Freemarkets Case Analysis

20 Pages 5027 Words

a key lesson that would serve him well. “The way you make money in commodities is through superior information and trades,” he says.

After McKinsey, Meakem moved to General Electric as manager of GE’s Business Development Group. Meakem conceived the FreeMarkets idea in 1994 when he learned that GE was running an auction model that required suppliers to fly into Pittsburgh and assemble in a hotel room. Meakem proposed a startup that would run the inefficient and costly process over the Internet. GE passed on the idea, setting the stage for Meakem to do it on his own. Meakem believed there were many reason a buyer would find value in a service that helps assemble suppliers into electronic bidding sessions:

· Many supply industries are fragmented. For example, in the $20 billion U.S. market for injection molded plastic parts, there are 3,000 suppliers.

· In some industries the productivity variance between suppliers is huge. In some cases the top suppliers are 80 to 100% more productive.

· Given the problem of fragmentati...