If industry observers are right, B2B marketplaces look set to
revolutionise the way in which businesses deal with each
other
Business to business marketplaces have become the hottest topic
in e-business, driving a future surge in revenues that could reach
around $200 trillion within 10 years.
In industries across the board, many believe half of their
business procurement could be made online by 2004.
But, despite a blur of announcements, many still face a reality
check. In some industries, key players are competing to get their
operations up and running, others are still deciding whether or not
they want to take part, and some have been sweating on not
breaching antitrust rules.
In this special marketplaces section, Mark Vernon cuts through
the hype and confusion around exchanges, defining the different
types of exchange, and the issues they face. Nina Kruger explains
why German car giant BMW chose not to join Covisint, the auto
marketplace. David Bicknell looks at two new marketplaces in the
shipbuilding and energy sectors, and finally, two key players in
the chemical and paper industries, Chematch.com and PaperX.com
discuss driving liquidity through a site, and tailoring a business
model to match suppliers' requirements.
B2B marketplaces are already big in e-business, but they are set
to become massive. Of all the initiatives seeking to exploit
network economics, these exchanges are the frontrunners when it
comes to revolutionising the way businesses deal with each
other.
PricewaterhouseCoopers, for one, estimates that the sector will
be worth $200 trillion in worldwide capital market value within 10
years.
"Marketplaces will take the lead position [in B2B e-business
models] as a number of them manage to establish themselves as de
facto marketplaces in specific industries," says Mikael Arnbjerg,
program manager of IDC's European Internet and e-commerce
strategies service.
But with transformation comes confusion. Dynamic pricing,
many-to-many business models and new business models altogether,
such as reverse aggregation, may sound wonderful on paper, but can
be bewildering in practice. Further, when a growth market presents
a large cake, everyone rushes in to claim a piece. For example,
Zona Research's B2B Marketplaces 2000 database lists nearly 850 at
the time of writing. The dangers are both that the technology and
processes underpinning the services are fragmented, and that
consolidation of the market as a whole will inevitably follow.
These are substantial sources of risk for all concerned. It is a
land grab. But not all will find gold.
B2B marketplaces have arisen because the Internet has created
unparalleled opportunities for companies to create markets that
deliver products more effectively, whilst offering increased
efficiencies in the supply chain, and richer ways of responding to
customers.
"Traditional business models are becoming obsolete. Business
leaders must fully understand and embrace the new B2B realities or
face severe consequences in the future," says Alan Hammill,
European strategic change leader at PricewaterhouseCoopers
Management Consulting Services. "The next year will mark
extraordinary change as the financial markets continue to reward
companies that re-focus away from the management of production and
large internal capital bases and use new technology to re-organise
themselves by integrating new players and forging new
partnerships."
So what do these marketplaces look like today? A typical example
is t-dental.com, recently launched for dentists, built by Round, a
CRM service provider, and Asera (www.t-dental.com). It aims simply to bring
together dentists' practices, dental hospitals and dental
suppliers for the exchange of everything from drills to
fluoride, as well as industry news and research. The marketplace
was built in seven weeks, proving that organisations can realise
quick wins once they have tested the water.
At t-dental.com users can search from a catalogue of over 5,000
product lines, delivered as a managed service on a pay-as-you-use
basis. T-dental.com's main revenue streams come from the sale of
these supplies, subscriptions to publications, being a reseller for
a variety of services such as accountancy, legal, and credit
services, and from advertising on the site.
A more complex service is provided by bfinance.com. Here, for
example, Olivier Govare arranged lease financing for 1.5m euro of
computer equipment in his company. The site found five offers in 10
days. "I merely filled in an online form with all the details of
the financing required and then sat back," Govare says. The
bfinance site brings together 60 financial institutions, half
handling treasury placements such as money market funds, and half
looking to lend. Govare estimates that previously the process would
have taken the best part of a month to complete.
Another kind of marketplace is demonstrated by Acequote.com for
the sourcing of IT goods and services. It uses a reverse auction
quotation method, whereby buyers post a request for quotes on goods
or services requirements.
Derek Dodson of Cyber-central was a customer looking for a
Compaq PDA. "Within 24 hours I had two quotes e-mailed to me, one
of which saved me over £100 on an item which was being sold
elsewhere for £400," he says. In the week of writing, the site saw
£5m of business transacted, generating a lot of new business for
resellers in particular.
"Acequote is sending our company a huge amount of sales leads on
a daily basis and we feel that this gives us a great opportunity to
produce orders we possibly would have missed," says Michael
Kleynhass of Cable-Trak Installations in Wimbledon.
Marketplaces are also changing the balance of power in
commercial relationships in a number of ways, commonly by enabling
smaller organisations to club together when dealing with entities
much larger than themselves. Consider the case of
Organics-on-line.com, a supply marketplace for
the organic food industry, deploying Unipower Systems'
technology.
