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Vertical
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10 Strategic Design Considerations
Birgit Hartmann
Preface
III
Preface
B2B Commerce enthusiasm is big even despite the recent e-marketplace shake-
out.
Internet Technology and its technical details involved in creating an e-marketplace is
complex, important, and interesting, so that it was easy for many dot-coms to get lost
in them. But when it comes to its base, e-business is not about bytes, but still about
pure business, as the recent market development has shown.
Obviously, the market will now look more cautiously at the business model content
and demands sustainable e-marketplace business model, which has been a basic
reason for me to create a practical framework for the design of B2B e-marketplace
models.
Breeding ground for my own e-business enthusiasm was certainly my internship at
IBM Unternehmensberatung GmbH and further works within the IBM Consulting
Group, where I had the chance to gain deeper insight in the creation of
e-marketplaces.
During the creation of this report, I have truly been experiencing a lot of cooperative
support, interesting discussions, as well as many helpful suggestions, and I would
like to acknowledge the contributions of all who participated.
Especially, I wish to express my deep thanks to Martin Koppenborg, Vice President
Strategic Accounts at emaro.com, an e-marketplace start-up, Frank Schmidt, Market
Analyst at IBM's e-business services, and to Dr. Alexander Hirschbold, Consultant at
Mercer Management Consulting, who each played a critical role in the building
process.
Last but never least, I would like to thank Maximiliano for his steady and loving
support during this effort.
Stuttgart, February 7, 2001
Birgit Hartmann
Table of Contents
IV
Table of Contents
List of Abbreviations...VI
List of Tables... .....VII
List of Figures...VIII
Executive Summary...IX
1. Introduction...,......................1
2. Basic Definitions of the New e-conomy...,,,.......4
3. 10 Strategic Design Considerations for the Creation of a Business Model...7
3.1. Market and Stakeholder Analysis...10
3.1.1. Market Environment...10
3.1.2. Key Players...10
3.2. e-Marketplace Models...14
3.2.1. The eMP Cube Model...14
3.2.2.
e-Marketplace Development...18
3.2.3
The different Roles of an e-Marketplace...20
3.2.4
Comment...20
3.3. Value Proposition...21
3.3.1. The Buyer...22
3.3.2. The Supplier...25
3.3.3. The Exchange/ The Investor...26
3.4. Key Parameters for an e-Marketplace and Value-Added Services...28
3.4.1. Information...28
3.4.2. Content Management...28
3.4.3. Supplier Sourcing...29
3.4.4. Commerce Facilitation...29
3.4.5. Transaction Management...30
3.4.6. Fulfillment...30
3.4.7. Settlement...31
3.4.8. Infrastructure & Integration...31
3.4.9. Collaboration...31
3.4.10 Value-Added Services...32
3.5. e-Marketplace Functional Architecture Model...35
3.5.1. Platform Layer...36
Table of Contents
V
3.5.2. Application Layer...38
3.5.3. Customization Layer...43
3.6. Pricing Mechanisms...44
3.7. Revenue Model...46
3.7.1 The Different Revenue Streams...47
3.7.2 Comment on Revenue Model...50
3.8. Equity Structure...52
3.9. eMP Strategic Roadmap...54
3.10 Business Plan...55
4. Challenges in the B2B e-conomy...57
5. Industry-Specific Requirements for e-Marketplaces...67
5.1. Attractive Industry Attributes for an Exchange...67
5.2. The "Multiple Vertical" Strategy...68
5.3. Industry-Specific Requirements for e-Marketplaces...69
5.4. Dealing With the Nature of Industry Opportunities:...72
NTE (Case Study)
6. The "e2open.com" Business Model Design...74
A Reconstruction based on the 10 Strategic Design Considerations
7. Key Success Factors of Winning Business Models...85
8. Business Model Checklist...90
9. Conclusion and Outlook...93
Appendix A Private vs. Public e-Marketplaces...99
Appendix B Value-Add Services List...100
Appendix C New Style Logistics...101
Appendix D e2open Expert Interview - Questionnaire...102
Appendix E Press Releases on e2open.com...103
Appendix F e2open Founding Partners Profiles...105
Bibliography...107
I List of Abbreviations
VI
I. List of Abbreviations
ASP
Application Service Provider
API
Application Programming Interfaces
AVL
Approved Vendor List
ASP
Application Service Provider
B2B
Business-to-Business
B2C
Business-to-Consumer
BAMs
Bricks-and Mortar Companies
Build-to-order Buyers reserve manufacturing capacity; first order, then
manufacturing
EDI
Electronic Data Interchange
EDIFACT
Electronic Data Interchange for Administration, Commerce and
Transport
eMP
Electronic Marketplace
IPO
Initial Public Offering
IT
Information Technology
Mgmt
Management
Mgr
Manager
MRO
Maintenance, Repair, and Operations
RFI
Request for Information
RFP
Request for Pricing
RFQ
Request for Quotation
SCM
Supply Chain Management
SKU
Stock-keeping Units
VAN
Value-Added Network
VPA
Volume Purchase Agreements
URL
Web Site Address
XML
Extensible Markup Language
List of Tables
VII
II. List of Tables
Table 1: Potential benefits to buyers and sellers in biased marketplaces
Source: IBM Global Services
Table 2: Short Description of the Different e-Marketplace Models
Table 3: Industry and product characteristics that influence the price-setting
mechanism
Source: IBM Global Services
Table 4: Equity Structure - Example Consortium
Table 5: Equity Structure - Example e-Trading Exchange
Table 6: Summary of B2B Activity/ Suitability by Industry
Source: Morgan Stanley Dean Witter
Table 7: Estimated Savings from B2B e-Marketplaces by Industry
Source: Goldman Sachs
Table 8: e2open offering with corresponding value and pricing
Table 9: Equity Structure e2open.com
Table 10: New Style Logistics
Source: Morgan Stanley Dean Witter
List of Figures
VIII
III. List of Figures
Figure 1: e-Marketplace
Figure 2: e-Marketplace Basic Model
Figure 3: e-Trading Network
Figure 4: e-Trading Community
Figure 5: Business Model Design
Figure 6: Dimension of the eMP Cube Models
Figure 7: The eMP Cube
Figure 8: On-Line Trading Segment A
Figure 9: On-Line Trading Segment B
Figure 10: On-Line Trading Segment C
Figure 11: e-MP Model Buy-Side
Figure 12: eMP Model - Sell-Side
Figure 13: eMP Model - e-Marketplace
Figure 14: Key Parameters for an eMP
Figure 15: eMP Functional Architecture Model
Figure 16: eMP Functional Architecture Model e-Business Platform Layer
Figure 17: eMP Functional Architecture Model Application LayerBusinessServices
Figure 18: eMP Functional Architecture Model Application Layer Hosting Services
Figure 19: eMP Functional Architecture Model Customization Layer
Figure 20: eMP Functional Architecture Model Revenue Streams
Figure 21: Business Plan
Figure 22: e2open Logo Source: http://www.e2open.com
Figure 23: Pace of Dynamic Marketplace Adoption by Industries
Source: Forrester Report: eMarketplaces Boost B2B Trade (Feb. 2000)
Figure 24: Business Model Checklist
Executive Summary
IX
Executive Summary
Due to the enormous analyst projections on worldwide B2B e-commerce, and
additionally forced by the low barriers to entry, races to implement e-marketplaces
have started since everyone was keen to get a share out of this large opportunity.
