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E-marketplaces 1. Paul R. Prabhaker

Published Online: 15 APR 2004

DOI: 10.1002/047148296X.tie057

Copyright © 2004 John Wiley & Sons, Inc.

Book Title

The Internet Encyclopedia

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Prabhaker, P. R. 2004. E-marketplaces. The Internet Encyclopedia.

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Illinois Institute of Technology

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1. Published Online: 15 APR 2004

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1. Introduction

Page 1 of 41Wiley Online Library: Book Article

11/30/2011http://onlinelibrary.wiley.com/doi/10.1002/047148296X.tie057/full

Gartner forecasts that the total value of goods and services transacted

through the Internet, by 2004, will exceed seven trillion dollars, with 40% of

transactions flowing through e-marketplaces. There are over 1400 e-

marketplaces currently in existence. According to the Boston Consulting

Group, total e-marketplace revenues in the U.S. will be around $9 billion by

2005, by 2004 B2B e-commerce productivity gains will amount to 1 to 2% of

sales, and by 2010 these gains could increase to 6%, roughly $1 trillion (E-

Commerce Times, 2001). The Gartner Group estimate supply-chain

marketplaces to grow 25-35% over the next 5 years. They also believe that

such marketplaces, if properly implemented, should increase ROI by 40%

over a 5-year planning cycle. AMR Research estimates that investments in

such e-marketplaces will increase at a compounded annual growth rate of

68% over the next 5 years. They also predict that traditional brick and

mortar companies will be the primary drivers behind this investment growth.

As business-to-business exchanges dominate today's e-marketplaces, this

chapter will predominantly focus on B2B e-marketplaces.

An e-marketplace is an online exchange in which organizations and their

communities come together to conduct commerce, access content, and

collaborate to improve business performance. An e-marketplace is an

Internet platform where users can surmount the barriers between countries,

businesses, and computer systems (White Paper, n.d.). Simply put, an e-

marketplace enables the law of supply and demand to act fully, increasing

market efficiencies significantly. The e-marketplace operator acts as an

enabler or, at times, a market maker. According to the Chairman and CEO

of IBM, Louis Gerstner, e-marketplaces can (a) help online buyers and

sellers find each other, (b) attack the inefficiencies of traditional

marketplaces, and (c) play important roles in the e-business economy.

Turban (2002) suggests that all marketplaces can be defined based on a

three-dimensional product–process–agent framework (see Figure 1). Using

this framework, it is useful to see the coexistence of electronic commerce



with traditional commerce and various forms of hybrid commerce.

The emergence of B2B e-marketplaces marks a radical change in the

development of buyer–supplier relationships. In just a few short years,

industry structures that had stood the test of decades of competition and

untold waves of innovation are being completely redefined. Some firms

have teamed up with former rivals and small new entrants, while eager third

parties have announced bold plans to mediate between buyers and

suppliers. In many cases, these crucial decisions were made and

announced in little more than a week, driven largely by a vision of what

could be and a fear of being late to the party. One thousand four hundred

such e-marketplaces have thus far been launched or announced. Although

some analysts predict that this number will climb to as high as 10,000,

others lament that 1,400 is already 1,000+ too many (Spiegel, 2000).

Whatever the final number, it is clear that competition to dominate the e-

marketplace sector is heating up, as attrition and consolidation are already

starting to occur in the B2B space. In the end, what matters is a firm grasp

of the key factors that drive the success and failure of e-marketplaces,

success being defined as creating value for e-marketplace members and

their stakeholders on the demand side and the supply side.

A marketplace is a physical space where buyers and sellers go in order to

match up with each other. This aggregation of buyers and sellers is

intended to efficiently match those who have needs for products/services

Figure 1. Integrated commerce framework.

1.1. The “E” Difference



with those who provide the same.

A critical study of the research literature reveals that bricks-and-mortar

marketplaces typically need to address five value-drivers if they wish to

succeed:

1.1.1. Location

There have to be a sufficient number of interested buyers and sellers

located within close proximity of the marketplace. Parties interested in

negotiating a market transaction need to physically go to the marketplace.

1.1.2. Scale

Transaction volume is a key indicator of success. As larger businesses buy

or sell more they are able to extract favorable concessions in a traditional

marketplace—volume discounts, better credit terms, etc.

1.1.3. Liquidity

For marketplaces to work successfully and profitably, there has to be a

defined ratio of buyers to sellers in order to sustain an optimal level of

transaction volume and pricing. Physical marketplaces, particularly, have

difficulty ensuring this requirement.

1.1.4. Market Rules

The rules regarding price setting, price discovery, negotiations, and

transactions should be implemented, taking into consideration the

transaction volume generated by a buyer/seller.

1.1.5. Business Relationships

Aside from business transactions, another type of equity is being built up in

marketplaces: business relationships. As buyers and sellers repeatedly

transact business in a marketplace, they become familiar with each other

and before long trust starts building up. That is, transactions are

consummated where the terms of the exchange go far beyond the



marketplace. The “I Win—You Lose” negotiations are replaced with a more

comfortable and harmonious win–win understanding.

One of the key differentiators of an e-marketplace from a bricks-and-mortar

marketplace is that the marketplace comes to the participants whereas with

the latter they go to the marketplace. A direct implication of this principle is

that three of the above five factors do not apply to digital marketplaces:

location, scale, and business relationships. Businesses can buy and sell

goods and services through an electronic marketplace regardless of

whether they are large or small companies, in near or distant locations, and

whether or not they have an existing relationship with the other parties. That

leaves us with two critical success factors for running an e-marketplace:

liquidity and market rules. A third success factor, exclusive to digital

marketplaces, is the ability to connect internal business processes directly

to an e-marketplace. Although this is a critical e-marketplace ability, it is

also a challenge in the sense that it needs to be addressed proactively.

Vertical e-marketplaces particularly leverage this capability to connect

directly.

E-marketplaces and traditional marketplaces perform many functions to

establish assurance and reliability. As is obviously the case, commerce, “e”

or not, is based on trust. Thus, it is crucial for e-marketplaces to embed trust

in their platform via concepts such as assurance and information integrity

(http://www.informationintergirty.ortg). They should also have carefully

thought out strategies for managing risks inherent in e-marketplaces.

Consider the industrial chemical industry. E-marketplaces have gained

quick acceptance in this industry, where 65% of business is conducted

through auctions on trade exchanges such as ChemConnect.com, e-

Chemicals, and CheMatch.com. E-marketplaces cut through the slow and

inefficient traditional system of sales visits and trade shows where business

is conducted based on long-term relationships between sales reps and

purchasers. Forrester expects $128 billion to flow through these chemical e-



marketplaces by 2003.

