E-commerce and the lessons from nineteenth century exchanges

As recently as late 1999, the opportunities for "e-commerce" appeared limitless, especially for agricultural commodities such as almonds, tomatoes, and fruit juices for which no organized exchange functioned. Promising to reduce transactions costs by, for example, eliminating the need for brokers to locate trading partners, and to publicize prices for specialty crops such as almonds, e-commerce organizations talked of "revolution" and "first-mover advantage". Many rushed to offer electronic trading facilities, whether simple "bulletin boards" open to anyone or more formal exchanges with restricted membership, such as AgEx.com developed for almonds. The prospect of e-commerce made existing exchanges, such as the Chicago Board of Trade or the New York Cotton Exchange, seem antiquated, with their pits, their floor traders and "runners," their large staffs, their many member-run committees, all changed little from practices developed around 1870. Most of these supposedly revolutionary organizations have disappeared, and the few survivors have altered their business plans far away from the electronic versions of the CBOT's pits. (AgEx.com now consults for large firms running auctions for annual procurement of commodities.) One might think that these electronic exchanges failed because they, so far ahead of their time, ran out of financing while presumably moribund commodity-handling firms were debating for months whether they might be so bold as to hook their offices to the Internet. Actually, may long-established commodity handling firms have kept close watch and have remained quite open to internet-based trading, but have seen no revolutionary solution to their fundamental problems. Electronic exchanges have failed not because they had too much appreciation for the future but because they had too little appreciation for the past.