"A key way the Internet can help is through aggregating
suppliers," says Annette Ward, founder of the marketplace. "Many
producers of organics are not big enough and they are frightened of
the multiples, some of which are so big that they are like an
elephant rolling over who does not know that he is crushing the
mouse. This technology can put small producers on a equal footing
with big producers, giving them access to very large markets," she
says.
B2B marketplaces have sometimes gained the reputation of being
disintermediators, generating cost savings by knocking out the
middlemen. However, a new strand of exchanges are emerging that
encourage the participation of both buyers and brokers. Cigrex is
one (www.cigrex.com), the first pan-European grain
exchange. Agriflow, the company heading up the exchange, believes
that brokers have a key role in animating markets and bringing
liquidity.
"In many regions of Europe, brokers wake up the market every
day, they add essential value to the supply-chain," says Daniel
Maury, co-managing director of Agriflow.
As these examples demonstrate, suppliers are typically taking
the initiative for now, as a study from e-procurement specialist
Biomni, just completed by Total Research, confirms. Nearly 50% of
the major UK suppliers asked now have e-commerce solutions in
place, nearly twice the number that were fully operational in March
2000. Having said that, only 12% are actively participating in
marketplaces. This is indicative of the economic change they
represent.
"Despite the offer of exchanges to help suppliers reach new
customers, their evident lack of interest for this model of
electronic transaction is not surprising, given the difficulties
they face in maintaining any form of competition other than price
when participating in an exchange," says Angus Gregory, CEO of
Biomni.
"The biggest problem we find we're facing in the field is fear,"
says Martin James, UK managing director of B2B solution vendor
eXcelon. "'Where do I start? And does anyone really understand what
I need?' type of questions are worryingly frequent. We see greatest
misunderstanding within vertical industry sectors - they know they
need B2B but have not been users of leading-edge technology."
Education and solutions that reflect business processes more
accurately are two key issues. This is where the confusion takes
hold, notably as competitive companies, on both the sell and buy
side, realise that there are new opportunities to co-operate if
only they can be found.
"Revolutionary new laws govern the actions and formation of B2B
exchanges," says Ian Charlesworth, senior analyst at Butler Group.
"They throw together old counterparts, such as International Paper,
Weyerhaeuser, and Georgia Pacific Group for the formation of an
online marketplace for the pulp and paper industry." He points to
the automotive giants too, as an example of a sector that spun out
multiple vertical market exchanges amid a frenzy of hype and
publicity, before realising that there is much to be gained by not
locking horns, with rivals.
Other sectors would do well to look at their mistakes and learn.
"The arrangement between Ford, GM, and DaimlerChrysler is
particularly noteworthy as it displays the kind of new business
models and arrangements that the Internet economy is capable of
throwing up," he says. "Previously, these competitors and rivals
wouldn't have entertained the idea of collaboration." Here, though,
the three have worked together to devise a procurement marketplace
that simplifies and shortens convoluted supply chains. Whilst
automotive giants and other multinationals, however, have the clout
to forge the way ahead, B2B marketplaces could be stymied by
participants that can resist change.
"Many of the marketplaces as we know them will not succeed in
the long-term because companies will not want to give up control of
their direct relationships with customers," says Robert Claren,
global project manager at Alfa Laval, a B2B process engineering
company. He believes this will lead to significant consolidation
among marketplaces, and joint ventures between sites in
complementary markets, to force change.
Learning from past mistakes is something that Ian Busby,
Deloitte Consulting's European B2B leader, thinks is vital. "The
emerging consensus is that the business case is now clear and major
companies are ready to commit to the re-engineering of processes
around this new e-supply chain concept," he says. And it is true,
he admits, that the focus among analysts has recently been on
consolidation and the likelihood of many marketplaces failing.
"This should not overshadow the real issue, however, which is
the emerging clarity and understanding about how marketplaces
operate. In the US, this means a transition from 'exchange hype' to
value-based investments. Here in Europe it means that we face the
rare opportunity of being able to bypass the hype phase, build on
tested learnings and position corporates just in time for the 'new
genesis'."
The technology itself is another problem. "Trading exchanges
take all shapes and sizes, as do their requirements," says Pierre
Mitchell, an analyst at AMR Research. "Private exchanges emphasise
strong back-office integrations and flexible collaboration
features. Consortium trading exchanges demand a many-to-many data
model, bullet-proof security, and compliance with trading-partner
rules. They need to operate and interoperate effectively, so that
business processes can fluidly traverse them and back-office
applications." In short, a tall order.
