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Chapter 7

E-Marketplaces andB2B Exchanges

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Learning Objectives

Define e-marketplaces and exchangesList all types of e-marketplacesDescribe B2B portalsDescribe third-party exchangesExplain dynamic pricing and describe its trading mechanisms

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Learning Objectives (cont.)

Distinguish between e-procurement and e-selling consortia

Describe the various ownership and revenue modelsDescribe networks of exchanges and exchange management

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Learning Objectives (cont.)

Describe the critical success factors of exchangesDiscuss implementation and development issues of e-marketplaces and exchangesDescribe the extranet and its role in supporting marketplaces and exchanges

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Opening Case:ChemConnect & Covisint

ChemConnect uses a B2C business model where customers look for:

Lowest priceFast shipmentGood return policyHelpful customer service

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ChemConnect & Covisint (cont.)

ChemConnect—world chemical exchangeProvides free membership in trading marketplaces and information portals

Public exchange floor for anonymous bidsCommodities floor for buying and exchangingCorporate trading rooms—private online auctions

Up-to-the-minute market informationLarge electronic catalogIndependent intermediary

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ChemConnect & Covisint (cont.)

Covisint—e-market of automotive industry

B2B integrated buy-side marketplaceGeneral MotorsFordDaimlerChrysler

Entire industry gainsLower costsEasier business practicesIncreased efficiency

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ChemConnect & Covisint (cont.)

Covisint (cont.)“Co” stands for

ConnectivityCollaborationCommunication

“Vis” stands for visibility provided by the Internet“Int” stands for integrated solutions

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ChemConnect & Covisint (cont.)

Covisint (cont.)Collaborative commerce

Facilitate product designEnable procurement processProvide broad marketplace of buyers and suppliers

Vertical consortia trading exchangeFew large buyersMany sellers (suppliers to the industry)

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Figure 7-2Trading Communities

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B2B E-Marketplacesand Exchanges (cont.)

Dynamic pricingOwnership of exchangesGains and risks of B2B exchange participationGovernance Organization of exchanges

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Information Portals

Thomas registerAlibaba.com

The databaseThe portal’s featuresReverse auctionsServicesLanguagesRevenue model

More on information portals

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Figure 7-4 B2B Classified Ads

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Figure 7-5 Supplier Aggregation Model

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Figure 7-6Buyer Aggregation Model

Requests

Responses - - - - - - -

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Third-Party (Trading) Exchanges

Suitability of third-party exchanges

Fragmented marketsBuyer-concentrated marketsSeller-concentrated markets

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Consortium Trading Exchanges (CTE)

CTE is a subset of third-party exchanges, the 4 types are:

Vertical, purchasing-orientedHorizontal, purchasing-orientedVertical, selling-orientedHorizontal, selling-oriented

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Consortium Trading Exchanges (cont.)

E-Procurement Consortia can be:Vertical purchasing-orientedHorizontal purchasing-orientedVertical selling-oriented

Selling-oriented consortiaLegal challenges for B2B consortiaSignals that may prompt legal scrutiny

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Consortium Trading Exchanges (cont.)

Critical success factors of consortiaSize of industryAbility to drive user adoptionElasticity—measure of incremental spending by buyers as a result of savings generatedStandardization of commodity-like productsManagement of intensive information flowSmoothing inefficiencies in supply chain

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Dynamic Trading:Auctions and Matching

AuctionsPrivate trading rooms—members conduct auctions at the exchangeAuction services may be one of the activitiesExchange may be fully dedicated to auctions

MatchingMarket makers conduct matching supply and demand (e.g., stocks)More complex than auctions because they match:

PricesQuantitiesTimesLocations

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Building and Integrating Marketplaces and Exchanges

Step 1—Think aheadStep 2—PlanningStep 3—System analysis and designStep 4—Building the exchangeStep 5—Testing, installation, and operationStep 6—System evaluation and improvement

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Building and Integrating Marketplaces and Exchanges (cont.)

IntegrationBetween 3rd-party exchange and back-office systems of participantsAcross multiple, incompatible exchanges

External communicationsWeb/client accessData exchangeDirect application integrationShare process

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Building and Integrating Marketplaces and Exchanges (cont.)