Forrester predicts that between 45 and 75% of B2B e-commerce will

migrate to e-marketplaces over the next few years. The largest impact will

be in the computing and electronics, shipping and warehousing, and utilities

industries, where Forrester predicts that more than 70% of online trade will

go through e-marketplaces. In time even markets for customized products

will drift to e-marketplaces. Given a sophisticated enough network, even

customized products can be auctioned like commodities.

E-marketplaces are sources of significant benefits for business

organizations (see Table 1). They are used to protect market shares, add

new channels, move brands online, and serve as a strategic entry point for

international markets and are ubiquitously accessible means to

communicate with employees (E-Marketplaces, n.d.).

Table 1. Benefits of E-marketplaces

1.2. Benefits of E-marketplaces



A key benefit of e-marketplaces is the ability to collect buyer information and

to leverage this information in the marketplace to secure an advantage.

Personalization can be of great value to consumers (Häubl & Trifts, 2000)

and can be used to influence them (Häubl & Murray, 2002).

E-marketplace users vary on many dimensions: different purposes, different

approaches, and different expectations. This concept is not very different

from traditional market segmentation. Customers' behavior does vary in

several ways, for several reasons. To the extent that firms can understand

Lower processing costs

Reduced processing cycle times

Lower product costs through

contract buying

Enhanced supplier relationships

with collaboration and supply

chain management

Greater access to new suppliers

Improved

Personalized

1.3. Types of E-marketplace Buyers



and leverage those differences in their marketing approaches, they can

benefit from marketing efficiencies. Although customers may differ on

numerous dimensions—demographics, psychographics, attitudes, loyalty,

etc.—it is their market behavior that ultimately matters. E-marketplace

buyers can be classified into the following behavioral segments:

1.3.1. Baseline Buyers

These buyers are just getting started in e-marketplace procurement. Their

initial objective is to reduce transaction costs associated with maintenance,

repair, and operations (MRO) purchases. On average, these buyers spend

$5.6 million on transaction fees, integration software, and internal staffing.

1.3.2. Spot Market Dabblers

These buyers use e-marketplaces to make spot purchases of direct

materials to help manage inventory and avoid shortfalls. On average, these

buyers spend $10.7 million on new software installation and related

consultant fees.

1.3.3. Aggressive Spenders

These buyers tend to use the Internet and other networks to manage all

their purchasing. On average, these buyers spend $22.9 million mainly on

consultant fees for implementing their e-marketplace approach.

According to Forrester Research, over the next 5 years, business

purchasers will spend from $5.4 to $22.9 billion each to integrate into

business-to-business e-marketplaces. Similarly, Jupiter predicted that

businesses would increase their spending on business-to-business e-

marketplaces from $2.6 billion in 2000 to $137.2 billion in 2005. According

to a Boston Consulting Group study, by 2004, B2B e-commerce will bring

about productivity gains equivalent to 1% to 2% of sales. By 2010, that

figure could grow to 6%.

2. Genesis of E-marketplaces



Early e-marketplace development was characterized by attempts to set up

exchange marketplaces, charging a transaction fee for matching buyers and

sellers (Berryman & Heck, 2001). More than 1,000 such e-marketplaces

were created for several industries. Most of the players in this phase were

new entrants that defined a new way doing business. Unfortunately, most of

these marketplaces failed to understand the lifeblood of such a

marketplace: liquidity. In other words, a few large enterprises generate most

of the volume necessary. The rest will struggle. Hence, the transaction-fee-

based marketplaces have languished.

The next developmental stage of e-marketplaces had a different business

model. Here, enterprises banded together into consortia with their trading

partners and even competitors. Most of the players in this phase were brick-

and-mortar companies that leverage from ideas in the first phase. A well-

known example of this is the GM/Ford/Chrysler joint venture called Covisint.

Since then over 100 similar ventures have been started in different

industries. The value driver for these second-wave marketplaces was to

reduce bid/ask spreads and to bring down transaction costs by matching

buyers with suppliers and enabling suppliers to trade with one another to

streamline and make efficient the supply-side marketplace. Unfortunately,

the consortia, generally speaking, have not been very successful. Other

than auctions, most other “products” in such consortia are not profitable.

Sourcing provides the single greatest opportunity to reduce costs,

streamline processes, and enhance overall responsiveness. It is one of the

earliest stages in a supply chain. There are three reasons that e-sourcing is

a crucial part of any supply chain. First, purchased products and services

2.1. Early Stages

2.2. E-sourcing



are the single largest expense in most organizations, accounting for 50 to

55 cents of every dollar earned in revenue. Second, reductions in

procurement costs translate into a dollar-for-dollar increase in profits. By

contrast, external factors such as overhead, cost of sale, and profit margins

dilute improvements in other functional areas such as sales. Third, sourcing

has a multiplicative effect on total costs. A 2% cost reduction in the initial

sourcing cycle can yield a 14% reduction in the end cost of a new product or

service

Effective sourcing has three dimensions along which investments in

sourcing can pay off:

Streamlining and automating processes for the acquisition and

management of indirect items such as office equipment and

computer supplies.

Developing, monitoring, and executing supply-chain and logistics

processes for management of direct production materials.

Designing, implementing, and nurturing the strategic aspects of

sourcing.

70 to 80% of the total cost, quality, and structure of products are determined

by the end of the sourcing and design cycles. Research across industries

shows that 75% of companies believe that their ability to control the cost or

quality of a product is practically nonexistent after the initial sourcing

process. In the high-tech industry, about 80% of product cost is determined

from and attributable to decisions made on the product designer's table. So

the information to evaluate strategic sourcing options (or pursue alternative

design considerations) is available well before actual sourcing is initiated.

There are different aspects to e-sourcing. Organizations can dramatically

improve the processes, cycles, and results of sourcing engagements by

leveraging Internet-based technologies to automate and manage the

sourcing process. However, sourcing is a complex process that technology



alone cannot address. Effective sourcing solutions are those that can

integrate advanced negotiation technologies with sourcing methodologies

and product-category intelligence and reach upstream into product design

stages.

In traditional sourcing, more than half the sourcing cycle at a typical

company is currently dedicated to identifying and vetting suppliers (see

Figure 2). Another 20% of the total sourcing cycle involves the screening,

sorting, and reviewing of supplier proposals. Traditional sourcing

approaches are fundamentally electronic data interchanges (EDI) intended

to automate a variety of related documentation. Unfortunately, EDI has high

set-up and operational costs and burdens that make it ill affordable to a

majority of players and lacks the functionality for online negotiation.

