Dairy.com launched last week, the first vertical e-marketplace dedicated to serving the US dairy industry. Just another B2B marketplace or a true pioneer? Clare Harman spoke to the founders.

Last week saw the much-anticipated launch of a B2B e-marketplace for the US dairy industry: Dairy.com. In an era of pervasive scepticism about Internet start-ups, Dairy.com set itself aside from many of its dot com peers by launching with liquidity. Company executives explain that Dairy.com is positioning itself as the foremost site for dairy sector businesses hoping to maximise the potential efficiency to be gained through online trading. Why are they so confident?

The site did well to secure the Dairy.com domain name. For a site dedicated to all areas of the dairy industry - milk, ice-cream, yoghurt and cheese - the name could not be more apposite, but several years into the Internet revolution, such explicit domain names are not easy to come by. "That was actually owned by Kraft, one of the site's partners, and was one of the things Kraft offered up to join the consortium [behind Dairy.com]" marketing director Bruce Johnson told just-food.com.

Backing

And therein lies a key advantage of the site; its backing. The first part of the site was launched in July of last year, the concept of eight branded dairy companies that believed in its necessity. The conversations of Kraft, Dairy Farmers of America, Land O'Lakes, Dannon, Dreyer's Grand Ice Cream, Leprino Foods, Schreiber Foods and Suiza Foods and a number of industry associations highlighted that one of the main concerns of the dairy industry was how to increase efficiency. The eight companies joined as founding partners of Dairy.com with, as Johnson explains, "the intention of building the same solution [to the efficiency dilemma] once, and making it wildly successful."

During its two-month pilot, the site processed nearly US$25m in dairy commodities. The visibility of market price and the ability to trade strategically according to where resources are situated has encouraged 34 brand name companies to commit to trading exclusively on the site.

Despite the branded backing, the site professes to act as a "neutral intermediary" that can facilitate efficient transactions. The core offerings of Dairy.com are "sort of a three legged stool," explains Johnson: "First, a spot exchange for buying and selling the commodities in one-off transactions, second, long term contract management between parties and third, internal balancing. If you have a multiple facility production matrix, you can use the system to transfer an excess load of, for example, cream from one area to another facility."

Indeed, the B2B e-market launched last week, the first of its kind in the US dairy industry, is only the first of five platforms that will see Dairy.com offering supply chain planning tools, information functions, strategic sourcing and dairy farmer services. 
 
Technological resources

Executives from Dairy.com explained that the strength and long-term view of the business model will guarantee the site remains sustainable and viable. Also important is its technological resources, which they argue should protect the site from the potential weaknesses manifest in other B2B commerce sites.

The strength and industry expertise of the founding consortium is complemented by the technological knowledge of its partners ATG, Digex, Interwoven and Moai. The merger of Dairy.com with INC2inc last December to form parent company Momentx supplemented the site with a strong technological infrastructure, an experienced management team and the ability to lunch new products quickly.

Revenue model

So, Dairy.com has much potential in terms of the cost savings it will offer to dairy firms through efficiency, but it is also a "for profit company." So, just how will it secure the funds for its future? Johnson explains that "during the first stage of our existence the revenue model will be derived from transactions, then we will evolve to more of a subscription base as we role out more components." While the site's main competition for trading transactions, the telephone, remains status quo, Dairy.com believes its innovative offerings should convince firms to part with fees.

Dairy.com in the future: one step at a time

The site is currently US-based, but there is the potential to roll out internationally. Dairy.com is based in Dallas, which Johnson explains is ideal: "Geographically it is only three hours from any point in the country, and its business climate is wonderful." In the future, however "when we go international we may have to start reconsidering that [being based in Dallas]." 

Dairy.com is adamant that while the site will be constantly innovative, it must remain sustainable and viable on its road to international growth. There may be the potential to link with local operations in Europe or Asia in the long term but "at this point," explains Johnson, "we're not aware of any." One of the founding partners of Dairy.com, Dannon, is a subsidiary of French giant Danone, so there may be potential in the future for rolling out an EU model, "but we're not prepared to commit to anything along those lines yet."

Indeed, "it's part of the corporate philosophy of Dairy.com to take baby steps that we believe can be successful and then grow incrementally," explained Johnson. "We want to serve the dairy industry from end to end and that will involve an international component; milk commodities are not that component because they only have essentially a 72 hour transportation longevity... but when we get into storables [butters and powders for example]... then at that point our exchange will become international."

No significant competitor dedicated entirely to the dairy industry has yet emerged but we are still in the first generation of e-marketplaces. They have everything to play for; with strong assets and robust partners, Dairy.com looks to be hitting the ground running.

By Clare Harman, just-food.com journalist