Process and information coordination—how to coordinate external communications with internal information systemsExternal process Internal process

Data transformation Exception handling

System and information management—involves management of:Software Hardware

Information components

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Building and Integrating Marketplaces and Exchanges (cont.)

Shopping carts—allow customers to shop at any participating vendor

Buyer maintains order information on its own site in order to integrate it with its internal e-procurement systemSell-side cannot support this capabilityB-cart approach: cart resides on buyer’s PC instead of seller’s siteInteroperable interface between heterogeneous e-marketplaces and e-procurement system

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Figure 7-7The B-Cart

Source: Lim and Lee (2001). Used with permission of Joe K. Lee, Chairman, International Conference on Electronic Commerce.

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Managing Exchanges

Revenue modelsTransaction feesFee for serviceMembership feesAdvertisement fees

Networks of exchangesCentralized managementFinding a CEO and independent management team

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Critical Success Factors

Early liquidityLiquidity refers to volume of business conductedBusiness’s chance of survival is best when liquidity is achieved early

Right ownersPartner with companies that can bring liquidity to the exchangeBest owner may be intermediary that can push both buyers and sellers

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Critical Success Factors (cont.)

Right governanceGood management and fair /effective operations and rules are criticalGovernance provides:

The rules for the exchangeMinimized conflictsDecision making support

Good management induces necessary liquidity

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Critical Success Factors (cont.)

OpennessExchanges must be open to all from:

Organizational point of viewTechnical point of view

Open standards require:Commitment by all involvedUniversal agreement on the standards

Using the wrong standards can hurt the exchange

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Critical Success Factors (cont.)

Full range of servicesParticipants are attracted by an exchange that helps cut costsExchanges team up with banks, logistic services and IT companies to help

Importance of domain expertiseMarket makers need an in-depth understanding of:

The industryBusiness processes inherent in the industryKnowledge of industry structureGovernment and policy stipulations

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Critical Success Factors (cont.)

Targeting inefficient industry processesContribute to increased costs and time delaysVertical exchanges can add value

Targeting right industriesLarge base of transactionsMany fragmented buyers and sellersDifficulties bringing together buyers and sellersHigh vendor and product search/comparison costsStrong pressure to cut expenses

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Critical Success Factors (cont.)

Brand building is criticalIncrease switching costs by adding features and functionalityInvest in:

Gaining brand awarenessAttracting businesses to exchangeCustomer retention

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Critical Success Factors (cont.)

Exploiting economics of scopeValue-added services make exchange compelling

Industry newsExpert adviceDetailed product specification sheets

Adjacent servicesBanks and financial information providersIdentification supported by sophisticated digital certificate architecture

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Critical Success Factors (cont.)

Garner diverse and multiple revenue streams

Software licensingAdvertisingSponsorship

Critical mass of users will garner more value-added services

Auction servicesFinancial servicesBusiness reportingData mining services

Choice of business/revenue models

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Critical Success Factors (cont.)

Blending content, community, and commerce

Content and community perspective—stimulate trafficEC transaction perspective—creates higher level of customer “stickiness”

Managing channel conflictHostile phase as buyers interact directly with sellers (disintermediation of supply chain)Short-term revenues impacted by backlash from existing fulfillment channels result in price erosion affecting medium-term profitability

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B2B Networks and Extranet

The InternetIntranets—intra-business delivery systemsExtranets

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Figure 7-9An Extranet

Source: Szuprowicz (1998), p. 6. Used by permission.

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Implementation Issues

Problems with exchangesProblems with public exchanges

Transaction feesCost savingsRecruiting suppliersToo many exchangesSupply chain improvements

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Implementation Issues (cont.)

Problems with private exchangesLack of trustLiquidity is questionable

Software agents in B2B exchangesDisintermediationEvaluating exchanges

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Managerial Issues

Plan most secure and economical choice for implementationReview current network and find out if it can be replaced by intranets or extranetsParticipate in which exchange?Determine in which exchange to participate

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Managerial Issues (cont.)

Joining exchange may require a BPR of internal supply chainChannel conflicts may arise when a company joins an exchangeRisks of joining an exchange must be carefully considered