There are several benefits of e-sourcing:

Identifying, qualifying, and negotiating with an increased number of

suppliers, creating more competitive bidding environments;

Negotiating an average 5% to 20% unit price reduction;

Shortening sourcing cycles by an average of 25% to 30%;

Reducing time-to-market cycles by 10% to 15%;

Lowering process costs for sourcing engagements;

Improving quality levels for the goods and services being sourced;

Increasing access to technology and service innovations through

improved collaboration;

Applying strategic sourcing to a broader range of products and

services; and

Promoting knowledge-sharing and standardization of sourcing best

Figure 2. Typical sourcing cycle.



practices across the enterprise.

E-marketplaces have their roots in e-procurement and evolved as a

consistent response to the myopic “buy-side/sell-side” mentality (see Figure

3). The latter approach emphasized the efficiency of each side, sometimes

at the cost of inefficiencies on the other side. E-marketplaces revolutionize

the exchange concept of a market. A marketplace is not just a place to

execute an exchange transaction between two parties; it is a place where

multiple parties with an integrated set of goals follow commonly agreed-to

procedures, where the exchange transaction itself is an incidental matter.

The singular focus on transactions by early e-marketplaces brought

unsustainable success to them. Later entrants leveraged from the lessons

that emerged. The key here is the integrated, collaborative platform that the

marketplace provides. E-marketplaces, therefore, provide their value-add in

the platform of integrated market operations. The type of collaboration

encouraged in a properly run e-marketplace moves away from emphasizing

cost and delivery to innovation and reward. In other words, the market

partners do not try to eke out more concessions from each other but work

together to elevate the success of the entire supply chain (White Paper,

n.d.).

E-procurement enabled buyers and sellers to automate their interactions

and collaboration. Purchasing processes are linked to back-office enterprise

systems. As buyers and sellers integrated their functions, the supply chain

became more transparent. According to Logistics Magazine, e-procurement

can cut distribution costs below the typical 8% of sales. The Aberdeen

Group claims to have evidence that processing costs are reduced from

Figure 3. E-procurement to e-marketplaces.

2.3. E-procurement



$107 to $30 and product costs are reduced by from a minimum of 5% to a

maximum of 20%. At the same time, the procurement cycle can be trimmed

from typically 7.3 days to 2 days. Ariba, often regarded as the pioneer of e-

procurement software, advocates purchase order transaction cost reduction

from $150 to $25 for most large U.S. corporations.

Despite these impressive gains, it became increasingly clear that e-

procurement is only part of the solution, for two reasons. First, e-

procurement applications are more commonly applied to indirect goods—

such as office equipment, stationery supplies, and repair services—when

such goods account for less than one-third of manufacturing expenses.

Only a limited amount of items that a corporation has a need for can be

bought through an e-procurement channel. The challenge to e-procurement

vendors to extend their solution into the direct materials territory was

insurmountable in most cases, because such a shift required domain

expertise in the industries served. Second, e-procurement is a one-

buyer/one-seller model, whereas most companies do business with multiple

vendors and vice versa.

The many-to-many model was quickly accepted in the B2B world, as the

benefits were obvious: enabling more buyers and sellers to interact, making

it possible for multiple systems to connect, and eliminating the need to

implement multiple platforms to link multiple partners.

The many-to-many e-marketplace functions as a central online market

where buyers and sellers can share information, initiate transactions,

integrate supply-chain goals, and collaborate. The value of an e-

marketplace increases as the quantity and quality of its buyers and sellers

also increase.

Ultimately, e-marketplaces are not about transactions or collaboration; they

are about a platform of trust. Raisch (2001) suggests that e-marketplaces

will evolve beyond transactional platforms, and even beyond knowledge



exchange platforms, to value trust networks. Trust between parties, when

interlinked, forms a trust network. Such trust networks, it is suggested, could

become a critical platform for creating online value. Trust is a complex

construct, based on familiarity, integrity, security, and privacy (Prabhaker,

2000).

There are several e-marketplace successes, just as there are several e-

marketplace failures. Let us look at some e-marketplace cases to

understand their uniqueness and patterns for success.

A description of TradeWeb, paraphrased from their Web site, is as follows:

TradeWeb is the world's leading online trading network for fixed-income

securities. TradeWeb offers a complete spectrum of services. You can

view the largest fixed-income markets in real time via TradeWeb's premier

Market Data. You get unprecedented depth and breadth of information as

well as tight bid and offer indications. TradeWeb's dealer-to-customer

platform provides the deepest pool of liquidity for fixed-income products.

Today, the network delivers the market-making power of 18 of the world's

leading primary dealers to over 1,000 of the largest buyside institutions.

Since inception in 1998, more than $10 trillion in bond trades have been

executed over the TradeWeb network. More than $40 billion in securities

change hands through TradeWeb every business day. Get live,

executable prices from multiple dealers and markets in seconds.

TradeWeb is an online bond exchange. TradeWeb enables a bond buyer to

request quotes from multiple brokers simultaneously. Prices pop up in 10

seconds and are updated a million times a day (Weinberg, 2001). The fund

manager clicks on the most appealing offer and receives confirmation a

second later. Compare this online exchange process to the manual offline

process it is replacing: bond buyers had to call several brokers for prices,

3. E-marketplace Cases

3.1. TradeWeb



the brokers called their trading desks who relayed the information to the

brokers, and the brokers then passed the price information back to the

investors. The offline process often took so long that the prices quoted were

not current by the time the investors received them! The icing on the cake

here is that the cost of asking and receiving price quotes decreases

dramatically thanks to online exchanges.

What makes a TradeWeb type of online e-marketplace so effective?

One key seems to be that successful e-marketplaces limit themselves to the

role of an efficient online platform for buyers and sellers to collaborate

without trying to make a market by themselves. Those e-marketplaces that

tried to do the latter by creating disruptive Internet marketplaces generally

failed as they discovered that an essential requirement for such disruptive

business models to succeed was to garner buy-in from archrivals within an

industry. In other words, disruptive technologies need to be funded by top

players within an industry. On hindsight, it is easy to see why such

archrivals hesitated to feed their trade secrets into a common technology,

disruptive or not. As an example, consider Dial-A-Truck Inc., which is in the

business of electronically matching rigs with cargo. Rival sites with the

same business goal were unsuccessful, as they threatened to eliminate

brokers, who for decades had matched trucks with cargo. Dial-A-Truck

Services, on the other hand, gives truckers, customers, and brokers a quick

and easy way to pair up.

Can e-marketplaces succeed by being industry neutral? Yes, as long as

they can find a way to generate liquidity by leveraging their process

infrastructure. Thus, the second key seems to be the ability and willingness

of e-marketplaces to provide process improvement services. For instance,

Toys “R” Us uses amazon.com's infrastructure to sell toys online. Instead of

trying to put brick and mortar retailers out of business, amazon.com may be

better off using their online process infrastructure to serve as the retailers'

Web distributor.