However, as the recent e-marketplace shake-out demonstrated, many e-market
makers have often concentrated on Internet Technology, forgetting that once it
comes down to its base, e-business it not about bytes, but still about pure business.
Often, the first-movers business models grounded on great ideas, but were not
sustainable.
e-Marketplaces base on complex business models that present key strategic issues
which must be addressed prior to the creation and implementation of any technology
infrastructure.
With the help of the 10 Strategic Design Considerations Guideline for the creation of
a B2B e-marketplace business model, the reader firms that are considering
becoming e-market makers, and firms interested in participating in an e-marketplace
as buyer, seller or service provider- should be able to formulate a complete e-market
strategy for an e-marketplace initiative.
The 10 key strategic steps to consider on the way to create the Business Model
Design are as follows:
1.
Market and Stakeholder Analysis
Which are the quantitative and qualitative attributes of the market: market
segmentation, fragmentation of the sell-and buy-side, existing and competing
industry channels, complexity of product/ process?
Who are the buyers and sellers, service providers, transaction influencers and
competing marketplaces?
Who are the key stakeholders that are needed to gain critical mass for the
marketplace?
2. e-Marketplace Models
What forms of eMarketplaces do exist?
Which trend of model can be identified?
Should the e-marketplace be proprietary or open?
Which roles does an e-marketplace take?
3. Value Proposition
What does the marketplace offer the key players?
How will this value proposition gain differentiation in the market?
What value proposition will attract and retain those players?
How will this value proposition evolve over time?
4. Key Parameters & Value-Added Services
Which technology capabilities and key functions are required to fulfill the offering
and maintain the market?
Executive Summary
X
5. Functional Architecture Model
How does the logical construct of the functional requirements look like?
What is actually behind the platform?
6. Pricing Mechanism
How is price determined for items being bought and sold?
What different pricing mechanisms exist?
7. Revenue Model
How does the e-marketplace owner capture value from his business?
Where do the revenue streams from successful e-marketplaces derive from?
8. Equity Structure
What are possible ways of sharing out the equity?
9. Strategic Roadmap
How is the plan of the roadmap for the evolution of the e-marketplace, including
key partnerships and alliances?
Which is the reaction plan in case of emerging competition?
10.Business Plan
How sustainable is the business model?
What are the anticipated reactions from competitors and other major players in
the market? Who will likely react positively or negatively and why?
What are the economic implications of the business model for the market makers
and key stakeholders?
Presentation of the Business Case.
By addressing those 10 steps, the e-marketplace management will be well positioned
to capture optimum market opportunity and sustain the market position as
competitive pressures emerge, due to a well-built strategic roadmap.
Meanwhile creating the B2B e-marketplace business model guided by the Strategic
Design Considerations, the e-marketplace designer should take into consideration a
number of tactical obstacles that must be overcome and the key success factors as
listed in the report that will help to position the e-marketplace on the winners' side.
The added checklist for the Business Model results as a very useful instrument. In
addition, the e-market designer has to bear in mind industry-specific requirements
since obviously not every e-Marketplace Business Model goes along with the
respective industry.
A solid strategic design is critical to attracting members, to create interest and
achieve momentum that will encourage others to join an e-marketplace. As only a
few e-marketplaces are expected to survive in each industry, those design choices
that are made to address industry problems or to otherwise create a high value-add
as well as their excellent execution will make or break an e-marketplace.
Executive Summary
XI
As the author stresses throughout the report, what matters isn't just selling products
via the Web site or offering a transaction platform for order matching. A model that
will succeed will utilize the e-marketplace platform as a mechanism to provide higher
levels of integration and solutions that make industry processes become more
efficient. Those collaborations give the exchange more relevant context, community
attributes, and value and constitute the "stickiness" for B2B sites as opposed to
convenient dating services or simple order matching tools which exchanges that lack
these collaborations will end up running.
From today's point of view, most probably only a few Business Models will survive
the B2B Internet battle. For the majority of the B2B market, the following business
models will prove to be successful:
Few vertical e-trading exchanges will form the main players in the B2B market,
because their participants will integrate their systems with the aim to establish one
strategic interface and have access to other key services through the e-market's
connection to third-party marketplaces.
Horizontal e-marketplaces are starting to face an expanded shake-out. Only the
fittest will survive, presenting a broad offer and execute efficiently.
Industry leaders will partner specialized business services are for example financial
settlement, fulfillment and delivery services offered by logistic e-marketplaces, and
Business Intelligence services. This enables enterprises to outsource some services
and reduces cost.
