Chapter 7 Public B2B Exchanges and Portals. © Prentice Hall 20042 Learning Objectives 1.Define e-marketplaces and exchanges and describe their major types

Chapter 7Chapter 7

Public B2B Exchanges Public B2B Exchanges

and Portalsand Portals

© Prentice Hall 2004© Prentice Hall 2004 22

Learning ObjectivesLearning Objectives

1.1. Define e-marketplaces and Define e-marketplaces and exchanges and describe their exchanges and describe their major types.major types.

2.2. Describe the various ownership Describe the various ownership and revenue models of and revenue models of exchanges.exchanges.

3.3. Describe B2B portals.Describe B2B portals.

4.4. Describe third-party exchanges. Describe third-party exchanges.


Learning Objectives Learning Objectives (cont.)(cont.)

5.5. Distinguish between purchasing Distinguish between purchasing (procurement) and selling (procurement) and selling consortia.consortia.

6.6. Define dynamic trading and Define dynamic trading and describe B2B auctions.describe B2B auctions.

7.7. Describe the operation and benefits Describe the operation and benefits of networks of exchanges.of networks of exchanges.

8.8. Discuss exchange management.Discuss exchange management.


Learning Objectives Learning Objectives (cont.)(cont.)

9.9. Describe the critical success Describe the critical success factors of exchanges.factors of exchanges.

10.10. Discuss implementation issues of Discuss implementation issues of e-marketplaces and exchanges.e-marketplaces and exchanges.

9.9. Describe the major support Describe the major support services of B2B.services of B2B.

10.10. Describe the role of extranets in Describe the role of extranets in supporting marketplaces and supporting marketplaces and exchanges.exchanges.


ChemConnect: The World ChemConnect: The World Chemical ExchangeChemical Exchange

The ProblemThe ProblemBefore the Internet, the B2B trading process was slow, fragmented, ineffective, and costlyBuyers paid too much, sellers had high expenses, and intermediaries were needed to smooth the trading process


ChemConnect: The World ChemConnect: The World Chemical Exchange Chemical Exchange (cont.)(cont.)

The SolutionThe SolutionTraders meet electronically in a large Internet marketplace

Save on transaction Save on transaction costs, reduce cycle time, and find new markets and trading partners around the globe



ChemConnect provides a trading ChemConnect provides a trading marketplace and an information portal marketplace and an information portal to over 7,500 members in 135 to over 7,500 members in 135 countriescountriesMembers are: Members are:

ProducersProducersConsumersConsumersDistributorsDistributorsTradersTradersIntermediaries involved in the Intermediaries involved in the chemical industry chemical industry



Trading Center consists of 3 Trading Center consists of 3 trading areastrading areas

1. Marketplace for buyers2. Marketplace for sellers3. Commodity market platform



ChemConnect members use the ChemConnect members use the Trading Center to streamline sales Trading Center to streamline sales and sourcing processes by and sourcing processes by automating requests for quotes, automating requests for quotes, proposals, and finding new suppliersproposals, and finding new suppliersThe center enables a member to The center enables a member to negotiate more efficiently with negotiate more efficiently with existing business partners as well as existing business partners as well as with new companies the member may with new companies the member may invite to the table in complete privacyinvite to the table in complete privacy



The revenue model includes:The revenue model includes:members’ annual transaction feesmembers’ annual transaction fees

monthly or annual subscription fees (for monthly or annual subscription fees (for trading and for auctions)trading and for auctions)

fulfillment service feesfulfillment service fees

Three trading locations provide up-to-Three trading locations provide up-to-the-minute market informationthe-minute market information

Business partners provide several Business partners provide several support services (payments, delivery, support services (payments, delivery, etc.)etc.)



The ResultsThe ResultsBenefits of ChemConnect to its Benefits of ChemConnect to its members are:members are:

more efficient business processesmore efficient business processes

lower overall transaction costslower overall transaction costs

time saved during negotiations and time saved during negotiations and biddings biddings

sellers reach more buyers and liquidate sellers reach more buyers and liquidate surpluses rapidly surpluses rapidly



What we can learn…What we can learn…Electronic exchange is owned and Electronic exchange is owned and operated by a third-party operated by a third-party intermediary intermediary

Buyers and sellers, as well as other Buyers and sellers, as well as other business partners, congregate business partners, congregate electronically to conduct business electronically to conduct business


B2B Electronic ExchangesB2B Electronic Exchanges

Public e-marketplaces (public Public e-marketplaces (public exchanges):exchanges): Trading venues open to Trading venues open to all interested parties (sellers and all interested parties (sellers and buyers) and usually run by third buyers) and usually run by third partiesparties

Exchange: Exchange: A many-to-many e-A many-to-many e-marketplace. Also known as marketplace. Also known as e-e-marketplaces, e-markets, marketplaces, e-markets, and and trading trading exchangesexchanges


B2B Electronic ExchangesB2B Electronic Exchanges (cont.)(cont.)