A single point of connectivity. The leading global e-marketplace for the

consumer packaged goods industry, Transora offers an integrated array of

collaborative solutions to eliminate inefficiencies throughout the supply

chain to deliver breakthrough value.

Transora is an e-marketplace for consumer packaged goods (CPG)

companies. It is a successful example of a public marketplace funded by

specific partner organizations. In the case of Transora, investors include

Campbell Soup Company, Bristol-Myers Squibb, Kraft Foods, Procter &

Gamble, Coca-Cola, and Unilever. Funding from partner companies has

exceeded $250 million. Such a financial tie-in with an e-marketplace creates

a strong incentive to use the e-marketplace often. Transora has used the

money raised to make their marketplace more valuable by adding

community, content, marketing tools, and supply-chain services.

ChemConnect is the leading online chemical and plastics global

marketplace. Their mission, paraphrased from their Web site, is as follows:

We know your industry and the challenges you face when buying and

selling chemicals and plastics, and we've developed solutions to meet

those challenges. Now you can access reliable market information, reduce

costs, and increase efficiencies—all of which helps you compete on the

worldwide market.

Two giant online exchanges in the chemical industry, ChemConnect and

CheMatch, have merged, resulting in a one-stop, $4+ billion chemicals and

plastics e-marketplace (Harreld, 2002). The new ChemConnect offers a

comprehensive solution including online auctions, a commodity spot and

futures exchange, and an electronics communication hub for the automatic

3.2. Transora

3.3. ChemConnect



transfer of transaction data. ChemConnect has successfully launched a

subscription-based revenue model in addition to transaction fees.

FreeMarkets' mission, paraphrased from their Web site, is as follows:

FreeMarkets is the leading global provider of sourcing software and

service solutions. Our sourcing software and service solutions help

suppliers to win new business and buying organizations to dramatically

improve their sourcing process and identify immediate and ongoing

savings. Our flexible portfolio of sourcing software and service solutions

provide companies with all of the tools they need to dramatically improve

their sourcing process and identify fast, measurable savings by conducting

strategic sourcing online. Through our sourcing software and service

solutions, organizations can identify high-quality, global suppliers, create

and distribute detailed Requests for Quotation (RFQ), and structure and

execute effective online markets for a wide range of goods and services.

The world's leading and largest companies have used FreeMarkets to

source more than $35 billion in goods and services, and identify savings of

over $7 billion to date

The revenue model for FreeMarkets is simple: 1% to 3% of the value of

what clients source. Ultimately, FreeMarkets lets customers decide how to

use its technology, either in public auctions or in private auctions. Then it

implants itself deep into a client's infrastructure to make it work.

FreeMarkets charges buyers based on volume. FreeMarkets' revenue

model is based primarily on auction value and consulting services. The

auctions are private or public for new, used, or surplus goods. The

consulting services are for identifying the buying or auctioning needs of

clients. Businesses will want to study the pricing models carefully: what

works for one industry may not work for another.

3.4. FreeMarkets

3.5. Covisint



Covisint is the central hub where OEMs and Suppliers of all sizes come

together to do business in a single business environment using the same

tools and user interface. Covisint's online tools will enable your company to

compress planning cycles and enhance supply chain planning. In doing

this, it allows you to directly increase efficiency and asset utilization, while

ultimately realizing greater profits and shareholder valuations.

Covisint is one of the most famous examples of a public e-marketplace. The

intention is to create a supply chain management arena for the entire auto

industry, worldwide. Their trading partners include

ArvinMeritor

DaimlerChrysler

Delphi

Faurecia

Ford Supplier Portal

Freudenberg

General Motors

JCI

Nissan

Peugeot

Renault (“Covisint will save (Renault) $280 per car in reduced

inventories and faster lead times”—Renault CEO Louis Schweitzer)

Siemens Automotive

Tower Automotive

Yazaki NA

The ambitions, however, may or may not be realized. Different automakers,

such as Volkswagen and BMW, are choosing to create private e-

marketplaces. Covisint has been a classic case study of the economic

benefits of a large-scale public marketplace vs. the downside of consortium

limitations of such a marketplace. Thus, a large industrial marketplace may

not be assured of success over a company's customized private



marketplace.

PetrochemNext.com is an online gateway to the world of plastics. The

exchange is designed to answer the commerce, content, and community

needs of manufacturers, consumers, end-users, distributors, dealers, and

others—in short, people whose world revolves around plastics. The portal

enables users to buy and sell plastics online in the real-time and dynamic

marketplace, access updated technical and commercial information about

plastics, and interact with members of the plastics community.

3.6.1. Corporate Profile

Internet ExchangeNext.com Ltd. and the Indian plastics community

collectively own PetrochemNext with a strong partnership base and equity

participation by leading manufacturers, distributors, dealers, and

processors.

PetrochemNext has partnered with five leading manufacturers for an ample

supply of polyethylene, polypropylene, PVC, polystyrene, polyamides, ABS,

and thermoplastic polyester through the online marketplace.

Internet ExchangeNext.com Limited (EXCHANGE NEXT) is established to

help e-enable the businesses in the Indian manufacturing and services

sectors. EXCHANGENEXT is currently setting up infrastructure for end-to-

end, e-commerce solutions in the business-to-business arena. The

company also hosts and supports other Indian e-marketplaces such as

papernext.com, steelnext.com, brokerfirstoffice.com, and brokernext

office.com.

The exchange was developed by Internextexchange. com with hardware

and e-commerce support from IBM, Web hosting by Reliance Infocom,

online payment gateway and net banking with HDFC Bank, and customized

3.6. E-marketplace Case Analysis: PetrochemNext.com



software for order management system from Tally.

3.6.2. Activities:

PetrochemNext follows an offline accreditation process to select its trading

members, who can trade on multiple trading floors in the online

marketplace. The trading floors offered currently are as follows:

Offer To Sell. In the Offer to Sell section of the marketplace, sellers can

create sale offers of specific products at fixed prices with well-defined

terms and conditions targeted at the trading community. The products

can be catalog products if they are already listed in the marketplace

catalog or noncatalog products if not listed. The seller organization can

benefit from the combined purchasing power of multiple buyers across

the country, receive direct orders placed through this mechanism, and

ensure that complete and accurate data are available to the buyers,

thereby maximizing sales.

Buy. In the Buy section of the marketplace, buyers can easily and

quickly locate sellers by searching through offers, communicate with

sellers, make informed purchase decisions, and create purchase

orders. This electronic purchasing solution is the fastest and most

effective way of doing business online, saving time and money.

Auctions. Sellers can create Auctions in the marketplace by specifying

the type of auction, the minimum auction quantity, reserve price for the

product, if any, and other bid control rules. The buyers can browse

through the auctions listed, bid in the auctions, and avail themselves of

the best bargains in the market.