Some e-marketplaces with special know-how or expertise that position themselves
intelligently, providing value-adds which would imply inconvenience for the big
players to set up, will be on the winner's side. Those niche players can successfully
partner with verticals, covering the weak spots of the latter on highly specialized
products or services.
The consolidation of the e-marketplaces will go on, since fewer, larger e-
marketplaces will be required to realize significant value.
Due to the limited offerings by the running e-marketplaces to date, as well as the
uncertainty at the current development stage to rely on one single e-marketplace,
companies join multiple
e-marketplaces to trade in multiple private and publics, verticals and horizontals in
order to satisfy their needs for different products and services. However, this
constellation named e-Trading Network is rather transitive and will eventually evolve
into a more solid and effective model of inter-market integration: the e-Trading
Communities. e-Marketplaces will build integration gateways among themselves and
partner with verticals, horizontal and value-added e-Marketplaces, so that companies
can rely on a single connection; this way, the players will benefit from the broader
partnering community available through this network of e-marketplaces. This way,
the e-marketplace becomes a strategic partner for the individual business.
1. Introduction
1
1. Introduction
Over the last few decades, businesses have invested billions of dollars on
information technology (IT), including software, hardware and networking equipment,
and telecom infrastructure. They have focuses primarily on automating internal
processes such as accounting, payroll, finance, human resources, and
manufacturing. The 1990s have seen the proliferation and hypergrowth of the
Internet and Internet technologies, which together are creating a global, cost-effective
platform for businesses to leverage past IT investments and fundamentally
reengineer the way in which they do business and interact with customers, suppliers,
partners, and third-parties. Additionally, this is enabling smaller businesses to gain
the efficiencies and cost savings that once were afforded only by larger businesses.
During the year 2000, B2B Commerce was the main catalyst towards a new kind of
computing, and a new kind of Internet.(Mason L.: The Rise of eMarketplaces) A new
technology infrastructure, which is called the Grid, will emerge to supersede the Web
and to form the base of the new e-conomy.(Deutsche Bank: The Grid)
However, the unique, real-time, many-to-many connectivity afforded up to now by the
Internet enables buyers to link up with customers, suppliers and other members of
their value chain in e-marketplaces to electronically exchange information and
procure products and services. This concept of business-to-business e-commerce is
not entirely new: Large corporations have utilized EDI software and private
communications networks to trade with their suppliers electronically for over a
decade. Nevertheless, EDI has never achieved critical mass due to its proprietary
nature, lack of flexibility, and significant investment requirements.
That high cost of EDI acquisition and maintenance prevented many smaller
businesses from entering the e-marketplace, reducing its liquidity and bringing value
to companies that implemented this private network. The proliferation of the Internet
and Internet technologies, such as the Web browser and XML, has led to a relatively
inexpensive electronic communication channel that makes economic sense even for
small and low-volume businesses. The Internet and Internet Technologies certainly
provide the opportunity to greatly extend the benefits of EDI to shorter cycle times
and increased efficiencies to the masses. (Mason L.: The Rise of eMarketplaces)
As a result, Internet-based e-marketplaces have become a feasible way to sell and
buy in many industries.
The rapid growth and trillion-plus dollar forecast for business-to-business (B2B) e-
commerce has shifted attention from consumer-oriented Internet business models
(B2C) to those in the business-to-business sector. Forrester Research expects e-
marketplace trade to overtake bilateral trade in 2004 with a Commerce Average
Growth Rate (CAGR) of 125.6%. According to Forrester, worldwide B2B e-commerce
will hit $6.8 trillion in 2004. (Forrester Research, Inc., "Global eCommerce
Approaches Hypergrowth")
Unlike the B2C arena, large incumbent companies from the "old" economy hold
strategic control over B2B models because of their large volume of business
transactions. We have seen companies such as GM, Ford, and DaimlerChrysler join
forces to form a $500 billion electronic marketplace consortium with their suppliers,
named Covisint. Fifty food and beverage makers, including Kraft Foods, Proctor and
Gamble, Coca-Cola, General Mills, Nestlé and Unilever announced a single industry-
1. Introduction
2
wide e-marketplace for conducting a portion of their $200 billion purchases of goods
and services. Sears, Carrefour, Chevron, and Sabre are other examples. Even in
situations where a new entrant launches an industry e-marketplace, it views the
existing industry incumbents as potential partners instead of competitors. e-STEEL, a
startup B2B steel exchange has signed up U.S. Steel as one of its sellers as well as
an equity stakeholder. These examples of the increasing importance of Internet
Technologies for business highlight the need for companies to develop a B2B e-
commerce strategy that includes consideration of creating or joining an e-
marketplace.
Electronic marketplaces will play a significant role in B2B e-commerce if they are
designed to add value rather than just take advantage of market inefficiencies.
Dataquest, for instance, expects e-marketplaces take a 20% slice of the B2B e-
commerce pie by 2004. Forrester is more optimistic, with a prediction of 45% to 74%,
depending on industry, by 2004.
B2B eMarketplaces certainly have a large impact on business. Moving business
commerce online can make significant progress toward solving key problems most
companies contend with:
The Internet overcomes one of the vexing limitations to market transparency:
geography. Commerce is fragmented by geography, which creates inefficient
markets and uninformed buyers and sellers. Eliminating geography and market
fragmentation as a barrier to commerce is the key catalyst for efficient markets.
Efficient markets really mean transparency. Transparency is a knowledge-based
concept that implies participants have intelligence about the markets around them.
Having nearly perfect transparency over price, availability, supplier and product can
substantially change the behavior of the buyer and hence the consequences for the
supplier. (Morgan Stanley Dean Witter)
A second major business problem being attacked by electronic marketplaces is the
inefficiency of business processes. Most interactions between businesses are
complex as well as labor- and information-intensive. Businesses fund enormous
inefficiencies because they tackle complex, collaborative processes manually.
Channeling inter-company processes and information through a common medium
can create unprecedented levels of efficiency and process transparency.
