Thursday, February 21, 2008

B2b eCommerce and Online Marketplaces explained

On my morning walks I usually think of what I am going to do for the day, the specific tasks etc for our blogging platform, for the ITEX Barter System, and often what the days blog post is going to be about. As a professional SEO and Marketing expert, I have to tie every thing back those points and provide helpful tips for online businesses. Because if you are not an online business, I don’t really care about you, just kidding. I care about you, but I would care more about you if you were one the Online businesses using our online marketplace. So folks todays topic is about B2B, what is it and why an online marketplace for online businesses? To make my point stronger, I would love to cite any professors papers on the subject, the b2b eCommerce trends etc. To do that, I was luck to find the following report. Here it is, I am going to give you the abstract version, not the full details, and high light in Bold the most important aspect. This is basically as long as I would want to read, to give you enough detail, it is still long.


Mahesh S. Raisinghani , Ph.D., CEC
University of Dallas, Graduate School of Management

Hanns-Christian L. Hanebeck, Dipl.-Kfm.
University of Dallas, Graduate School of Management


This article investigates the interface between the exchange relationship in the digital economy and the emerging and continuously improving wireless technology. Exchanges become highly relevant when we look at how collaborative processes are performed. A special emphasis is placed on enabling collaboration between multiple business partners. In most cases, companies require standardization of information flows and business processes to be able to collaborate. Here, trading platforms, private and public exchanges will play a much more important role due to their increased ease-of-use (as opposed to EDI for example). The key line of thought is that collaboration is essentially based on information sharing, information sharing enables exception management, exception management relies on near real-time data, and real-time data can be collected through wireless technologies. The key ideas of online marketplaces are discussed along with the evolution and future of exchanges in the digital economy, to help management rethink the exchange relationship in the digital economy.

B2B is about connecting the existing buyer and sellers. It is not a disintermediation play. It is about intelligently implementing Internet technology to improve business processes.
The online B2B market across the world is increasing in value rapidly, but there are some hurdles and limitations to be met in the near future. The report, from Strategy Analytics (an international research and consulting firm), notes that s global B2B e-commerce transactions will grow from $226 billion in 2001 to $2.02 trillion in 2006 [Bellomy 2002].

The B2B eCommerce revolution includes eProcurement, B2B exchanges, and business infrastructure relationships. eProcurement involves firms selling supplies, equipment, materials, and services with a streamlined online purchasing function that often eliminates traditional intermediaries, thereby reducing costs and cycle times
while offering greater flexibility and responsiveness to changes in demand. Web-based supply chain management networks improve coordination between trading partners by linking a firm’s forecasting and production planning systems with its suppliers’ and distributors’ systems. They can create dramatic savings and quality improvements.
B2B exchanges include various categories of market spaces, including vertical market portals (”vortals”), hubs, and various types of auctions.

A single Infomediary (industry consortium or 3rd party) brings together many buyers and sellers within a specific vertical market, such as plastics, steel, or industrial chemicals, charging a commission on all transactions. Hundreds of industry-specific exchanges have now been launched, and more are being developed every day. Some of these ‘market spaces’ operate with posted pricing models, while others employ collaborative negotiated prices, auctions, reverse auctions, Dutch auctions, and other pricing mechanisms. Many are used in spot markets for industrial materials, overstocks, and perishable goods, as well as business services transactions. More important is the development of entirely new eBusiness infrastructure industries. Many firms support online activity by facilitating the interaction between various parties in eCommerce as preferred outsourcers for eBusiness processes. They have become integral to the effective operation of Internet-based activities and may account for the largest source of profits from the future growth of eCommerce. They provide digital content or improve its delivery, bring new customers to websites, finance acquisitions, and provide many other services. They include application services providers, content maximizers, wireless service providers, and payment processors.

The key questions addressed in this paper are: What does the exchange landscape look like in the digital economy and what can be inferred from the past to chart the direction and value proposition for the future? This paper is structured as follows: Following this introduction, we will describe the characteristics and differentiators of online marketplaces followed by the evolution of e-marketplaces. In the next section we conduct an in-depth assessment of e-marketplaces and discuss event management and wireless-enabled exchanges. The concluding section tracks the transforming future of exchanges in the digital economy and provides a summary of the more general lessons, in terms of rethinking the exchange relationship in the digital economy.