Open Cry Auctions. This type of auction is similar to the public meeting

model. All bids under an open cry auction are available for everyone to

see. These auctions work well in situations where the prospective

buyers are able to bid in the auction without traversing a geographical

distance and want to submit counter bids quickly. On PetrochemNext,

however, open cry auctions can be conducted for an extended period



of time, giving buyers more time to react and submit bids. Anonymity is

maintained throughout the auction.

Reverse Auctions. Buyers can create Reverse Auctions in the

marketplace by specifying the type of auction, the minimum auction

quantity, the opening bid price and starting price for the product, if any,

and other bid control rules. The buyers can browse through the

auctions listed, bid in the auctions, and avail themselves of the best

bargains in the market.

Reverse Open Cry Auction. This type of auction is similar to the public

meeting model. All bids under an open cry auction are available for

everyone to see. These auctions work well in situations where the

prospective sellers are able to bid in the auction without traversing a

geographical distance and want to submit counter bids quickly. On

PetrochemNext.com, however, open cry auctions can be conducted for

an extended period of time, giving sellers more time to react and submit

bids. Anonymity is maintained throughout the auction.

3.6.3. Revenue Model

3.6.3.1. Transaction Fees

The buyer organization that requests an e-procurement auction is charged a

transaction fee of 1% of auction value or Rs.10,000 per auction [about

$200], whichever is higher. This covers hosting the e-procurement auction

on the buyer's behalf, training his or her invited suppliers for participation in

each reverse auction event, providing him or her with a view of the live

auction status, and finally sending him or her an analysis at the end of the

auction.

The participating suppliers are not charged a fee.

3.6.3.2. Advertisement

PetrochemNext.com also accepts advertisements on the Web site.

Advertisers can currently display time-based advertisements of their



products and/or services on PetrochemNext.com in the following sections:

Discussion Forum

Technical Support

Yellow Pages

Classifieds

My Forum

Product Guide

News and Events

Markets are about power; the most powerful customers set the terms of

trade. Powerful buyers can moderate the pace of the market and drive down

prices. The marketplaces can facilitate this. Some marketplace make

collaboration easier and allow suppliers to demonstrate their value-added.

E-marketplaces can support both competitive and collaborative activities. E-

marketplaces also increase market visibility, making poor performance

visible—transparency.

Given the above, there are specific rules that need to be considered in

identifying characteristics of successful e-marketplaces. First, markets will

only support one to three e-marketplaces within any given industry

segment. Second, e-marketplaces will need to bridge the gap between

falling transaction fees and rising demand for collaborative services. Third,

unfortunately, collaborative services, such as supply-chain forecasting and

demand planning tools, are difficult and expensive to implement. Fourth,

sellers particularly will be looking for ways to ensure that e-marketplaces do

not commoditize their products.

Careful examination of successful e-marketplaces reveals the following

common characteristics:

1. Liquidity: Large aggregation of buyers and suppliers with

4. Characteristics of Successful E-marketplaces



multiple static and dynamic pricing mechanisms

2. Transparency

3. Customized transactions

4. Collaboration

5. End-to-end functionality: Catalog, price discovery (auction,

fixed, quote, negotiated), requisition, ordering, status,

shipment, insurance, logistics, tax computation, bill

presentment, bill payment, report, and reconciliation

6. Open technology standards: For implementation of the

marketplace itself; especially standard technology and open

interfaces for integration with systems of other parties (buyers,

suppliers, banks, logistics, escrow, catalog/content providers,

etc).

All six characteristics have a direct bearing on market efficiencies. For

example, greater price transparency will lead to a lower price via increased

efficiencies in processing price information. However, more efficient

integration between buyers and sellers will require collaboration and open

technology standards. Similarly, customized transactions provide a value of

their own.

So what sets the successful e-marketplaces apart from those that are not?

The extent to which they leverage the above characteristics. These

characteristics in reality define the market space for e-marketplaces (see

Figure 4).

E-marketplaces have been largely buyer-incentivized and buyer-driven. In

that sense they polarize the model of a marketplace. The value proposition

of e-marketplaces to suppliers has so far been weak. True e-marketplaces

Figure 4. E-marketplace space.



should go beyond merely squeezing suppliers' prices to reducing costs and

assets for all participants in the supply chain. Successful e-marketplaces

need to embrace a business model that calls for going beyond simplistic

transaction-only trading networks to providing a collaborative environment

linking multiple trading networks, individual buyers, suppliers, and service

providers.

Successful e-marketplaces generally exhibit a key capability to deal with

known e-marketplace pitfalls, such as the following:

E-marketplaces that fail to deliver a balance of benefits to suppliers

and buyers will find it difficult to generate the threshold liquidity to

survive.

E-marketplaces that do not contribute to an enhanced relationship

between business partners will not deliver enduring value.

E-marketplace implementations that are based on closed or

proprietary architecture limit a company's ability to link with other

participants, thus reducing the overall capabilities it can provide

and value it can deliver.

E-marketplace fraud is a key issue. Auction fraud accounts for

nearly 43 % of all online fraud. Nondeliverable merchandise and

nonpayment accounted for 20.3% of complaints and Nigerian letter

fraud made up nearly 15.5% of complaints. More than 49,000

complaints were filed with the Internet Fraud Complaint Center in

2001.

Based on research on the prevailing business models, ownership

structures, marketing tactics, service offerings, and strategic positions in the

e-marketplace arena, we can define a set of guiding principles to help e-

marketplaces and their participants develop successful B2B strategies.

First, e-marketplaces are all about industry transformation and collaboration

4.1. E-marketplace Guiding Principles



across the value chain and extended enterprise. Second, as a follow-up,

lower product prices get attention but are not where the real value lies.

Third, e-marketplaces must deliver value to the core businesses of member

organizations. Without delivering core value to all participants (win-win for

all), the e-marketplace will ultimately lose. Fourth, e-marketplaces replace

inventory with information. Integration and technology “plumbing” will help

deliver the value promised by e-marketplaces. Without appropriate

technology foundations, e-marketplaces will never be able to replace

inventory with information. Fifth, the capabilities required to operate and use

e-marketplaces require implementation and integration of many technology

components across a variety of business processes and functions. This

means multiple technology vendors integrated with people and processes.

Finally, each company will need to leverage multiple e-marketplaces of

different types and will need to participate in other forms of B2B. This will

allow companies to maximize benefits across the goods they purchase,

processes, and geographies.