Supply chains are bloated with excess inventory because of an inability to see and
plan for the right mixes and volume of products. Participants would like to substitute
information for inventory and build-to-order. As a third large benefit, Internet-based
supply chains will have an ability to share information quickly and adjust to market
conditions more easily.
Thus, the deployment of e-marketplaces is enabling a more efficient and frictionless
flow of information, goods, payments, and other services between businesses. Like
other commercial exchanges throughout history, Internet-based exchanges enhance
transparency through efficient markets, address inefficiencies in B2B supply chains,
improve business processes and lower transaction costs by aggregating buyers and
sellers in one single medium. This way, these e-commerce enablers are in position to
provide a compelling value proposition to business customers as well as to the
market makers themselves and their shareholders.
1. Introduction
3
B2B enthusiasm is big despite recent movements on the Internet field as for
example the closure of Chemdex, a life science e-marketplace regarded as a pioneer
in his industry. Certainly, the exciting potential of eCommerce has to be balanced
against the reality of a long road ahead. And despite the large market opportunity,
not every business model will work as we realize by the first shake-outs on the
market
.
At their base level these e-marketplaces offer a combination of marketplace formats
to facilitate transactions, multi-vendor catalog, bid/quote exchange, and auctions.
However, in order to survive the shake-out in e-commerce, e-marketplaces will have
to provide greater value-add than just a transaction platform, as low barriers to entry
are likely to drive transaction-only e-marketplaces and corresponding transaction
fees to kindergarten status at Internet speeds.
Because e-marketplaces are complex trading arenas. To be successful in an age of
inexpensive communications, where suppliers can directly reach a large number of
customers (and vice versa) without the need for "middlemen," e-marketplaces must
be designed to deliver value to all players required in order to attract and retain
multiple stakeholders. Their goals, objectives, and problems should drive the design
and execution of the e-marketplaces. e-Market designers contemplating creating
business-to-business e-marketplaces must consider multiple strategic design issues
and options prior to the technical implementation.
Understanding how some existing e-marketplaces that have been successful in
capturing significant value within an industry can give added perspective on
e-marketplace strategy and design.
This report is not intended to provide the reader with a complete e-marketplace
strategy. Rather, the objective is to help the reader firms that are considering
becoming e-market makers, and firms interested in participating in an e-marketplace
as buyer, seller or service provider- frame the issues and relevant options around a
potential e-marketplace initiative. As a result, the reader will better understand the
particular critical business issues and assumptions in the e-marketplace business
strategy that must be rationalized prior to executing an e-marketplace initiative. To
sum it up, this report will provide the basis for pursuing the formulation of a complete
e-market strategy.
After the definition of the most important e-conomy expressions, which a standard for
hasn't yet been set for yet, the report is comprised of the following components:
The focus of the report lies on the larger and most significant part of the 10 Strategic
Design Considerations for the Creation of a B2B e-Marketplace Business Model,
chapter 3.
This model for the creation of a Business Model aims to guide the e-marketplace
designer through the creation of the significant design points as the market and
stakeholder analysis, the e-marketplace model, the value proposition for buy-side,
sell-side, as well as for the exchange/ investors. The following step consists of the
decision of the key parameters for the e-marketplace. With the results of those past
steps, the eMP Functional Architecture Model is built which actually represents the
final package. The pricing mechanisms present a pre-decision for the creation of the
Revenue Model. The Equity Structure surely has a significant strategic influence. The
1. Introduction 4
strategic roadmap gives insight into the future development of the Business Model. In
order to receive capital and to establish a certain liquidity on the e-marketplace, the
founders, partners, and of course the investors require a sustainable Business Case
which justifies the business initiative.
The lessons of existing e-marketplaces provide a helpful list of challenges in the B2B
e-conomy. From the background of recent shake-outs, the author decided to prepare
the e-market designer, by focusing in chapter 5
on vertical e-trading network
initiatives and considering some industry-specific requirements for e-marketplaces.
Certainly, the list of industries is not complete; nonetheless, it serves to give an
overview of various requirement and makes the e-marketplace designer aware of
possible specifications in his industry.
Throughout the report the reader will find references to the actual e-commerce world,
i.e. names of operating e-marketplaces, technology providers, or certain third-party
service provider. Furthermore, the practical relevance of this theoretical framework is
underlined by the example of a quite sustainable, from the author's point of view,
business model of an e-marketplace for the electronics industry: e2open.com. Based
on the 10 Strategic Design Considerations, a reconstruction of the e2open.com
possible Business Model is realized.
Following on from this, chapter 7 presents the essential success factors for an
e-marketplace business model. The checklist in chapter 8 is a very useful instrument
in order to put the finishing touches to the Business Model.
The reader should note that some topics that will not be addressed by this report
include taxation, antitrust and further legal issues. Recently, too many changes have
been taking place at Internet speed, so by the time this report is read, the information
would be out of date. For this reason, it is recommended that the reader obtains up-
to-date on those issues from the many sources on e-commerce via the Internet just
prior to strategy design.
Whoever expects this report to represent a purely theoretical reflection on
e-marketplaces should rather end here, otherwise the reader will certainly be
disappointed. For potential market makers, bricks-and-mortar companies evaluating
whether to establish a private marketplace or join an established one, agile buyers or
sellers searching for a qualitative e-marketplace interface, as well as established
market makers searching for advanced development strategy points, however, a
practical framework for the successful creation of a B2B e-marketplace model is in
store.
2. Basic Definitions of the New e-conomy
5
e-Marketplace
B
B/S
B/S
B/S
S
S
B
B
B
S
S
S
S
Figure 1: e-Marketplace
2. Basic Definitions of the New e-conomy
As it happens to many hype topics, almost every day we find different expressions
by e-business affected, hoping to set the standard. In the online-news we come
across an "Online Exchange" as well as an "eHub", in the next research the same
object is called an "e-Trading Exchange". As a result, we might not be sure whether
the author of an article is referring to the same when he writes about an "eHub" or a
"Trading Community".
