Midsize Firms Find Online Religion

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December 11, 2000 (3:15 PM EST)

By Chuck Moozakis,

Midsize companies, seen by many as vital to the growth of online marketplaces, are warming up to the idea of trading goods and services over the Web.

But their concerns about security and doing business with unfamiliar partners still must be overcome if the market is to reach its true potential.

Such were the findings of a study released last week by American Express examining how companies with revenue between $5 million and $500 million plan to use Net exchanges.

American Express' corporate services unit authored the survey, which polled 500 companies -- 250 online purchasers and 250 that have yet to conduct Web procurement.

"Midsize companies are realizing they can save time by buying online," said Anre Williams, a vice president at American Express.

Among the other findings, online purchasing is growing rapidly in midsize companies. Some 40 percent are already purchasing online.

These companies have shifted 14 percent of their total spending for non-production materials to the Web, and they expect that activity to increase another 20 percent in 2001.

Companies said they spent an average of $92,000 online in the past year.

While faster order time and convenience are perceived as thebiggest benefits of online purchasing, security concerns remain.

Companies are worried not only about protecting the purchasing data from prying eyes but also about the integrity of new dot-com trading partners.

Online purchasers pay by credit card nearly as often as a corporate check, but payment for the majority of deals is still by check. This finding reflects the need for online settlement and transaction capabilities, American Express said.

Nearly 80 percent of online purchases still are settled using paper processes.

Companies now sitting on the e-procurement sidelines appear ready to jump in. Jeff Wagner, director of supply management at Louisiana-Pacific, said rolling out an e-procurement system "is a top priority" for the forestry products firm.

"We expect some significant cost benefits throughout our existing supply base," he said of efforts that will be instituted by second quarter of next year.

The study comes just as American Express puts the finishing touches on its forthcoming Market-Mile exchange for companies now using the its corporate card to buy goods and services.

The e-marketplace, to be built by exchange platform developer Ventro Corp. (stock: VNTR) using technology from Ariba Inc. (stock: ARBA), will launch early next year.

American Express has more than 50,000 suppliers capable of participating in MarketMile, which will feature office and industrial supplies. American Express is investing more than $50 million in the exchange.