Online Marketplaces: Characteristics and Differentiators

The possible forms of B2B marketplace are point-to-point connections (extranet), or e-marketplaces (Independent Trading Exchange (ITE)). As shown in figure 1, e-marketplaces can be either one-to-many or many-to-many environments. The key pricing mechanisms are fixed/static pricing (i.e., catalog-type/aggregator sales), and
dynamic/variable pricing which includes both exchanges and auctions where price is negotiated in real time. An auction is one buyer and many sellers, or one seller and many buyers, whereas an exchange is many buyers and many sellers. However, caution is advised since almost everything is calling itself an exchange. Most are simply catalogs where buyers can search across multiple suppliers.
Buyer Auction Exchange
Seller Auction

Traditional Electronic Relationship


Fig. 1: Types of E-Marketplaces

As online marketplaces proliferate, a bewildering array of subvarieties and hybrid exchange models will emerge. Here the term ìmodelî is referred to as a general case through a typological meta model (as illustrated in figure 1) and then we discuss the distinguishing characteristics of models. These variants can be distilled into six
primary flavors of online marketplaces, serving both the B2B and B2C markets [Kaplan and Sawhney 2000; Bakos 1991; Malone et al. 198]:
1) Online Buying Services
2) Auctions
3) Functional Exchanges
4) Vertical Exchanges
5) Industry-Sponsored Exchanges
6) Net Markets

The salient characteristic shared by all six is that they increase the ease with which buyers perform one or many steps of the purchasing process, from product consideration to demand generation through to the transaction itself.
Specifically, online marketplaces deliver:
• Price and product transparency (i.e., the ability to easily locate and compare products and prices).
• Supplier and seller discovery, or the ability to aggregate demand and supply.
• Convenient and reliable transactions, by matching buyer and seller orders, and enabling a wide variety of pricing and market-making mechanisms.
Ultimately, value-added services to enhance the selling process, including logistics, inventory management, financing, forecasting, advertising, catalog management, and more.

Raisinghani & Hanebeck: Rethinking B2B E-Marketplaces and Mobil Commerce
Information Service


Fig. 2: Four dimensions of E-Marketplaces

As shown in figure 2, each type of marketplace differs fundamentally along four axes:
1. Level of information provided (e.g., price, availability, and range of substitutes).
2. Breadth of services offered (e.g., quality assurance, financing credit risk, and customer support).
3. Type of market-making mechanism (i.e., the way transactions occur, such as Dutch auctions,
reverse auctions, real-time transactions, and collaborative negotiations).
4. Enabling technology (e.g., web shopping agents, content management, levels of database, and transaction infrastructure).

Next the taxonomy of online marketplaces, i.e., its six flavors are described in detail below:

Online Buying Services
These services offer support during the awareness and demand generation phases of the selling process. Specifically, they provide price and product transparency (e.g., via shopping agents and comparison sites), buyer and seller discovery (e.g., shopping agents, price aggregators and industry catalogs), and quality recommendation and selection aides (e.g., analyst and review sites). Online buying services are targeted primarily to B2C markets, such as big-ticket consumer retail (e.g., electronics) and one-of-a-kind novelty purchases, as well as small business markets. The individual services that make up online buying services will be absorbed into more mature exchanges and net markets over time. Examples include mySimon,, and CNET.

Auctions are online markets that aggregate demand and match buyers and sellers for a wide range of B2B and B2C products. They employ a variety of market-making mechanisms (e.g., reverse, Dutch, English, and sealed-bid auctions) to meet specific business objectives such as demand aggregation and price maximization. Auctions serve B2B, B2C, and C2C markets, including retail, novelty, maintenance, repair and operations (MRO) purchases, distressed inventory/perishables, spot purchases of commodities and raw materials, and secondhand capital equipment. In the B2B space, auctions are generally targeted to small business customers that lack both purchase power and sophisticated purchasing operations. Examples include (auction) and Mercata (demand aggregator).

Vertical Exchanges
Vertical exchanges are trusted intermediaries that facilitate B2B e-commerce with vertical market and product-specific expertise. They offer real-time pricing and complete product information. Eventually, they are to offer a range of value-added services across an array of vertical markets (e.g., MRO, spot purchases of commodities and raw materials, capital equipment, secondary markets, distressed inventory and perishables, and some direct materials such as semi-finished and engineered products). Examples of vertical exchanges include and FreeMarkets.

