is already well serviced. Why compete with firms with large user bases and years of technological development behind them?"

But the broader-based organisations do not have a lot of choice other than to concentrate on the areas that construction clients and contractors are willing to pay for.

Even so, there is still a question mark over whether there is enough revenue to be gained. BT's Downing says: "Sure, they make savings and the benefits are passed onto the customer, but that doesn't make the e-commerce companies rich. It just becomes the way you do business."

There are so many firms out there, they cannot charge premium prices for the savings and services they bring - not, at least, until one or two companies reach a near monopoly market position like Microsoft. However, as Cunningham-Walker points out, the more likely scenario is that the three or four best-of-breed suppliers will win in each of the market segments of project management and collaboration, tendering and purchasing and content provision.

The market is already thinning out. The Arrideo B2B exchange set up by Amec, Balfour Beatty, Bovis Lend Lease, Skanska and Laing Construction in July 2000, packed in the attempt in February this year. Developing its own bespoke technology proved too expensive and time-consuming.

Mercadium, the online trading site formed by Aggregate Industries, Alfred McAlpine, BPB and RMC, is also in trouble and looking for merger partners after funders refused to put up more money.

I-scraper, the Israeli-founded, USA-based, project collaboration venture, withdrew from the UK in April, leaving BIW to take over its projects. The US ventures Buzzsaw.com and Citadon have now reversed out of the UK. BIW's Smith comments: "It makes sense. Rather than try for world domination, they have retreated. Customers like Bechtel said to them, 'we'll put more projects through you, but only if you concentrate on developing our service needs'. They will concentrate on their home market and make it work there, then they can look to expand elsewhere."

So the good news for UK clients and contractors is that the choice is getting a little easier. Some e-commerce ventures are starting to pick up critical mass, with BuildOnline, eu-supply.com and BIW claiming to be in this position.

BIW's Smith observes: "The last 12 months was the education phase for the industry. A lot of looking around, maybe a pilot project, but not signing up. Now our take-up is exponential. A lot of companies are starting to use us and word gets about."

New ventures are still being launched, however, of which the most significant new venture is Asite, a subsidiary of the AIM-listed property services and investment group PremiSys Technologies. The venture is led by major construction industry clients such as Standhope, Rotch Property Group, BAA and British Land.

Asite is developing a suite of tools including e-procurement, project collaboration and a database of supplier catalogues. It aims to gather best practice and spread the advantages gained around the industry. It will not charge the supply chain for using its services.

Alastair Mellon, Asite's director of strategy and development, says: "It's in the clients' long-term interest to have an efficient construction industry, so they are prepared to pay for it and make that commitment to act together and make efficiencies and savings in the construction process and share these with the whole supply chain. It is precisely the same methodology and approach advocated by the Egan Report."

The aim is to reduce the supply chain's cost base and introduce better efficiencies, which will mean the clients will get cheaper, more efficient buildings. Mellon cites one example: "Creating and processing the paperwork for materials costs an average of £60. The average purchase order in construction is £255. The industry spends £70bn with about a third on materials - that's £23bn - nine million requisition orders totalling £540m spent on paperwork and processing. You can cut that by 90% online. The supply chain saves money, its cost base goes down and it charges clients less next time."

It's too early to say how Asite will turn out, but it does have the advantage of having wealthy backers from the industry, who are in it for the long term and are not at the mercy of venture capitalists.

The other development that may start to appear is peer-to-peer transactions, where no third-party e-commerce firm is used. Instead, transactions are made directly between contractors and their favoured suppliers. After all, e-ventures have to add value. If it's still quicker and more efficient to just pick up the phone, why bother moving online?

The next 12 months should see both a shake-out in terms of who will survive and a better understanding of where the real value of e-commerce lies.

Who's who in e-commerce

Asite.com

Recently-launched construction client-led venture chaired by Sir John Egan. It is putting together a suite of procurement, project collaboration and knowledge management tools, which it will offer free to the supply chain. It is looking to provide efficiencies throughout the entire construction process, linking seven markets: finance; insurance; logistics; materials; management; labour; and professionals. 15 pilot projects underway - full launch to the industry in summer 2001.

b2build

Offers a private trading platform allowing buyers and suppliers of building materials to create their own private trading networks via a hosted software solution. Also has iHub, a 'middleware' system that allows firms to integrate their internal IT and enterprise resource planning systems with b2build's software. Based in Brussels, Paris and Dusseldorf. Mostly in use with French and German firms at the moment.

BIW.com

Provides project collaboration services. Not cash rich, but has the advantage of being funded by an 'angel' rather than venture capitalists. Its Information Channel is being used on 298 projects, including all of Sainsbury's. Recently took over I-scraper's clients in the UK and signed up with Asite to provide its project collaboration tool.

BuildOnline

Cited as one of the 10 online European businesses most likely to succeed by internet research company Jupiter Media Metrix. Succeeded in raising a third round of funding of £10m in April, no mean feat in the current market, signed up Balfour Beatty and agreed a strategic alliance with BT. Offers project collaboration; online tendering and materials buying; and key supplier database.

Buildingwork.com

Owned by Causeway Technologies, the portal offers a large range of processes and tools including project collaboration and e-marketplaces for tenders, materials and labour, along with estimating systems. Has a partnership with engineer Arup and US project collaboration software firm Open Text. Is putting more emphasis on project collaboration tools, rather than e-marketplace systems at the moment.

Citadon.com

A US project collaboration venture formed out of a merger between Bidcom and Cephren. Now withdrawn from the UK, but has major firms such as Bechtel and Fluor Daniel on its books.

eu-supply.com

Dynamic e-procurement marketplace providing on-line tendering services and large database of suppliers across Europe. Cited by Jupiter Media Metrix in February as one of the 10 online businesses in Europe most likely to succeed. Has secured two rounds of funding, which will keep it going into 2002. Aims to break even in the second quarter of 2002.

Mercadium.com

Set up as a project management and procurement site by industry heavyweights Aggregate Industries, Alfred McAlpine, BPB, Pilkington and RMC. Failed to raise funds recently and its future is uncertain.

Ramesys

The firm is best known as the major supplier of software for back office accounting, estimating, costing and procurement systems 2,000 construction firms use its products. In February Ramesys launched its Xchange electronic trading hub, which will allow firms to trade electronically with any customer or supplier with full integration to back office systems. All Ramesys customers will be upgraded and be able to use Xchange by June. Its great advantage is that it doesn't have to chase customers as it has established relationships with a very large number of construction firms.

Thebuilding-site.com

An e-procurement site specifically aimed at the housing sector. Trials are underway with Linden Homes and Fairview. It plans to roll out trials with other housebuilders and be available to the whole industry soon.