Market maker:Market maker: The third-party that The third-party that operates an exchange (and in many operates an exchange (and in many cases, also owns the exchange)cases, also owns the exchange)Systematic sourcing:Systematic sourcing: Purchasing Purchasing done in long-term supplier–buyer done in long-term supplier–buyer relationshipsrelationshipsSpot sourcing:Spot sourcing: Unplanned purchases Unplanned purchases made as the need arisesmade as the need arises







Vertical exchange:Vertical exchange: An exchange An exchange whose members are in one whose members are in one industry or industry segmentindustry or industry segment

Horizontal exchanges:Horizontal exchanges: Exchanges Exchanges that handle materials used by that handle materials used by companies in different industriescompanies in different industries



Dynamic pricing:Dynamic pricing: A rapid A rapid movement of prices over time, movement of prices over time, and possibly across customers, as and possibly across customers, as a result of supply and demanda result of supply and demand



Process that results in dynamic pricing in most exchanges includes1. A company posts a bid to buy a product or an offer

to sell one2. Anonymity is often a key ingredient of dynamic

pricing3. Buyers and sellers interact with bids and offers in

real time4. A deal is struck when there is an exact match

between a buyer and a seller on price, volume, and other variables such as location or quality

5. The deal is consummated, and payment and delivery are arranged



Functions of exchangesFunctions of exchangesMatching buyers and sellersFacilitating transactionsMaintaining exchange policies and infrastructure





Ownership of exchangesOwnership of exchangesAn industry giantA neutral entrepreneurThe consortia (or “third-party” co-op)



Revenue modelsRevenue modelsTransaction feesFee for serviceMembership feesAdvertising feesOther revenue sources



Governance and organizationGovernance and organizationMembership

the community in the exchange

Site access and securityinformation should be carefully protected

Services provided by exchangesprovide many services to buyers and sellers






B2B PortalsB2B Portals

B2B portals:B2B portals: Information portals Information portals for businessesfor businesses

Pure information portals include:Pure information portals include:directories directories of products offered by of products offered by each sellereach seller

lists of buyers and what they wantlists of buyers and what they want

other industry or general other industry or general informationinformation


B2B Portals B2B Portals (cont.)(cont.)

Vortals:Vortals: B2B portals that focus on B2B portals that focus on a single industry or industry a single industry or industry segment; “vertical portals”segment; “vertical portals”


B2B Portal ExamplesB2B Portal Examples

Thomas Register—information Thomas Register—information portalportal

Sellers distribute information on what they have to sellBuyers can find what they need and purchase over a comprehensive and secure procurement channel

reduce costsshrink cycle timesimprove productivity


B2B Portal Examples B2B Portal Examples (cont.)(cont.)

Alibaba.com—Alibaba.com—started as a pure information portal and is moving toward becoming a trading exchange

Huge database is a horizontal information portal with offerings in a wide variety of product categoriesReverse auctions Features–free email, email alerts, etcFeatures–free email, email alerts, etcRevenue model—Revenue model—advertisement and fees for special


Third Party (Trading) Third Party (Trading) ExchangesExchanges

Third-party exchanges are characterized by two contradicting properties

they are neutral, not favoring either sellers or buyersthey do not have a built-in constituency of sellers or buyers and sometimes have a problem attracting enough buyers and sellers to attain financial viability


Third Party (Trading) Third Party (Trading) Exchanges Exchanges (cont.)(cont.)

A major problem is:A major problem is:Market liquidity:Market liquidity: The degree to The degree to which something can be bought or which something can be bought or sold in a marketplace without sold in a marketplace without affecting its priceaffecting its price





Buyer aggregation modelBuyer aggregation modelbuyers’ RFQs are aggregated and then linked to a pool of suppliers that are automatically notified of the RFQs

SuitabilitySuitabilityaggregation models work best with MROs and services that are well defined, that have stable prices, and where the supplier or buyer base is fragmented




Consortium Trading Consortium Trading ExchangesExchanges

Consortium trading exchange (CTE):Consortium trading exchange (CTE): An exchange formed and operated An exchange formed and operated by a group of major companies to by a group of major companies to provide industrywide transaction provide industrywide transaction servicesservicesThree basic types of environments:

1. Fragmented markets2. Seller-concentrated markets3. Buyer-concentrated markets


Consortium Trading Consortium Trading Exchanges Exchanges (cont.)(cont.)