Based on the above principles, there are five critical principles that e-

marketplaces and participant companies can use to help guide their

strategies and tactics:

Operating Structure and Ownership Long-term success will

require that e-marketplaces attract and retain a critical mass of

transactions. This will require that the e-marketplace offer value

and a level playing field to all participants. Third-party e-

marketplaces offer participants a neutral trade environment.

However, in industries where power is concentrated in the hands

of large brick-and-mortar organizations, brick-and-mortar-led

consortia may have the market-making power to reach critical

mass and beat neutral third parties. For brick-and-mortar consortia

to succeed, new mechanisms will be needed to guarantee a fair

environment to all participants.



Governance Long-term success will hinge on how well

governance structures can guide and regulate e-marketplace

management—balancing the interests of shareholders, members,

and outside interests (e.g., the U.S. Federal Trade Commission

[FTC]).

Scale The e-marketplace will only succeed if it can maintain

transaction volumes that satisfy scale considerations for buyers,

suppliers, and intermediaries alike. It must provide buyers with

leverage, geographic coverage, and, in some cases, a broad array

of available products. It must provide sellers with sufficient

economic scale to offset the resources invested and intermediaries

with sufficient reason to play.

Regulatory Compliance The e-marketplace must walk the fine

line of maximizing benefits and leverage to its members and

owners without attracting FTC scrutiny that would hobble

implementation efforts.

Technology Enabling capabilities beyond simple transaction

matching requires that the buyers, the sellers, and the e-

marketplace itself build robust, interconnected systems that span a

number of processes, systems, enterprises, and industries. E-

marketplaces that support deep integration with their members and

can help their members implement and integrate technology will

have a competitive advantage, and will become “sticky.”

These five principles can help companies looking for guidance in e-

marketplace selection separate the eventual winners from the inevitable

losers. It is important to note, however, that each e-marketplace is a fragile

ecosystem—made up of buyers, sellers, and various intermediaries. As

such, the success of each e-marketplace is dependent on the success of

each of its participants.

5. Taxonomy of E-marketplaces



E-marketplaces may be classified based on their market-sector coverage,

vertical or horizontal. They can also be classified by who has access to their

services, private parties or the public. Thus, vertical e-marketplaces may be

public or private, and so may horizontal ones.

Vertical e-marketplaces strive to provide a particular market sector with a

network platform for an automated, Internet-based transaction model for

made-to-order products.

Advantages for participants include

Better supply-chain management,

Online strategic sourcing,

Reduced costs,

Enhanced vendor relationships, and

Improved inventory management of raw and finished goods.

5.1.1. Examples

Covisint (Automobile industry)

WorldWide Retail Exchange (WWRE) (Retail industry)

GlobalNet (GNX) (Retail industry)

Transora (Consumer Packaged Goods [CPG] industry)

Horizontal e-marketplaces strive to provide customers with a generic

platform for pan-industry products and value-added services.

There are several products and services that are essential for the efficient

production and delivery of goods across industries. Examples of such pan-

5.1. Vertical E-marketplace

5.2. Horizontal E-marketplace



industry products would range from stationery products to logistics services,

payment services, etc. Example: Ariba for MRO products.

Private e-marketplaces strive to provide benefits for specific supply-

chains/consortia/enterprises.

These e-marketplaces include e-procurement and e-distribution modules.

They enable the consortia/enterprises to deliver the right products in the

right quantity to the right customer at the right time. To that extent private

marketplaces need to be treated as separate e-businesses by the

participants: that is, the participants need to invest, nurture, and grow these

as though they were in-house business units.

Public e-marketplaces strive to provide benefits for any and all interested

enterprises/supply-chains/consortia.

Public e-marketplaces are stand-alone marketplaces that are distinct profit-

making entities. Their business models revolve around their ability to

leverage online technologies in delivering value to buyers and sellers in

their exchange transactions, processes, and collaborations.

Another way to classify e-marketplaces is to look at their functions:

5.4.1. Procurement Marketplaces

Aggregate suppliers and allow customers to search/compare offerings of

different vendors (e.g., bCentral's Buy & Sell page).

5.4.2. RFQ/RFP Matchmaking

Here, buyers submit their need specifications through a request for quote

(RFQ) or request for proposal (RFP); interested vendors then submit a

5.3. Private E-marketplace

5.4. Public E-marketplace



quote/proposal for the work.

5.4.3. Auctions

These are demand-based exchanges allowing buyers to bid against each

other for items offered. The final selling price is usually determined by the

highest bid received for the item.

5.4.4. Barter Exchanges

These are e-marketplaces where businesses trade their products and

services. No money exchanges hands.

5.4.5. Trading Networks

Trading networks, or trade exchanges, are a basic type of e-marketplace

focused on reducing purchasing costs. A unique characteristic of trade

exchanges is the bid/ask pricing mechanism. They are designed to squeeze

procurement benefits from processes and trading partners.

5.4.6. Hybrid E-marketplaces

Hybrid e-marketplaces are an integrated, customized solution for

enterprises that need the efficiency of e-marketplaces and would also like

an enhanced brand-building customer experience.

5.4.7. Benefits of Hybrid E-marketplaces

Protect premium brand Achieved by controlling what products

are sold through private and public exchanges and dictating the

business rules for each type of transaction

Increase market share The ability to differentiate between public

e-marketplace customers and private exchange customers

enables effective market segmentation. A carefully implemented

segmentation strategy will usually result in an increase in market

share.

Increase revenue Reaching more customers with more



personalized offerings results in an increase in revenue and profits.

Reduce system costs A single integrated interface for channel

management and personalization reduces administrative costs

E-marketplaces generally add value along multiple dimensions. First, they

leverage network effects. Essentially, more connections mean more value,

and better connections mean more value. The value creation domain here

is based on inter-firm relationships. Consumer information that was

maintained by companies with their own computers now resides in giant

databanks accessed by globally networked computers (Kakalik & Wright,

1996). Second, e-marketplaces create and deliver value-add services.

Successful e-marketplaces present more than transaction services; they

also provide business services that complement transactions. For instance,

firms combine data from their warranty-card databases with credit-bureau

files to dramatically improve their insights into consumers' lifestyles (Scott &

Shermach, 1998). Services such as credit services, payment services,

taxation, shipping, and documentation would be such value-add services.

More importantly, e-marketplaces consolidate all these business services

into one site so buyers and sellers can use a single site for transactions and

all business services they require. Third, they provide a collaborative

infrastructure capability. As e-marketplaces evolve, many back-office

applications migrate to the Web site. Organizations transfer responsibility

for processes, such as business intelligence, product planning, and

promotional activities, to the e-marketplace. By moving this workload to the

e-marketplace organizations are better able to collaborate with their sellers

and buyers, jointly managing their shared supply chains across multiple

platforms without the need to implement additional applications. Finally,

time saving and reduction of inventory-carrying costs are the greatest

benefits of digital marketplaces. Online auctions, a form of e-marketplace,

have cut down procurement time from about 2 months to a matter of hours

6. Value-Add Dimensions of E-marketplaces



for Sprint. Process efficiencies are improved both outbound and inbound. In

its first reverse auction, Sprint received 250 bids in the very first hour! Such

gains, however, come only for those prepared to capitalize on them. For

instance, companies need to be able to link data generated online with

back-office systems such as purchasing, inventory, and accounting.

