Mark Vernon presents a 20-point guide to e-marketplaces
E-marketplaces are online hubs that bring together buyers and
suppliers to form a trading community. The power of the
e-marketplace stems from the connectivity of the Internet.
This enables the effective linking together of many sellers and
buyers, sometimes known as the butterfly model. E-marketplaces have
arisen because the openness of the Web enables companies to
interact in a more flexible way. E-marketplaces have developed in
order to exploit this opportunity through disintermediation
(eliminating the middleman) where desirable.
Having answered two questions already, the next 18 provide an
introduction and guide to this growing area of e-business.
What different kinds of e-marketplace are there?
The cynic would say those that make money and those that do not.
However, they can also be divided into three, not mutually
exclusive, types of e-marketplace:
- MRO marketplaces are non-sector specific, or horizontal,
marketplaces used to systematically source maintenance, repair, and
operating goods (MRO).
- MRO exchanges are horizontal marketplaces used to spot-source
MRO goods that are required to fulfill an immediate need at the
lowest possible cost.
- Vertical exchanges are sector- or industry-specific
marketplaces used to spot-source raw materials or components that
go directly into a product or process.
What is the difference between an e-marketplace and an online
auction?
The e-marketplace has links and other content, as well as the
transaction-specific functionality. In other words, it seeks to
take care of all the needs around a particular sale or
relationship. An auction is designed to facilitate one-off
transactions for one-off needs, with the goods or contracts going
to the highest or lowest bidder.
Which e-marketplace models are more successful than others,
and why?
Marketplaces that are able to build in value-added services
beyond the basic transactions. Also, research shows that
marketplaces focused on particular industries or sectors tend to be
the most successful, since they can build up a regular customer
base that leads to the critical mass required to turn a profit.
Which e-marketplace models are more radical or revolutionary
than others and why?
The mark of the radical is where collaboration is the first
priority. Here the traditional push and pull of buyer/supplier is
mutating into a relationship where the latter becomes a strategic
partner of the former, working together to mutual advantage.
Competitive pressure is maintained not only by driving down costs
but by building up service, which can be achieved more effectively
when the supply chain is working well.
With MRO.com, for example, traditional business models failed to
provide any competitive edge. But new ways of organising the supply
chain have provided more opportunities. MRO.com deals with
maintenance and repair services. Buyers and suppliers are now able
to collaborate more fully and develop richer business
relationships.
Will e-marketplaces change business for ever?
Of all the changes the Web has brought to business methods,
e-marketplaces are having the greatest impact to date. This is
reflected in terms of growth: Merrill Lynch estimates that the
Web-based business-to-business marketplaces will grow to be worth
$14bn by 2002. They are so dynamic because they attack the
fundamentals of trade, and by influencing cost structure, enabling
collaboration and improving sourcing possibilities.
What is the most important commercial reason to get involved
in an e-marketplace?
In short, cost savings. Costs are being taken out of the supply
chain, new revenue streams are being generated, supplier contracts
can be optimised, and quicker response times can be achieved. For
example, the Volkswagen online exchange expects to save 50% on
supplies through increased efficiency in procurement.
What is the most important impact e-marketplaces are having
upon the supply chain?
Fear is probably the biggest user response to e-marketplaces,
since suppliers do not understand what is going on. But more
positively, e-marketplaces might in a sense be said to perfect the
connectivity that electronic data interchange (EDI) and enterprise
resource planning (ERP) systems brought to the supply chain. With
the connectivity of the former and the knowledge flow of the latter
come deeper ways to collaborate - a result of the many models of
e-marketplaces, and clearer ways to disintermediate - since
e-marketplaces bring transparency.
They are also making the supply chain more flexible - a
development that has a number of ramifications. For example, it
reduces customer loyalty, which means that sticking to delivery
promises is vital. Alternatively, the supply chain has to be
efficient in order to enable well-informed decisions.
What is the most important impact e-marketplaces are having
upon procurement?
When it comes to the specifics of procurement, e-marketplaces
show potential in a number of areas. For example, they give small
companies greater buying power since they can club together.
Alternatively, automating procurement reduces purchasing costs
(research shows that in traditional procurement processes up to 10%
of the total cost stems from administration). For example,
FreeMarkets enables customers to identify global suppliers and
prepare detailed requests for quotes by tapping into its extensive
sourcing database. FreeMarkets estimates it has saved customers
nearly $1.5bn to date.
When might an auction suit a business's purposes better than
an e-marketplace?
Auctions are good for spot-sourcing goods so they are useful if
a company needs to make a one-off purchase or when it is buying a
new product. For example, Tesco used an online auction as a one-off
in August to attract corned beef suppliers. In the space of three
hours the supermarket had offers from seven suppliers at lower
costs than would normally be expected when its demand was
immediate. The auction also meant that Tesco was able to receive
offers from an open arena. In an e-marketplace it would have
pre-determined suppliers.
How can businesses get involved in an e-marketplace?
A basic but good piece of advice is to try more than one.
E-marketplaces are prolific but, as research shows, many will fail.
Analysts at UBS Warburg, for example, believe that 80% of existing
business-to-business marketplaces will disappear. Trying to back
the right horse is therefore worth some effort.
Decisions need to be made on the basis of understanding how a
marketplace is going to benefit the business. The best known
supplier or a competitor's favourite is not a good measure of the
best marketplace. Value and return on investment are.
How can a business work out which one to join?
The vertical segment that the e-market is addressing is one
important issue. Generally speaking, those sectors that are ahead
in terms of technological sophistication and have undergone some
consolidation are likely to make the e-marketplace model work well
for them. For example, computer and electronics retailers, the
automotive supplier sector, or travel and transport, look good
today. E-marketplaces aimed at SMEs, on the other hand, might not
fare so well.