CTEs, defined by two main criteria:whether they focus on buying or sellingwhether they are vertical or horizontal

4 types of CTEs1. Purchasing oriented, vertical2. Purchasing oriented, horizontal3. Selling oriented, vertical4. Selling oriented, horizontal



Purchasing-oriented consortiaPurchasing-oriented consortiaVertical Purchasing-Oriented CTEs

all the players are in the same industry

Horizontal Purchasing-Oriented CTEsowner-operators are large companies from different industries that unite for the purpose of improving the supply chain of MROs used by most industries



Selling-oriented consortiaSelling-oriented consortiaMost selling-oriented consortia are verticalParticipating sellers have thousands of potential buyers within a particular industry



Other issues for consortiaOther issues for consortiaLegal challenges for B2B consortia

level of collaboration among both competitors and business partnersantitrust and other competition laws must be considered



Critical success factors for consortiaAppropriate business and revenue modelsSize of the industryAbility to drive user adoptionElasticity

Elasticity:Elasticity: The measure of the incremental The measure of the incremental spending by buyers as a result of the spending by buyers as a result of the savings generated savings generated



Management of intensive information flowSmoothing of supply chain inefficienciesHarmonized shared objectives

Combining consortia and third-party exchanges

dot-consortia—large consortia + third-party ownercombination may bring about the advantage of both ownership and minimizing third-party limitations such as low liquidity


Dynamic Trading: Dynamic Trading: Matching and AuctionsMatching and Auctions

Dynamic trading:Dynamic trading: Exchange trading Exchange trading that occurs in situations when that occurs in situations when prices are being determined by prices are being determined by supply and demand (e.g., in supply and demand (e.g., in auctions)auctions)

MatchingMatchingsupply and demandquantity, delivery times, and locations


Dynamic Trading: Dynamic Trading: Matching and Auctions Matching and Auctions

(cont.)(cont.)AuctionsAuctions

Exchanges offer members the ability to conduct auctions or reverse auctions in private trading rooms

auction services as one of its many activitiesfully dedicated to auctions

Many-to-many public auctions—vertical, horizontal, run on the Internet or over private lines


Building E-MarketplacesBuilding E-Marketplaces

Building e-marketplaces is a complex process

usually performed by a major B2B software company

Commerce OneAribaOracleIBM


Building E-Marketplaces Building E-Marketplaces (cont.)(cont.)

Integration issueIntegration issueSeamless integration is needed between the third-party exchange and the participants’ front and back-office systemsIn private exchanges the seller’s computing system must be integrated with the customers systems



External communicationsExternal communicationsWeb/client accessData exchangeDirect application integrationShared procedures

Process and information coordination in integration

how to coordinate external communications with internal information systems



Use of Web services in integrationWeb Services enable different Web-based systems to communicate with each other using Internet-based protocols such as XML

System and information management in integration

management of software, hardware, and several information components, including partner-profile information, data and process definitions, communications and security settings, and users’ information


Support Services for Public Support Services for Public and Private Marketplacesand Private Marketplaces

Directory services and search Directory services and search enginesengines

Directory services help buyers and sellers manage the task of finding potential partners


Support Services for Public Support Services for Public and Private Marketplaces and Private Marketplaces

(cont.)(cont.)Partner relationship management Partner relationship management (PRM):(PRM): Business strategy that Business strategy that focuses on providing focuses on providing comprehensive quality service to comprehensive quality service to business partnersbusiness partnersE-communities and PRME-communities and PRM

B2B application needs to provide community services such as chat rooms, bulletin boards, and possibly personalized Web pages


Support Services for Public Support Services for Public and Private Marketplaces and Private Marketplaces

(cont.)(cont.)Integration (as per Keenan Report)Integration (as per Keenan Report)

Business-to-exchange (B2X) hubs connect all of the Internet business services

e-merchant servicesexchange infrastructurebuying and sellingmember enterprisesother B2X exchanges


Implementation IssuesImplementation Issues

Private vs. public exchangesPrivate vs. public exchangesPrivate exchanges:Private exchanges: E-marketplaces E-marketplaces that are owned and operated by one that are owned and operated by one company. Also known as company. Also known as company-company-centric marketplacescentric marketplaces


Implementation Issues Implementation Issues (cont.)(cont.)

