As the new millennium dawned there was a proliferation of B2B marketplaces. However, as start-up businesses, many have had difficulty in achieving sustainable business models although we will see there are examples of successful marketplaces in vertical industries such as Elemica (www.elemica.com) within the chemicals industry which we referenced in Case Study 6.1. Perhaps the prime example of a general e-marketplace is Alibaba.com which is discussed in Mini Case Study 7.2.
Electronic B2B marketplaces are variously known as ‘marketplaces, exchanges or hubs’. Typically they are intermediaries that are part of the reintermediation (Chapter 2, p. 66) phenomenon and are independent of buyers and suppliers.
After a great deal of hype at the turn of the millennium, many B2B marketplaces have closed. Examples of independent B2B exchanges mentioned in the previous edition are Chemdex (www.chemdex.com), Vertical Net (www.vertical.net), CommerceOne Marketsite (www.commerceone.com) and Covisint (www.covisint.net), none of which now exists in its original form. As we saw in Chapter 5, in January 2001, Dell shut down one of its business- to-business (B2B) online marketplaces, called Dell Marketplace, only four months after it opened, citing the lack of a mature e-commerce marketplace. Computer World (2001a) reported that of an estimated 900 business-to-business web sites that were functioning worldwide in mid-2000, a little more than 400 were left by end-2000. Despite this, enthusiasm for the B2B marketplace concept still seems quite strong. Today, Googling ‘B2B Exchanges’ shows just a handful are still active.
The B2B exchange intermediaries that remain seem to be mainly for commodities or simple services (for example, EC21 (www.ec21.com), Elance (www.elance.com) and eBay Business (http://business.ebay.com)). One of the top categories on eBay Business is for tractors, with bids of between $10,000 and $20,000 common; another is photocopiers with over 3,000 listed, with a maximum price of $65,000.
1. From neutral to private B2B exchanges
So, these new online trading arrangements have not developed as open, neutral marketplaces as predicted by many analysts. This seems to be due to the complexity of business purchase decisions and negotiations and their destabilizing nature on markets. The Computer World (2001b) article gives these reasons why what it terms ‘private exchanges’ are proving successful:
First, owners of private exchanges regulate supplier and customer access – and exclude competitors – making the sharing of sensitive information more likely.
Second, owners can direct suppliers and customers to use the exchange through price incentives or by mandating changes in the way to conduct business.
Third, private exchanges can be secured and tailored to serve specific projects and customers, unlike public exchanges, which must be generic so as to accommodate everyone.
The article gives the example of IBM which has well-established private marketplaces. IBM has saved about $1.7 billion since 1993 by being able to divulge sensitive price and inventory information over a private exchange built for 25,000 suppliers and customers. As host of the exchange, the company helped defray the cost of connecting suppliers. As a result, on-time delivery of systems to customers increased from around 50% to 90%.
The approach that has evolved, which few of the analysts seemed to predict in 2001, is that private B2B exchanges have developed. These are the buy-side exchanges referred to in Table 7.1. These are usually created by an individual manufacturer or supplier and include a ‘walled garden of suppliers’, i.e. everyone has to be approved as a member, although the forms to register as a supplier to bid in response to a particular Request for Quotation (RFQ) or to participate in a reverse auction are open to all, but with each vetted to avoid competitor involvement.
Case Study 7.2 shows the history of the automotive marketplace Covisint. This pattern of a transition from a marketplace portal to a hosted e-procurement service has been followed by other B2B marketplaces from that time including CommerceOne and Ariba.
2. Government marketplace exchanges
In the UK, the government has used reversed auctions on trial, but in 2006 launched two new initiatives which will highlight the value of recruitment. To give more options for small businesses to apply as suppliers to government, the UK government launched the Supplier Route to Government Portal (www.supply2.gov.uk, Figure 7.12) as part of its e-government initiative; this is an online marketplace for public-sector procurement valued at less than £100,000. Registered users can receive daily e-mail alerts about contracts appropriate to them, search for contracts online and post details of their offerings. The figure shows the benefits of marketplaces for suppliers and buyers. The Office of Government Commerce (OGC) also unveiled an online marketplace for public sector procurement, called Zanzibar Managed Service (www.ogcbuyingsolutions.gov.uk/zanzibar/zanzibar.asp) . The Department for Work and Pensions is the first public-sector department to use the system. Zanzibar works in a similar way to other exchanges, with the OGC saying that Zanzibar would only be open to businesses that were either currently allowed to bid for public-sector contracts or were invited to do so.
Improved methods for facilitating purchasing using these types of sites will undoubtedly increase the adoption of the Internet for e-commerce since consumers will become aware of the lower prices available by these buying methods. For the business-to-business case this needs to be linked in with methods of making payment easier such as the Open Buying Initiative (www.obi.org).
3. Types of marketplace
Kaplan and Sawhney (2000) have developed a taxonomy of B2B marketplaces by applying existing classifications of corporate purchasing, namely how businesses buy (systematic purchasing or spot purchasing) and what businesses buy (manufacturing inputs or operating resource inputs). They identify the types of marketplace shown in Table 7.7. Note that manufacturing-input marketplaces tend to be vertical marketplaces set up for a particular industry such as steel, construction or chemicals while operating resources tend to be horizontal marketplaces offering a range of products to differing industries.
Kaplan and Sawhney introduce another variation in the way marketplaces differ. This is according to whether the marketplace is direct between buyer and seller or whether some degree of aggregation occurs. In the same way that for consumer products, volume discounts can be achieved through combining the purchasing power of individuals, this can also occur for small and medium businesses. Kaplan and Sawhney refer to this type of aggregation as ‘reverse aggregation’ since aggregation is back through the supply chain from customers to suppliers. They also identify‘forward aggregation’ in which the supply chain operates through distributors in a traditional way. A distributor of PCs from different manufacturers aggregates supply from the different manufacturers. Marketplaces can also act as value chain integrators when they combine supply chain functions referred to in Chapter 6.
According to Sawhney (1999) companies looking to create exchanges typically specialize in one of the four sectors of Table 7.7, although some B2B marketplaces do offer both catalogue hubs and exchanges.
Some marketplaces also differ in the range of services they offer – some may go beyond procurement to offer a range of services that integrate the supply chain. Sawhney (1999) refers to these marketplaces as ‘metamediaries’. An example of a metamediary is Plastics Net (www.plasticsnet.com). This provides services of supplier evaluation, procurement, tracking, marketplace information, certification monitoring, auctions and catalogues.
How successful will exchanges be? Kaplan and Sawhney (2000) note that neutral exchanges face a chicken-and-egg situation when recruiting buyers and suppliers to their service – buyers may not want to participate if there are insufficient suppliers, and suppliers may not join if the site is not used by many purchasers. Procurement managers will naturally select a marketplace that is most active.
Source: Dave Chaffey (2010), E-Business and E-Commerce Management: Strategy, Implementation and Practice, Prentice Hall (4th Edition).
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