The presence of existing customers is also a good indicator, not
only since they can act as references, but also because most
e-marketplaces depend on reaching a critical mass before economies
of scale can be delivered.
Should a business consider developing its own
e-marketplace?
If the company can generate the critical mass itself. As a
measure of how large that mass might be to really benefit from
savings, Boeing, with annual revenues of $58bn, has developed its
own marketplace. Even large car manufacturers have decided to club
together - Covisint has been formed by Ford, Daimler Chrysler, GM
and Renault/Nissan. Another approach is to use a brand to gather
the momentum that attracts others to join. This is the case of the
retailing marketplace GlobalNetXchange, driven by Sears and now a
joint venture with Carrefour and Oracle, which is attracting
several smaller players.
What about technology and application platforms?
Interoperability is probably the most important issue. Ask what
other marketplaces and suppliers it can work with. Another
important element is integration, ensuring, for example, that
back-end technology is in place before the marketplace goes live.
The point is that any e-marketplace worth its salt should enable
real-time intelligent information to be accessed, allowing accurate
distribution and delivery promises to be made.
What worries should you have about e-marketplaces?
Many of the fears that firms have of e-marketplaces stem from
not being able to answer questions about which marketplace to join,
how much it will cost, which will be the best one, or whether it is
wise to join more than one.
Another concern stems from the novelty of the whole
e-marketplace process. It takes time to achieve a balance between
the buyer and sellerinterests.Catalog International, for example,
estimates that it takes between one and three years for an
equilibrium to be established where both sides gain.
Do e-marketplaces really understand the needs of
businesses?
The warning here is that many marketplaces are driven by the
technological opportunity, in effect a Web site looking for
commerce to happen. Only a small number are based on the boards of
large firms insisting that marketplaces deliver on what others
boast, cost savings, better sourcing and the like. Generally
speaking those marketplaces that operate in niches are likely to
understand what they are doing, since their raison d'ˆtreisto
exploit a commercial opportunity rather than a new technology.
What kinds of business should steer clear of
e-marketplaces?
The common answer to this question is none. All businesses can
benefit as long as they operate in the type of marketplace that can
meet their needs. A small company looking to buy biros, for
example, should opt for the horizontal MRO marketplace,
notthevertical exchange dealing in large volumes and established
relationships.
When and why should businesses be cautious of
auctions?
There is a danger that auctions can conflict with existing
supplier relationships with a promise that better ones can be
established "on the hoof". For certain products, such as office
stationery, that promise might be right. But where a company is
getting good service at the right price for raw materials or high
volume goods from an established relationship, be it in an
e-marketplace or in a more traditional space, it is good advice to
stick with it. It is unlikely that an auction will enhance
them.
How can you choose an e-marketplace that will last?
Consolidation is the big threat here. business-to-business
marketplaces are in "land grab" mode and it is hard to spot those
that will last in the long term. The flexibility of the technology
that underpins the marketplace is another consideration, since
non-proprietary, open standards are likely to be more robust when
change comes about. Also certain applications will allow greater
freedom to chop and change within marketplaces.
A brief guide to the kind of companies contributing to the
business-to-business marketplace revolution
Management tools
- i2 Technologies - IT solutions: supply chain
optimisation
- Peregrine Systems - IT solutions: infrastructure management
software
- Zygon - IT solutions: product portfolio management/ product
data management
Applications
- Ariba - IT solutions: e-business, includes Tradex and Trading
Dynamics
- Commerce One - IT solutions: CommerceBid for auctions
- Catalog-International - IT solutions: e-catalogue software for
mid-size companies
- Webridge - IT solutions: B2B marketplace software
- Iona Technologies - IT solutions: enterprise portal
- Bluestone Software - IT solutions: one-stop-shop total
solutions
- Intentia - IT solutions: collaboration applications from ERP
suppliers
- SpaceWorks - IT solutions: enterprise e-marketplace
solutions
- InterWorld - IT solutions: enterprise e-marketplace
solutions
Services
- IBM - IT services: industral solutions and services
- Sybase - IT services: database provider
- Aptegrity - IT services: e-business application management
services
- Infogain - IT services: systems integrator specialising in
e-business and technical architecture
- Compelsolve - IT services: systems integrator specialising in
e-business
- B2X Eservices Builds and delivers business
intelligence
Marketplaces
- MRO.com - Industrial supplies, MRO marketplace
- Achilles - UK utilities e-marketplace
- FreeMarkets.com - Real-time bidding for industrial
materials
- Autolink.com - B2B e-marketplace for automotive
dealers
- Office.com - Business services for small businessesOnline store
for business supplies Business advice. Market analysisOnline
community
- OilSpot.com - Marketplace for petroleum distributors,
manufacturers & refiners
- Hyporium - Based in Europe, offers an online exchange for
computer hardware Information source
- HydrocarbonOnline.com - Marketplace for the oil refining and
hydrocarbon processing industry
- OneCore - Financial services for small businesses
- NestleEZorder - Nestle's business-to-business Web siteDirect
order and tracking of Nestle's food and beverage products
- PrimeAdvantage.com - B2B demand-aggregation e-marketplace for
the industrial manufacturing industry
- PaperExchange.com - Online exchange for pulp and paper
products. Commision-basedNews, industry calendar
- The Intermodal Exchange - Shipping and logistics auction site
for ISO marine and domestic containers
- RateXchange - Telecommunications Bandwidth exchange Custom
auction Lead bulletin
- Water2Water.com - Online market for the water
industry