Chapter 7 EMarketplaces and B2B Exchanges

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Chapter 7E-Marketplaces andB2B Exchanges
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Learning Objectives

• Define e-marketplaces and exchanges
• List all types of e-marketplaces
• Describe B2B portals
• Describe third-party exchanges
• Explain dynamic pricing and describe its trading
  mechanisms

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Learning Objectives (cont.)

• Distinguish between e-procurement and
• e-selling consortia
• Describe the various ownership and revenue models
• Describe networks of exchanges and exchange
  management

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Learning Objectives (cont.)

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

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Opening CaseChemConnect Covisint

• ChemConnect uses a B2C business model where
  customers look for
• Lowest price
• Fast shipment
• Good return policy
• Helpful customer service

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ChemConnect Covisint (cont.)

• ChemConnectworld chemical exchange
• Provides free membership in trading marketplaces
  and information portals
• Public exchange floor for anonymous bids
• Commodities floor for buying and exchanging
• Corporate trading roomsprivate online auctions
• Up-to-the-minute market information
• Large electronic catalog
• Independent intermediary

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ChemConnect Covisint (cont.)

• Covisinte-market of automotive industry
• B2B integrated buy-side marketplace
• General Motors
• Ford
• DaimlerChrysler
• Entire industry gains
• Lower costs
• Easier business practices
• Increased efficiency

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ChemConnect Covisint (cont.)

• Covisint (cont.)
• Co stands for
• Connectivity
• Collaboration
• Communication
• Vis stands for visibility provided by the
  Internet
• Int stands for integrated solutions

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ChemConnect Covisint (cont.)

• Covisint (cont.)
• Collaborative commerce
• Facilitate product design
• Enable procurement process
• Provide broad marketplace of buyers and suppliers
• Vertical consortia trading exchange
• Few large buyers
• Many sellers (suppliers to the industry)

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Figure 7-2Trading Communities
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B2B E-Marketplacesand Exchanges (cont.)

• Dynamic pricing
• Ownership of exchanges
• Gains and risks of B2B exchange participation
• Governance
• Organization of exchanges

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Information Portals

• Thomas register
• Alibaba.com
• The database
• The portals features
• Reverse auctions
• Services
• Languages
• Revenue model
• More on information portals

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Figure 7-4 B2B Classified Ads
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Figure 7-5 Supplier Aggregation Model
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Figure 7-6Buyer Aggregation Model
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Third-Party (Trading) Exchanges

• Suitability of third-party exchanges
• Fragmented markets
• Buyer-concentrated markets
• Seller-concentrated markets

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Consortium Trading Exchanges (CTE)

• CTE is a subset of third-party exchanges, the 4
  types are
• Vertical, purchasing-oriented
• Horizontal, purchasing-oriented
• Vertical, selling-oriented
• Horizontal, selling-oriented

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Consortium Trading Exchanges (cont.)

• E-Procurement Consortia can be
• Vertical purchasing-oriented
• Horizontal purchasing-oriented
• Vertical selling-oriented
• Selling-oriented consortia
• Legal challenges for B2B consortia
• Signals that may prompt legal scrutiny

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Consortium Trading Exchanges (cont.)

• Critical success factors of consortia
• Size of industry
• Ability to drive user adoption
• Elasticitymeasure of incremental spending by
  buyers as a result of savings generated
• Standardization of commodity-like products
• Management of intensive information flow
• Smoothing inefficiencies in supply chain

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Dynamic TradingAuctions and Matching

• Auctions
• Private trading roomsmembers conduct auctions at
  the exchange
• Auction services may be one of the activities
• Exchange may be fully dedicated to auctions

• Matching
• Market makers conduct matching supply and demand
  (e.g., stocks)
• More complex than auctions because they match
• Prices
• Quantities
• Times
• Locations

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Building and Integrating Marketplaces and
Exchanges

• Step 1Think ahead
• Step 2Planning
• Step 3System analysis and design
• Step 4Building the exchange
• Step 5Testing, installation, and operation
• Step 6System evaluation and improvement

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Building and Integrating Marketplaces and
Exchanges (cont.)

• Integration
• Between 3rd-party exchange and back-office
  systems of participants
• Across multiple, incompatible exchanges
• External communications
• Web/client access
• Data exchange
• Direct application integration
• Share process

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Building and Integrating Marketplaces and
Exchanges (cont.)