Despite the mentioned uncertainty which is still existing to date, the author wants to
clarify the doubt by providing the reader with the most probable to-be standard,
based on more than 70 e-business sources as well as on interviews with experts.
First and foremost the definition of some expressions which might still lead to
confusions:
2.1 e-Commerce
e-Commerce involves the purchase and sale of almost anything over the Internet by
companies and consumers. (Deloitte Consulting and Deloitte & Touche: The Internet-
based ASP Marketplace)
2.2 e-Business
e-Business is far more significant: it encompasses the complete transformation of
business processes, distribution channels, and organizational structures to create a
high-performance company that efficiently uses Internet technology. (Deloitte
Consulting & Deloitte & Touche: The Internet-based ASP Marketplace)
Particularly in the e-business sphere surrounding the e-marketplace topic, we face a
lot of different expressions. In order for the reader to distinguish between the
expressions and to be able to follow the strategic design considerations without
doubts, following a helpful definition based on various definitions the author run
through meanwhile her research on e-marketplaces:
2.3 e-Marketplace
From a high level, B2B e-marketplaces are electronic versions of traditional
marketplaces and represent a single place where buyers and sellers can come
together and transact. Those web-based intermediaries facilitate trading between
commercial buyers and sellers by
§
facilitating the replacement of paper, catalog, phone, fax, and e-mail transactions
by electronic transactions over the Internet, enabling the real-time transfer of
information, money, and goods.
§
providing new, collaborative mechanisms for forming and
growing relationships such as supply chain relationships on
the Internet.
§
leading to business process optimization
(based on following sources: AMR Research: Independent
Trading Exchanges and Legg Mason: The Rise of
eMarketplaces)
2. Basic Definitions of the New e-conomy
6
e-Marketplaces offer a large variety of possible forms, beginning at relatively simple
stages such as Internet portals, which usually represent basic e-commerce, further
other private e-marketplaces as the e-procurement marketplaces which are emerging
as the first real contacts with e-business for many firms, mainly evolved at the end of
the nineties and first quarters of 2000, Consortia which have causes quite a stir in the
press such as the announcement of Covisint, the private marketplace of the three big
automobile manufacturers Ford, GM, and DaimlerChrysler during the first quarter of
2000. The so-called e-Hub-based marketplace models are providing an effective tool
for partners who are working closely in one business process together, as for
example a product design. However, the next stage business models, from the
author's point of view, lies in neutral many-to-many e-marketplaces, the so-called e-
Trading & Collaborating Exchanges, evolving into the next stage, e-Trading
Communities.
1
Please note, that all the different e-marketplace models will be explained in detail
throughout the following chapter.
In order to facilitate the presentation of
more complex contexts, the model to the
right will be used throughout the rest of
the report to represent the e-marketplace.
2.4 e-Trading Exchange
e-Trading Exchanges are public e-marketplaces, based on a many-to-many
constellation of buyers and sellers that focus either on specific cross-industries, the
so-called horizontal business processes or specific industry verticals business
processes. Those neutral e-marketplaces use various market-making mechanisms to
mediate any-to-any transactions among businesses through their possibility to inter-
connect with other e-marketplaces, providing the complete offering portfolio for the
participant's needs such as vertical-specific processes, horizontal processes such as
the purchase of indirect materials, as well as many value-added services by
connecting to third-party e-marketplaces.
(
University of Chicago Graduate School of
Business)
2.5 e-Trading & Collaborating Exchange
e-Trading Exchanges that add important collaborations which represent the full range
of business processes and interactions between trading partners. This model
represents a fusion of the e-hub based model and an e-Trading Exchange.
1
The definitions applied throughout the report rely on the understanding of the majority of e-business involved.
Nonetheless, the doubt whether calling a private net "e-marketplace" is or not rationale remains. Should the
reader be interested in learning more about the discussions on "Private vs. Public eMP", interesting extracts from
a discussion forum at Fat Butterfly can be found at Appendix A.
e-Marketplace
buy-
side
sell-
side
Figure 2: e-Marketplace Basic Model
2. Basic Definitions of the New e-conomy
7
System
Integration
& Consulting
Services
BPPS
Vertical
e-Trading
Exchange
Vertical
e-Trading
Exchange
Marketing&
Advertisement
Agency
Financial
Services
IT Services
B
Logistics
B
B/S
B
S
B/S
S
B
S
Figure 3: e-Trading Network
2.6 e-Trading Network
Companies join multiple e-marketplaces to trade in multiple private and publics,
verticals and horizontals in order to satisfy their needs for different products and
services. Another reason for this constellation surely is the uncertainty at the current
development stage of e-marketplaces to rely on one single e-marketplace.
(Forrester Research: Brokered Partner Integration)
2.7 e-Trading Community
e-Marketplaces will build integration gateways among themselves and partner with
verticals, horizontal and value-added e-Marketplaces, so that companies can rely on
a single connection; this way, the players will benefit from the broader partnering
community available through this network of e-marketplaces.
Vertical
e-Trading
Exchange
Marketing &
Advertisement
Agency
BPPS
System Integration
& Consulting
Services
Vertical
e-Trading
Exchange
Vertical
e-Trading
Exchange
Horizontal
e-Trading
Exchange
Vertical
e-Trading
Exchange
Logistics
(Industry-
specialized)
Logistics
BPPS
Logistics
BPPS
Marketing &
Advertisement
Agency
Financial
Services
IT Services
Vertical
e-Trading
Exchange
BPPS
Logistics
B
B/S
S
B/S
B/S
B/S
B/S
B/S
B
B
B
B
B
S
S
S
S
S
S
S
S
S
Logistics
B
B
B
B
Figure 4: e-Trading Community
3. Creation of a Business Model Design
8
3. Creation of a Business Model Design
10 Strategic Design Considerations
e-Marketplaces base on complex business models that present key strategic issues
which must be addressed prior to the creation and implementation of any technology
infrastructure.