Functional Exchanges
Functional exchanges are trusted intermediaries that facilitate mostly B2B e-commerce involving process, functional, or channel-specific expertise. These exchanges market an array of primary services or solutions that automate or support specific business functions or processes (such as HR benefits or energy management). Functional exchanges offer real-time pricing, complete product information, and value-added services. Examples include tradehub and

Industry-Sponsored Exchanges
Limited to B2B commerce, these exchanges have equity participation or sponsorship from major industry buyers and (frequently) technology partners as well. They act as intermediaries to facilitate B2B e-commerce in industries with high concentrations of buying power. Industry-sponsored exchanges offer the same range of services as other exchanges, including real-time pricing, complete product information, and value-added services and information. Over time, these exchanges will accommodate more highly engineered products and direct materials. Examples include COVISINT (the GM-Ford-DaimlerChrysler joint venture) and Globalnet Exchange.

Net Markets
The holy grail of online marketplaces will be Net markets, or federated Net markets. These markets are sophisticated networks and combinations of online marketplaces that will emerge over the next three years. Net markets will develop from the quilting of functional and vertical exchange capabilities and expertise, and the assembly of value-added services across the supply chain (e.g., logistics, inventory, demand forecasting). This type of market will deliver more value-added services and will require high levels of buyer collaboration to conduct complex transactions. Because Net markets will demand the integration of many industry supply chains and the coordination of multiple large and small markets, they will not mature for several years. In the short term, each of these online marketplaces creates value by facilitating the sharing of information about products and pricing, matching many buyers and sellers and improving the ease and speed of transactions. Longer term, value will arise from greater levels of purchase-process integration and through the delivery of value-added information and services.

Vertical hubs with market focus in industries such as plastics, steel, chemicals, paper, telecom and so forth. Vertical Net operates over 40 exchanges that attempt to serve nearly all facets of one niche industry, such as Chemical Online, a chemical industry portal; MachineToolsOnline, a machining industry portal; and Aerospace Online, an aerospace industry portal.

Horizontal or functional hubs may ìhorizontallyî cross several different vertical hubs, while providing vital services to different industries with process focus such as logistics management; maintenance, repair, and operations
(MRO) goods or services procurement; project/capacity/HR/credit management; or auction applications. A private exchange is driven by a single seller or buyer and it typically involves a company automating its own supply chain. The customer base and participation is generally open to suppliers or customers of the company. Companies that have perfected this model include Dell, Cisco, and Wal-Mart. A public exchange is an industry consortium or a third-party dot-com forming an entity (such as Covisint and e-Steel) to aggregate the buying behavior of a group of buyers and their suppliers, with an emphasis on the buy side.

The Evolution of B2B E-Marketplaces
The evolution and diffusion of B2B e-marketplaces has occurred in three distinct waves [Berryman and Heck 2001; Swahney 2001].

In the first wave of B2B, there were approximately 1,000 independent online marketplaces for commodities such as paper and steel (e.g., PaperExchange and e-Steel) to specialized components such as airplane parts (e.g., Unfortunately, most of these independent, fee-based marketplaces such as inc. and Ventro Corp.ís Chemdex and Promedix were not able to maintain their liquidity since a
few large organizations that generated most of the transaction volume could negotiate with the suppliers and vendors on their own and save the transaction fees. Others, such as Vertical Net Inc. and SciQuest Inc. have transformed their business models from charging fees for online B2B transactions to positioning themselves as B2B software
vendors [Hicks 2001].


Rethinking B2B Marketplaces(PDF)

The possible forms of B2B marketplace are point-to-point connections (extranet) relationships, and decent profits for sellers since unlike B2B marketplaces,

**A few points to remember, we placed the abstract part of this report for detailed definition of b2b and online marketplace. We think you should go download the full report if you want to the full scope of the report. This is a blog, so we chose to shorten, and we are not the authors of this report. Also, we write this blog so we could provide information on the topics, and therefore the links go back to our Online Marketplace. We are partially owned by the barter system of ITEX, there are 24,000 businesses that are part of our b2b trade exchange, so we know a thing or two about building an online marketplace. Thanks for reading all of our blogs and commenting, as always we really, really appreciate your feedback. Best Wishes!


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