• Process and information coordinationhow to
  coordinate external communications with internal
  information systems
• External process Internal process
• Data transformation Exception handling
• System and information managementinvolves
  management of
• Software Hardware
• Information components

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Building and Integrating Marketplaces and
Exchanges (cont.)

• Shopping cartsallow customers to shop at any
  participating vendor
• Buyer maintains order information on its own site
  in order to integrate it with its internal
• e-procurement system
• Sell-side cannot support this capability
• B-cart approach cart resides on buyers PC
  instead of sellers site
• Interoperable interface between heterogeneous
  e-marketplaces and e-procurement system

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Figure 7-7The B-Cart
Source Lim and Lee (2001). Used with permission
of Joe K. Lee, Chairman, International Conference
on Electronic Commerce.
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Managing Exchanges

• Revenue models
• Transaction fees
• Fee for service
• Membership fees
• Advertisement fees
• Networks of exchanges
• Centralized management
• Finding a CEO and independent management team

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Critical Success Factors

• Early liquidity
• Liquidity refers to volume of business conducted
• Businesss chance of survival is best when
  liquidity is achieved early
• Right owners
• Partner with companies that can bring liquidity
  to the exchange
• Best owner may be intermediary that can push both
  buyers and sellers

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Critical Success Factors (cont.)

• Right governance
• Good management and fair /effective operations
  and rules are critical
• Governance provides
• The rules for the exchange
• Minimized conflicts
• Decision making support
• Good management induces necessary liquidity

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Critical Success Factors (cont.)

• Openness
• Exchanges must be open to all from
• Organizational point of view
• Technical point of view
• Open standards require
• Commitment by all involved
• Universal agreement on the standards
• Using the wrong standards can hurt the exchange

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Critical Success Factors (cont.)

• Full range of services
• Participants are attracted by an exchange that
  helps cut costs
• Exchanges team up with banks, logistic services
  and IT companies to help
• Importance of domain expertise
• Market makers need an in-depth understanding of
• The industry
• Business processes inherent in the industry
• Knowledge of industry structure
• Government and policy stipulations

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Critical Success Factors (cont.)

• Targeting inefficient industry processes
• Contribute to increased costs and time delays
• Vertical exchanges can add value
• Targeting right industries
• Large base of transactions
• Many fragmented buyers and sellers
• Difficulties bringing together buyers and sellers
• High vendor and product search/comparison costs
• Strong pressure to cut expenses

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Critical Success Factors (cont.)

• Brand building is critical
• Increase switching costs by adding features and
  functionality
• Invest in
• Gaining brand awareness
• Attracting businesses to exchange
• Customer retention

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Critical Success Factors (cont.)

• Exploiting economics of scope
• Value-added services make exchange compelling
• Industry news
• Expert advice
• Detailed product specification sheets
• Adjacent services
• Banks and financial information providers
• Identification supported by sophisticated digital
  certificate architecture

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Critical Success Factors (cont.)
Choice of business/revenue models

• Critical mass of users will garner more
  value-added services
• Auction services
• Financial services
• Business reporting
• Data mining services

• Garner diverse and multiple revenue streams
• Software licensing
• Advertising
• Sponsorship

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Critical Success Factors (cont.)

• Blending content, community, and commerce
• Content and community perspectivestimulate
  traffic
• EC transaction perspectivecreates higher level
  of customer stickiness
• Managing channel conflict
• Hostile phase as buyers interact directly with
  sellers (disintermediation of supply chain)
• Short-term revenues impacted by backlash from
  existing fulfillment channels result in price
  erosion affecting medium-term profitability

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B2B Networks and Extranet

• The Internet
• Intranetsintra-business delivery systems
• Extranets

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Figure 7-9An Extranet
Source Szuprowicz (1998), p. 6. Used by
permission.
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Implementation Issues

• Problems with exchanges
• Problems with public exchanges
• Transaction fees
• Cost savings
• Recruiting suppliers
• Too many exchanges
• Supply chain improvements

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Implementation Issues (cont.)

• Problems with private exchanges
• Lack of trust
• Liquidity is questionable
• Software agents in B2B exchanges
• Disintermediation
• Evaluating exchanges

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Managerial Issues

• Plan most secure and economical choice for
  implementation
• Review current network and find out if it can be
  replaced by intranets or extranets
• Participate in which exchange?
• Determine in which exchange to participate

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Managerial Issues (cont.)

• Joining exchange may require a BPR of internal
  supply chain
• Channel conflicts may arise when a company joins
  an exchange
• Risks of joining an exchange must be carefully
  considered