All of which leads UBS Warburg, in its recent report, The A-Z of
B2B, to conclude: 'We expect the power of the network effect, added
to tougher financing conditions for new entrants and the complexity
of integration into users' back-end systems, should lead to a
winner-takes-all scenario. This will likely mean the value created
is concentrated in a handful of winners while the majority of
marketplaces created will be subsumed or will fail."
The analysts estimate that over 80% of existing B2B marketplaces
will disappear, making the market a minefield for anyone trying to
pick a winner - either to trade with or to back. From now the rout
will begin: by the end of 2001 they expect the number of
marketplaces in Europe to be under 100. But those that do survive
will be worth their weight in gold.
Different Types of Marketplace
1. MRO marketplaces
Horizontal marketplaces used to systematically source
maintenance, repair, and operating goods (MRO), such as office
supplies, spare parts, airline tickets, and various generic
services. Systematic-sourcing involves negotiated contracts with
qualified suppliers.
Examples: MRO.com
Industrial supplies
MRO marketplace
BizBuyer.com
Business Services
Online procurement for small businesses
2. MRO exchanges
Horizontal marketplaces used to spot source MRO goods, that is
fulfill an immediate need at the lowest possible cost with
pre-negotiated contracts or established relationship.
Examples:
AdAuction.com
Advertising & Media
Sells remnant ad space
CapacityWeb.com Manufacturing
Exchange for engineered parts. Online collaboration from quote to
delivery
3. Vertical exchanges
Industry specific marketplaces used to spot source raw materials
or components that go directly into a product or process.
Examples:
e-Steel.com
Metals
Steel exchange
PaperExchange.com
Paper
Catalog shopping; online auctions; company storefronts. Real-time
market info
AltraEnergy.com Energy
Realtime energy auctions
4. Vertical marketplaces
Industry specific marketplaces used to systematically source raw
materials or components that go directly into a product or
process.
Examples:
ChemDex.com
Chemicals
Biological/chemical marketplace
PlasticsNet.com
Plastics
Plastic products marketplace
Source: Zona Research
Technology and services providers
| Company | URL | Industry | Description |
| Brio
Technologies | www.brio.com | B2X
e-services | Builds and delivers
business intelligence, enterprise reporting, and analytic
applications to users in intranet and extranet
environments |
| CyberCash | www.cybercash.com | B2X
e-services | Payment service and
software for online business |
| Check Point
Software | www.checkpoint.com | B2X
e-services | Offers secure virtual
networking architecture |
| VeriSign | www.verisign.com | B2X
e-services | Provider of Internet
trust services, including authentication, validation and payment
for the B2B market |
| Ariba | www.Ariba.com | IT
Solutions | E-business software.
Includes Tradex and Trading Dynamics |
| Commerce
One | www.commerceone.com | IT
Solutions | E-business software.
Includes CommerceBid |
| i2
Technologies | www.i2.com | IT
Solutions | Provider of supply
chain optimisation solutions |
| InfoBank | www.intradeonline.com | IT
Solutions | Develops B2B
marketplace solutions |
| Tradex | www.Tradex.com | IT
Solutions | Exchange market
software with auctions |
| Vignette | www.vignette.com | IT
Solutions | Supplier of e-business
applications for building online
businesses |
Tips on Entering Marketplaces
UBS Warburg has scored sectors according to their suitability
for B2B marketplace operations in the short and long-term.
Generally speaking, industries that have low technological
readiness and are highly fragmented will not fare well today. This
provides some indication as to which marketplaces are likely to
offer good services now and in the future.
1. In the short-term, the three sectors most suited to B2B were
computers and electronics, automotive, and travel and
transport.
2. In the long-term, the three sectors most suited to B2B were
travel and transport, publishing and printing, and SMEs.
Other issues to consider when assessing the benefits of signing
up include:
1. Does the exchange create price transparency for both new and
existing goods?
2. If the seller is disposing of excess goods is the benefit
passed onto the buyer?
3. Does the exchange encourage co-operation between parties,
bringing intangible benefits such as goods standardisation?
4. Check that the marketplace in question has good buying power
to deliver economies of scale.
5. If you are a volume buyer, ask about acquiring equity in the
marketplace.
6. Ask about the maturity of the technology underpinning the
marketplace. This is a competitive area for IT vendors and problems
may occur such as incompatibility of solutions.
7. Are you using the marketplace to compete with your
competitors, or would going in with them benefit all? For example,
car manufacturers might want to co-operate on procuring wiper
blades but not on sourcing CD machines.
8. If you are joining a new marketplace are you clear what risks
you might be asked to absorb?
9. Is the governance of the marketplace settled, especially in
the light of recent problems to do with anti-competitive
practice?
10. Is it worth joining a marketplace and ditching your legacy
investment in the existing supply chain? Don't get caught up in
hype.