The main objective of this report is to address those key issues and to outline a
practical framework for on-going market makers - whether dot-coms or BAMs- who
are thinking of creating a sustainable e-marketplace. This framework represents a
10-step approach on the way of taking strategic decisions for the Business Model
Design
2
. Each step demands a strategic design decision which leads -as a result- to
an actionable design for an e-marketplace initiative.
However, this book is helpful as well for companies and industry groups evaluating
e-marketplace opportunities and threats, either as a market maker, buyer, seller or
service provider, firms operating in industries where significant multilateral B2B
trading opportunities exist, and firms operating in industries where multiple or
significant e-marketplaces are currently in operation or recently announced.
As mentioned above, there are unique and critical issues, challenges and strategic
options specific in formulating an e-marketplace strategy. Understanding the basic
advantages facing the buyers and sellers in their respective environment and as a
result attract the key players of the e-marketplace to make it attractive for the general
mass to follow, subsequently, the focus may shift towards rapid growth of
membership and transactions necessary to achieve the critical mass needed to
sustain the e-marketplace, as well as understanding the different e-marketplace
models, the key parameters & value-added services required, resulting in a functional
architecture model of the e-marketplace, options to create the revenue model and
define an equity structure. We must not forget about the Business Justification and
Business case to justify our initiative. The strategy must finally take into account
defending the critical mass and leveraging it by a well-thought strategic roadmap.
To be successful in an age of inexpensive communications, where suppliers can
directly reach a large number of customers (and vice versa) without the need for
middlemen, and where initially, buyers will not see value in an e-marketplace without
any sellers and sellers will see no value without buyers, the need for a well-defined
business to deliver value to all players is evident.
There are several issues and questions a firm must consider prior to the
implementation of an e-marketplace. Following is a summary of the steps on the way
to create your Business Model Design:
(continued)
2
In this report, a Business Model represents the construct, derived from key management decisions, by which a
business creates value, serves customers, extracts profits and protects those profits over time.
3. Creation of a Business Model Design 9
The key strategic issues include:
1. Market and Stakeholder Analysis
Which are the quantitative and qualitative attributes of the market: market
segmentation, fragmentation of the sell-and buy-side, existing and competing
industry channels, complexity of product/ process?
Who are the buyers and sellers, service providers, transaction influencers and
competing marketplaces?
Who are the key stakeholders that are needed to gain critical mass for the
marketplace?
2. e-Marketplace Models
What forms of eMarketplaces do exist?
Which trend of model can be identified? Should the e-marketplace be proprietary
or open?
Which roles does an e-marketplace take?
3. Value Proposition
What does the marketplace offer the key players?
How will this value proposition gain differentiation in the market? What value
proposition will attract and retain those players?
How will this value proposition evolve over time?
CREATE
RUN
DESIGN
Business Model Design
Market &
Stakeholder
Analysis
eMarketplace
Models
1
Value
Proposition
Key Parameters
& Value-Added
Services
eMarketplace
Functional
Architecture
Model
Pricing
Mechanism
Revenue
Models
Equity
Structure
Strategic
Roadmap
Business
Plan
5
2
3
4
6
7
8
9
10
Figure 5: Business Model Design
3. Creation of a Business Model Design
10
4. Key Parameters & Value-Added Services
Which technology capabilities and key functions are required to fulfill the offering
and maintain the market?
5. Functional Architecture Model
How does the logical construct of the functional requirements look like?
What is actually behind the platform?
6. Pricing Mechanism
How is price determined for items being bought and sold?
What different pricing mechanisms exist?
7. Revenue Model
How does the e-marketplace owner capture value from his business?
Where do the revenue streams from successful e-marketplaces derive from?
8. Equity Structure
What are possible ways of sharing out the equity?
9. Strategic Roadmap
How is the plan of the roadmap for the evolution of the e-marketplace, including
key partnerships and alliances?
Which is the reaction plan in case of emerging competition?
10.Business Plan
How sustainable is the business model?
What are the anticipated reactions from competitors and other major players in
the market? Who will likely react positively or negatively and why?
What are the economic implications of the business model for the market makers
and key stakeholders?
Presentation of the Business Case
By addressing these 10 design steps under the consideration of possible challenges,
industry-specific requirements, and key success factors (chapter 4, 5, and 7) and by
developing a robust strategy, the e-marketplace management will be well positioned
to capture optimum market opportunity and sustain the market position as
competitive pressures emerge due to a well-built strategic roadmap.
3.1 Market and Stakeholder Analysis 11
3.1
Market and Stakeholder Analysis
3.1.1 Attributes of the Market Environment
The first key issue in exploring an e-marketplace approach is defining the market
environment and developing a deep understanding of the quantitative and qualitative
attributes of that market.
As basis for any market analysis, the e-Marketplace Designer has to collect data (via
interviews and market data gathering), identify the market segmentation, its
fragmentation of the sell-and buy-side as well as the product or process complexity,
identify existing and competitive industry channels (if any), and attributes of product/
service demand and supply (current market mechanism).
3.1.2 Key Players/ Key Stakeholders
Having defined in the first design step the market in which the e-market maker is
going to operate, the e-marketplace designer now goes further, defining the value
net:
One of the first questions an e-marketplace designer should ask is, "Whom do we
serve? What segments and sub-segments do we address?". In other words: Who are
the current and likely future entrants key players in your e-marketplace?
"Five key players impact any marketplace:
(source: IBM Global Services)
§
Buyers
§
Sellers
§
Competing Marketplaces
§
Service Providers
§
Transaction Influencers
Although sellers and buyers are the primary players in the e-Marketplace, others
cannot be ignored.
Most established industries already have marketplaces associated with them, or, if
not, other means by which buyers and sellers find each other. A successful
e-marketplace will offer compelling points that differentiate it from incumbent
competitors as well as other potential e-Marketplaces.
One source of differentiation is found in the roles of the remaining players in the
e-marketplace value net, which complement the marketplace's primary task of
matching buyers and sellers by performing the associated services required to
complete a transaction between buyer and seller.
