U.S. Steel, the largest steel producer in the United States, said it is taking a minority stake in e-Steel, a Web site that sells metal. Based in New York, e-Steel is an Internet-based marketplace that unites buyers and sellers of steel products and provides a number of resources for sales and purchasing processes.
Under the agreement, U.S. Steel's parent company, USX, will provide e-Steel with software and consulting services, as well as sales and marketing support to help establish links with other metal buyers and sellers. The deal also gives e-Steel a much stronger competitive stance against rival MetalSite, which also provides an online location for metal buyers and seller.
Financial terms of the agreement were not disclosed. U.S. Steel is expected to hold a 5 percent stake in e-Steel.
Analysts say the deal is significant for e-Steel but brings into question its claim of being a neutral marketplace. Many companies that establish online marketplaces claim to be third parties representing all businesses using their services equally.
"Their claim of being a neutral trading exchange goes out the window with this deal," said Scott Latham, an analyst at AMR Research. "The reality is U.S. Steel has a stake in the company now, and that brings into question e-Steel's neutrality" with other steel makers.
A growing number of companies are working to build trading exchanges or marketplaces that connect suppliers, partners and customers online.
In the automotive industry, for example, General Motors, Ford, Dupont and Chevron have all recently announced intentions to participate in an online marketplace. Partners such as Commerce One, Ariba and Oracle, which make software that allows firms to buy and sell everything from office equipment to services online, have partnered with some of the larger firms to help support the e-commerce push.
In 1999, U.S. Steel generated revenues of more than $5 billion from sales of 10.6 million tons of steel products, the company said. It hopes to move some of this market to the Web to speed the buying and selling process.
Currently the e-Steel Exchange has 1,300 member companies from 65 countries, including 75 mills, 290 service centers, 335 fabricators, 145 distributors and 95 end-user companies.