Otherwise, information must be updated and entered again, eliminating any

gains form digital marketplaces.

Clearly, improved collaborative communications is a key, as it results in

better market efficiencies. What is Web-based collaboration? It is more than

just managing inventories and maintaining communications; it is a Web-

centric relationship management system characterized by multiple network

computing systems and communities of people. See Figure 5.

A different perspective on e-marketplace value-add is seen if we look at

different levels of value rather than different recipients of value. Electronic

marketplaces result in certain direct value-adds that are denoted first-order.

If managed properly, these value-adds should lead to measurable results

that are second-order benefits. Beyond this, if the value-adds are combined

with other capabilities they can result in competitive advantages, which are

called third-order benefits.

First-order benefits:

Figure 5. E-marketplace value-add space.

6.1. E-marketplaces Add Value to Supply Chains Along Three

Dimensions

6.2. E-marketplace Benefits



Improved supply-chain visibility,

Reduced inventory costs,

Reduced procurement costs,

Improved order and approval processes,

Reduced transaction costs, and

Relationship management [or perhaps this should be in second

order].

Second-order benefits:

Improved asset utilization,

Better capacity planning and utilization,

Higher labor productivity,

Increased economies of scale,

Decrease in product development times,

Increased market share,

Higher profitability, and

Reduced time to market.

Third-order benefits:

Higher service levels,

Easier product customization,

Increased customer loyalty, and

Lower marketing costs.

E-marketplaces are realizing that they need to offer more than efficient

commerce capabilities to succeed in the tough competitive environment:

they need to offer genuine value through those capabilities. Additionally,

these values have to be realized from the perspective of all participants, not

just buyers. Horizontal capabilities include personalization, communities of

interest, portal capabilities, and the capability to handle RFQs and RFPs.



The value in these capabilities is not just transaction support but also the

ability to embed the role of e-marketplaces more deeply in the trading

partners' relationships with each other. Vertical capabilities, on the other

hand, include add-on services that let the marketplace control the end-to-

end trading cycle. Such services focus on settlement, fulfillment, and returns

processing. Companies in specific industries, such as banking, financial

services, insurance, and shipping, all have a vested interest in getting their

piece of e-marketplace trade.

For instance, consider settlement services:

E-marketplaces need credit validation services to verify that buyers have

sufficient funds available to back their purchases. Also, in certain cases

there is a need to create escrow accounts to hold goods until funds are

actually received.

Trading partners need lines of credit for operating capital and to expand

their businesses. E-marketplaces could extend lines of credit to buyers in

order to settle the buyers' accounts while charging the buyers interest or

fees. Timely settlement for a fee!

Consider fulfillment and returns processing services:

Many low-tech trading partners do not have the infrastructures needed to

handle these functions. E-marketplaces can take on more responsibility for

delivery and returns. Insurance can also play a role here.

Invoicing, bill presentation, and payment are key services for marketplaces.

As buyers and sellers use a marketplace for trade, it is logical that they use

the same marketplace as a conduit for these services.

Key: the vertical services apply not just to new marketplace entrants but

also to brick-and-mortar companies that are adding e-marketplaces to

expand their businesses. The challenge for any marketplace is in integrating

all of these services into its offerings.



E-marketplaces are powerful vehicles to achieve a competitive advantage in

today's fiercely competitive industry sectors. Unfortunately, many e-

marketplaces have missed the point. The focus, incorrectly, is on

transactional efficiency, instead of on improving business processes to

unlock additional value. E-marketplace-enabled information sharing and

collaboration are the keys to this value. Also, effective e-marketplaces

recognize that individual managers and individual companies make buy/sell

decisions, not entire industries. Thus, attempting to transform the

procurement practices of entire industries utilizing e-marketplaces generally

is not successful.

Electronic marketplace exchanges are here to stay because they make

great business sense (Oliver, 2001). Based on sensible business models, e-

marketplaces can add game-breaking capabilities to a firm's competitive

arsenal. Both vendor and customer firms stand to benefit from good e-

marketplaces. Misused, such e-marketplaces can put the same vendors

and customer firms in a deep competitive hole. This makes a strong case

for carefully harnessing the power of e-marketplaces.

It is important to bear in mind the foundational aspect of e-marketplaces:

those that are able to create a network effect—delivering greater value as

increasing numbers of participants join and collaborate online—will outlast

others.

Gains that result from increased transactional efficiency alone will not be

sufficient to convert buyers and sellers to buy into the concept of e-

marketplace. True gains from marketplaces will result not from trading but

from better access to information. In other words, collaboration based on

7. Conclusion

8. Future Aspects of E-marketplaces



sharing of information over the Web seems to be the real value of e-

marketplaces. For example, supply and demand forecasts, inventory level

reports, and effect of price on demand are some ways to leverage

collaboration on line.

Also, based on the same hindsight, it is possible to arrive at some key

conclusions. The e-marketplace field is enormous and continually

expanding. Many players will appear but many more will disappear, as

value-creation and industry transformation become the central focus of e-

marketplaces. The first conclusion is that fewer, larger e-marketplaces will

be required to realize significant value.

The multi-trillion-dollar projections from a variety of industry analysts

indicate that B2B is just beginning to hit its stride. E-marketplaces and B2B

participants should adopt a strategic, long-term view. E-marketplaces are an

outcome of the interest in jointly managed supply chains, resulting in greater

service integration and more collaboration. The second conclusion,

therefore, is that, increasingly, competition is between supply chains rather

than between corporations. Guly (1998) suggests that this new economy

has new rules. In the traditional economy value typically was a result of

scarcity, whereas in the new digital economy value comes from plenitude.

This important observation points to the foundation for business strategies

of the future. Managing supply and demand for products is not as important

as managing networked relationships of products, probably owned by

different companies.

Operational efficiency is the primary driver for e-marketplace development.

Hence, the third conclusions is that companies must wrap a business

process around the initiative rather than adopting it as a technology, or the

initiative will not be successful. One of the most enduring lessons from the

rise and fall of dot-com mania is that the rules of business have not

changed much at all. Initially, the corporate motivation for participating in e-

marketplaces will be to save money. However, as a final conclusion,



corporations should treat their participation in e-marketplaces as a strategic

asset and suppliers must prepare themselves for new rules in these

dynamic marketplaces.