Examples are the provision of value-added services such as information, logistics,
order tracking, insurance, and financing.
Marketplace designers must identify key services and decide whether to offer some
themselves, or develop alliances with service providers.
3.1 Market & Stakeholder Analysis
12
The final value net player is transaction influencers, who help increase liquidity in the
marketplace by inducing transactions between buyers and sellers. In financial
markets, for instance, business news providers such as Reuters and Bloomberg
perform this role. The information they provide causes buyers and sellers to re-
evaluate their stock positions and make trades. In B2B markets, influencers often
reside within buyer or seller organizations. Buyers' customers also may be key
influencers. Identifying influencers and providing for their participation is an important
aspect of an e-Marketplace strategy.
Once players in the marketplace value net are named, the dynamics between them
must be understood. To do this, players can be grouped into three key categories:
core mass, mass attractors and mass followers.
Core mass is the player in the market who primarily delivers value: they are buyers
and sellers of a product or service. The correct blend of core mass contains enough
buyers and sellers to create liquidity in an e-marketplace. A core mass of buyers and
sellers generally is pulled into the marketplace by those players known as mass
attractors. Those might be well-known top companies whose brand-name product/
service attract new traders.
Mass followers are non-core mass buyers and sellers who join the e-marketplace
once trading has begun, and who are attracted either by liquidity or number of
players in the market.
Categorizing players in this manner helps determine where to focus marketing efforts
during the phases of e-marketplace development. At the start-up phase, the
e-marketplace could adopt the strategy of seeking out and attracting the mass
attractors by offering them compelling value propositions. Subsequently, the focus
could shift to retaining the core mass and using its strength to retain mass attractors.
Critical mass is attained when mass followers begin flocking to the marketplace
because of the number of core-mass players and the consequent liquidity created in
the marketplace. They then become part of the core mass and contribute to
increasing marketplace liquidity.
When identifying players in the value net, companies must be aware of different roles
within an organization. For example, Chemdex, an e-Marketplace for the life sciences
industry has to attract not only scientists who make the original purchasing decision,
but also purchasing personnel from the buyer organization. It must offer value
propositions that appeal to both parties within the organization.
The e-marketplace must attract a critical mass of both buyers and sellers to be
successful. This can be either a vicious or a virtuous circle, depending on whether
critical mass has been achieved. Some e-marketplaces may start by attracting a key
buyer, who attracts a core mass of sellers, who in turn attract other buyers. Ford, GM
and DaimlerChrysler started their e-marketplace "Covisint" in this way - a strategy
that makes sense in the auto industry, where there are only a few key buyers (auto
manufacturers) and a large number of suppliers.
When the reverse is true, the marketplace may first attempt to attract well-known
sellers of interest to a core mass of buyers. Or, the marketplace operator might
attract the core mass first, with a different initial offering such as information.
Consumer portals such as Yahoo! leverage their massive numbers of visitors to
3.1 Market & Stakeholder Analysis 13
attract merchants to their e-commerce site. In the B2B space, Vertical Net is adopting
that approach as it tries to move its information hubs to e-marketplaces.
Another approach to achieving critical mass is to convince traditional
brokers/middlemen to be the first to join an e-marketplace. They may do so if they
see the potential for cutting transaction costs and time. For example, one of the
equity owners of MetalSite, a steel e-marketplace, is Ryerson Tull, the largest steel
distributor (called "service center") in the industry. Ryerson is confident that its role
adds value in the steel industry and has invited 60,000 of its own customers to
participate in MetalSite.
Service providers are a key audience in the value net. The e-marketplace may profit
from establishing an exclusive partnership with a service provider. For example, in a
marketplace for perishables such as flowers, food and fish, transportation is a key
service. Floraplex, a floral e-marketplace, and FoodUSA, a food and beverages
e-marketplace, are forming alliances with refrigerated transportation providers.
Exclusive partnerships may prove to be very important for the e-marketplace if
buyers and sellers have to pay a higher price for a service they can find for
themselves. For that reason, an e-marketplace may choose to ally with another e-
marketplace for a related service. FoodUSA is considering NTE (National
Transportation Exchange) as its transportation provider.
The decision to develop an exclusive or open relationship with service providers
depends on the direct recipient of the service. If the e-marketplace operator receives
the service, it may form an exclusive supplier relationship subject to periodic review.
However, if the e-marketplace traders are the direct recipients of service for
example, obtaining financing for a purchase the e-marketplace operator may not
be in the best position to monitor the quality of the service. In those situations, a
more open relationship with multiple suppliers, perhaps through another
e-marketplace, forming an e-trading community, is a more sensible approach.
Moreover, we might not forget to realize an impact and reaction analysis, where we
identify and analyze positive and negative impacts and reactions among players in
the value net to the
e-marketplace. What brand implications exist? Where are the channel conflicts?
What is their impact to the e-marketplace and their stakeholders? Are there potential
partners, which are their related capabilities?
3.1 Market & Stakeholder Analysis 14
e-Marketplace Access Determining the Players
This design point allows the marketplace to control access and build the type of
traffic it desires.
Open access allows anyone with Internet access to participate in the marketplace,
an option generally acceptable if the marketplace is in a business that involves low
transaction values, or if prior screening is not expected. But in cases where the value
of goods is high (as expected in B2B cases) or where the e-marketplace brand name
is tightly coupled with that of its players, some sort of screening may be needed to
address trust concerns. In that case, a restricted membership policy is required.
Restricted access does not necessarily have to be just at the entry level, where
membership or entry is screened. It is possible to have an e-marketplace with open
access at entry level, but with additional access control, managed by each player for
each transaction. Such control enables players to choose with whom they play, and
to customize each of their transactions. However, e-marketplaces considering
closed access will have to identify key members and sign parties one at a time a
process that could slow momentum and the building of critical mass.
