First Index: A Consultancy and Marketplace Closes Its Doors

On Tuesday, March 9th, First Index, a supplier-pays marketplace and former direct materials sourcing and supply chain consultancy, closed its doors. First Index had received significant funding from LMS Capital, a UK-based firm, and Bessemer ventures. Earlier today, I called their headquarters (509-363-1997) and listened to a recording saying they had "ceased all operations" (hat-tip: AJ Sweatt). First Index's decline marks the end of a long struggle to build a business model that once saw them hit roughly 100 employees and over $10 million in revenue, but that eventually ended in failure as they spiraled through business models and got caught up in the manufacturing downturn.

Founded nearly twenty years ago, First Index formerly competed against Accenture, Deloitte, and FreeMarkets as a sourcing and supply chain direct materials consultancy. They gave up this approach, however, to focus entirely on a business model where suppliers paid from a few hundred to one thousand dollars per month to access RFQs in their marketplace. With supplier contracts in hand, First Index employees would then dial for dollars, calling direct material buying organizations to source commodity parts and components (e.g., machined parts) and ask for RFQs.

This process amounted to a largely manual market making effort, not unlike what FreeMarkets originally carried out for industrial companies like UTC (but with a buyer-pays model). FreeMarkets, too, had originally started as a supplier-pays model like First Index, although with different twists and nuances. FreeMarkets, unlike First Index, quickly abandoned this approach when it did not work. First Index met the opposite fate of other direct material marketplaces in the past decade who have been more lucky than others. SupplierMarket.com, an earlier competitor, sold to Ariba for hundreds of millions of dollars during the .com heyday (with virtually no revenue to show for it). And MFG.com, which is still independent, is seeing solid growth, despite the manufacturing downturn.

Stay tuned for further coverage of First Index's insolvency tomorrow. I'll be speaking with David Landsman of MFG.com, who worked for First Index for a number of years, to get the full story of their rise and fall.

- Jason Busch