Problems with private exchangesProblems with private exchangesTransaction fees—required to pay transaction fees with existing customersSharing information—do not want to share business data with competitorsCost savings—not great enough to attract buyersRecruiting suppliers—lose direct contact with customersToo many exchanges



Supply chain improversSupply chain improversCompanies want to streamline their internal supply chains, which requires integration with internal operations instead of “plugging in” to an exchange’s infrastructure

Major problem is trust in the large corporation running the exchange



Software agents in B2B Software agents in B2B enable customized syndication of content and services from multiple sources on the Internet to any device connected to the Internet

provide real-time, tighter integration between buyers and sellersfacilitate management of multiple trading partners and their transactions across multiple virtual industry exchanges


Example: AsiteExample: Asite

Asite’s B2B marketplace for the Asite’s B2B marketplace for the construction industryconstruction industry

B2B e-marketplace for the construction B2B e-marketplace for the construction industry in the United Kingdomindustry in the United Kingdom

This industry is typified by a high This industry is typified by a high degree of physical separation and degree of physical separation and fragmentation, and communication fragmentation, and communication among the members of the supply among the members of the supply chain is a primary problemchain is a primary problem


Asite Asite (cont.)(cont.)

Two of the major advantages of the Two of the major advantages of the Internet:Internet:

ability it provides to communicate more ability it provides to communicate more effectivelyeffectivelyincreased processing power made increased processing power made possible by Internet technologiespossible by Internet technologies

Asite decided not to build its own Asite decided not to build its own technology, but to establish technology, but to establish partnerships with technology vendors partnerships with technology vendors that have highly specialized productsthat have highly specialized products



Commerce One provides the business Commerce One provides the business solution for the portalsolution for the portal

Microsoft provides the technology Microsoft provides the technology platform and core applicationsplatform and core applications

Attenda is the designer and manager of Attenda is the designer and manager of the Internet infrastructurethe Internet infrastructure

Asite is committed to strong Asite is committed to strong partnerships that allow it to partnerships that allow it to seamlessly interact with other e-seamlessly interact with other e-marketplacesmarketplaces



Internet browser is all that is needed Internet browser is all that is needed to connect to Asite’s portalto connect to Asite’s portal

Ease of access makes it particularly Ease of access makes it particularly well suited to an industry such as well suited to an industry such as constructionconstruction

Construction firms streamline Construction firms streamline their supply chainstheir supply chains


Asite (cont.)Asite (cont.)


Managing ExchangesManaging Exchanges

Open standards mean that the Open standards mean that the technology can be incorporated technology can be incorporated easily with participating firms’ easily with participating firms’ back-end technologies, allowing back-end technologies, allowing full visibility of the supply and full visibility of the supply and demand chainsdemand chains


Managing Exchanges Managing Exchanges (cont.)(cont.)

Networks of exchanges (E2E)Large corporations may work with several exchanges, and they would like these exchanges to be connected in a seamless fashion

Commerce One and Ariba developed a strategy that allows them to plug a broad range of horizontal exchanges into their main networks





Centralized managementCentralized managementManaging exchanges and providing services to participants on an individual basis is expensiveBuild “families” of exchanges managed jointly in order to operate several exchanges from a unified, centralized place



Manages all of the exchanges’:CatalogsAuction placesDiscussion forums

Managing and centralizing:AccountingFinanceHuman resourcesIT services



Critical success factors for Critical success factors for exchanges according to exchanges according to Ramsdell:Ramsdell:

1. Early liquidity2. The right owners3. The right governance4. Openness5. A full range of services



Other CSF:Other CSF:Importance of domain expertiseTargeting inefficient industry processesTargeting the right industriesBrand buildingExploiting economies of scopeChoice of business/revenue modelsBlending content, community, and commerceManaging channel conflict



New directions in B2B marketplacesNew directions in B2B marketplacesEarly failures of exchanges Early failures of exchanges were due mainly to the failure of these marketplaces to foster a broad-based sharing of informationRecognize the fundamental asset provided by their member base is the unique knowledge of the industry



e-distributorsTake title to the goods they sellAggregate those goods for the convenience of buyersAdvise buyers which to chooseReach hard-to-find buyersResult in extra value for buyers and decent profits for sellers


Managerial IssuesManagerial Issues

1. Have we “done our homework”?2. Can we use the Internet?3. Which exchange to join?4. Will joining an exchange force

restructuring?5. Will we face channel conflicts?6. What are the benefits and risks

of joining an exchange?


SummarySummary

1. E-marketplaces and exchanges defined and the major types of exchanges.

2. Ownership and revenue models.3. B2B portals.4. Third-party exchanges.5. Consortia and e-procurement.6. Dynamic pricing and trading.

Documents

Chapter 7 Public B2B Exchanges and Portals. © Prentice Hall 20042 Learning Objectives 1.Define e-marketplaces and exchanges and describe their major types