Should we “e” our marketplace? Although e-marketplaces have significant

benefits, not all companies are endowed with the market/organizational

environment to reap the full rewards e-marketplaces. Here is a quick and

easy way to compute an (index) of e-marketplace orientation:

Score the business on a scale of 1 to 5 on each of the following items:

Target Customer: Who Are the Customers?

E-marketplaces can be designed to cater to business-to-business,

business-to-customer, business-to-consumer, or a variety of hybrid models.

Consumer-based goods and services tend to be sold directly through the

Web, rather than through e-marketplaces. Auction sites are obvious

exceptions.

[1 = individual consumers; 2 = consumer groups; 3 = individual customers

(resellers); 4 = business customers (resellers); 5 = business customers

(value-add resellers)]

Market Coverage: Where Are the Customers?

The more homogenous and local the market, the better brick-and-mortar

marketplaces work. The more fragmented and distant the market, the better

e-marketplaces work.

[1 = local + homogenous clusters; 2 = local + fragmented market; 3 =

regional/national + fragmented market; 4 = distant/international +

homogenous clusters; 5 = distant/international + fragmented markets]

Appendix: E-marketplace Assessment Tools

E-marketplace Orientation Index



Buying Process: How Do the Customers Buy?

The more customers are accustomed to using technologies in their buying

process the more natural the fit with e-marketplaces.

[1 = see actual product + buy onsite; 2 = see actual product + buy through

telephone/fax; 3 = catalog purchases; 4 = shop offline+ buy online; 5 = shop

and buy online]

Market Growth Trend: Is the Market Expected to Grow?

The adaptation to an online marketplace can be stressful on existing

business practices and processes. At best, an online marketplace will add,

requiring more human and financial resources. This extra resource demand

makes sense if the market is in a growth mode.

[1 = declining market; 2 = flat market; 3 = slow growth; 4 = stable growth; 5

= fast growing market]

Organizational Stress: Cost of Adapting to E-marketplaces?

Many other business functions will be affected—not just those that reap the

immediate reward of e-marketplaces. Given this situation, it is important to

evaluate the cost of the organizational stress generated by participating in

e-marketplaces.

[1 = internal stress nearly impossible to deal with; 2 = very difficult in the

short term; 3 = can find a way to adapt; 4 = pretty easy; 5 = no stress due to

e-marketplaces]

Disintermediation Reactions to E-marketplaces by

Vendors/Suppliers?

The impact of e-marketplaces on existing business relationships with

vendors/suppliers/customers/business partners can be painful; this would

call for an adjustment not just internal to the firm but also by external

parties. How these external parties choose to adapt to the realities of e-



marketplaces can either make or break participation in such online

marketplaces.

[1 = existing vendor relationships cannot be changed; 2 = existing vendor

relationships can be changed at great cost; 3 = mandated change; 4 = fairly

easy as vendors see long-term benefits; 5 = vendors share in e-

marketplace gains]

Interpreting the E-marketplace Orientation Index Score

A score of 1 through 10: E-marketplaces are not a natural fit.

A score of 11 through 20: Will realize e-marketplace gains in the

long run.

A score of 21 through 30: E-marketplaces are a natural fit.

Implement immediately.

Which e-marketplace is the right one for a business? Address the following

five questions to systematically define the ideal e-marketplace for a given

business's needs and circumstances:

What Types of Businesses Participate in the E-marketplace?

Check out the neighborhood. What companies participate? What types of

items do they sell? How successfully? How many buyers? First-time/repeat

customers?

How Do Customers Buy?

Some e-marketplaces just connect buyers and sellers; others offer all sorts

of support services and manage the entire exchange process. What do the

customers in this exchange expect?

What Will It Cost?

E-marketplace Screening Grid



Fee structures and add-on charges for e-marketplace participation vary

substantially. What is the breakdown of costs?

How Are the E-marketplace Vendors and Customers Evaluated

in a Particular Exchange?

What vendor screening criteria does the site use? What customer credit risk

evaluation criteria does the site use? Are these criteria consistent with the

business philosophy?

Who Controls the Presentation of Products on the Exchange?

e-marketplaces have their own policies and standards on product

presentations. Ideally, the company should retain maximum control over

presentation of its products.

How do we estimate the value-add of an e-marketplace to our business?

Score the e-marketplace on the following criteria (Microsoft bCentral) to

evaluate an exchange's capabilities and offerings.

Easy Product Updates

E-marketplaces should make it easy to update product catalogs, implement

special promotions, discounts, etc.

Back-End Integration

E-marketplaces that can be integrated into back-office functions

(accounting, inventory, etc.) can reduce costs and improve efficiency.

Reports

Versatility in reporting options provides a significant advantage in forming

marketing and sales strategies. Such reports allow useful information—e.g.,

location of best customers, buying habits of different customers, identifying

product bestsellers—to be gathered and sent to the right person at the right

E-marketplace Evaluative Framework



time.

Transaction Support:

What level of support does the exchange offer? Credit card payment,

shipping options? Customers are increasingly expecting such transaction

support services.

Glossary

A traditional marketplace where the buyers and sellers meet to do

business.

Selling products or providing services to other businesses.

An association or a combination of businesses, financial institutions, or

investors for the purpose of engaging in a joint venture.

An on-line exchange in which organizations and their communities

come together to conduct commerce, access content, and collaborate

to improve business performance.

Procurement through fully automated, Internet-based self service

systems that streamline the transactional purchasing process between

the buying organization and its suppliers.

Strategic sourcing using Internet tools.

The transfer of data between different entities using electronic

networks, such as the Internet. This transfer can occur both within and

between organizational entities.

Brick-and-mortar marketplace

B2B (business-to-business)

Consortium

E-marketplace

E-procurement

E-sourcing

EDI (electronic data interchange)

Fragmentation



A market condition characterized by many uncoordinated buyers or

suppliers. Fragmented markets are inefficient and costly to reach.

Fragmentation also exists within large purchasing organizations when

procurements are made in smaller, uncoordinated batches, resulting in

higher prices.

A company that purchases products or other complex components,

often for specific applications, from vendors and then adds original

technology, hardware or software, and sells the aggregated

products/systems.

An invitation for suppliers to bid on clearly specified products or

services. Exchange technology can combine multiple RFQs to produce

lower bids and increase sales efficiency.

The income that an investment provides in a year.

A disciplined approach used to optimize sourcing decisions for goods

and services.

The total sequence of business processes, within single or multiple

enterprise environments, which enable customer demand for a product

or service to be satisfied.

OEM (original equipment manufacturer)

RFQ (request for quotation)

ROI (return on investment)

Strategic sourcing

Supply chain

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