Control Structure Defining Whose Interests Take Priority
Should one player in the value net control an e-marketplace? Whose interests take
priority in a transaction? Choices for control structure include seller-controlled,
neutral and buyer-controlled. Control may be active, where the controlling party is
involved in day-to-day operations of the marketplace, or passive, where governance
is handed over to a third party. A buyer-controlled marketplace often acts as a
purchasing agent for its members, performing tasks such as refining buyers' needs
and seeking the best deal on their behalf. Seller-controlled marketplaces often
provide additional services that help to identify surplus or off-grade inventory among
controlling members and efficiently find buyers without eroding existing customer
relationships. e-marketplaces controlled by buyers or sellers need not provide
benefits only to the controlling party. It's only understandable that a party will prefer
joining a win-win marketplace situation.
IBM Global Services identifies benefits both buyers and sellers may receive from
e-marketplaces controlled by either the sell- or the buy-side:
Table 1: Potential benefits to buyers and sellers in biased marketplaces
Control Type
Benefits to Buyers
Benefits to Sellers
Buyer controlled
- Obtain best prices by aggregating
demand (from smaller buyers)
- Act as (outsourced) purchasing agent
- Single point of access to a range of
complementary products (across
industries) that fulfill a buyer need
- Ability to reach a larger number of
buyers with lower sales and
marketing costs
Seller controlled
-Single point of access to a range of
complementary products from an
industry
-Single point of access to comparable
/competitive products from multiple
suppliers
- Ability to find buyers for off-grade
or surplus inventory
- Ability for smaller suppliers to
consolidate supply for large buyers
- Act as (outsourced) sales and
marketing agent
(Source: IBM Global Services)
3.1 Market & Stakeholder Analysis 15
In fragmented and inefficient markets, where there are multiple search, transaction
and fulfillment activities, neutral e-marketplaces tend to capture significant value due
to their ability to unbundle and rebundle traditional activities. Such neutral
marketplaces are then free to form strategic alliances, without traditional roadblocks,
and with only one thing in mind: optimizing sub-markets.
When brand name, differentiation, key skills or knowledge are valued, seller-
controlled e-marketplaces could be successful. However, achieving critical mass
often means sellers must engage in `co-opetition' with traditional competitors. In
building an e-marketplace, firms should re-examine relationships with traditional
competitors to see how they might achieve increased returns by redefining their
relationships.
An example is MetalSite.net, which is owned by a group of domestic steel producers
and service centers. Buyer-controlled marketplaces work well when a major player
already is conducting business and other players want to profit from economies of
scale. Such a structure not only reduces the cost of transaction for smaller players,
but also cuts the cost of setting up an infrastructure and the time it takes to enter an
e-marketplace.
3.2 Models of e-Marketplaces
16
3.2. Models of e-Marketplaces
We are still very early in the life of B2B Business models and the competitive
landscape are still far from settlement. B2B is large and diverse enough to
accommodate the development of multiple marketplace models.
While the author casts a somewhat suspect eye on the survival of EDI Networks as
well as on the explosion of consortia exchanges, she believes that a continued
rationalization in the many-to-many marketplace space is likely to continue, and
remains confident that next to consortia, independent
e-trading&collaborating exchanges in a combination with e-trading communities will
be key players in the B2B build out over the next several years.
3.2.1 The eMP Cube Model
The different forms of e-marketplaces emerge in terms of the fragmentation grade on
either buy- or sell-side as well as of the product or process complexity.
The following model shall help the reader to position the different forms of Online-
Trading above all in terms of ownership, connectivity, and impact on B2B, since the
dividing lines may not always be clear.
Distinct e-marketplace models have been emerging. The on-line trading
segmentation is across three dimensions:
(The development of the model is based on source: AMR Research)
Fragmentation Sell-Side is measured by the number of sellers within the industry. A
highly fragmented sell-side will have a large number of suppliers.
Fragmentation Buy-Side is measured by the number of buyers within the industry. In
case of an industry with little buy-side fragmentation, as for example the automobile
industry, a handful of companies controls a majority of market shares.
Product/process complexity comprises several components: highly specific user
needs, time-sensitive product, and efficiency or inefficiency of channel and
manufacturing processes. All of the attributes can greatly impact the relationship
between channel partners and the value chain.
low
high
high
Fragmentation
Buy-Side
Fragmentation
Sell-Side
high
Product/ Process
Complexity
low
Figure 6: Dimension of the eMP Cube
3.2 Models of e-Marketplaces
17
EDI
Networks
Basic
e-Commerce
Private
e-Procurement
Marketplace
Horizontal
e-Trading
Exchange
Consortium
Vertical
e-Trading
Exchange
e-Hub
-based
Trading
Model
EDI
& other mediums
high
low
high
Fragmentation
Buy-Side
Fragmentation
Sell-Side
low
Product/ Process
Complexity
high
low
The eMP Cube Model combines following
e-marketplace models:
Different e-Marketplace Models
The following table describes the different characteristics of connectivity, ownership,
flexibility and cost for each e-marketplace model. The presentation facilitates a
possible comparison between the different models.
Table 2: Short Description of the Different e-Marketplace Models
e-Marketplace Model
Connectivity
Ownership
Flexibility
Cost
EDI Networks
One-to-one
Private
Low
High
EDI & other mediums
One-to-one
Private
Low
High
Basic e-Commerce
One-to-many
Private
Medium
Low
Private e-Procurement MP
One-to-many
Private
Medium
High
Consortium
One/few-to-many Private
Medium
High/medium
e-Hub-based Trading Model
One-to-many
Private
Medium/high
High
Horizontal e-Trading Exchange
Many-to-many
Public
High
Low
Vertical e-Trading Exchange
Many-to-many
Public
High
Low
Figure 7: The eMP Cube Model
3.2 Models of e-Marketplaces
18
Based on the three dimension of the eMP, we outline three distinct e-marketplaces
segment batches.
Consider, that at the same time, the segmentation reflects the e-business evolution.
3.2.1.1 On-line Trading Segment A
EDI Networks
EDI networks represented the first phase of electronic B2B e-commerce. Although,
EDI is not really a form of an electronic marketplace:
EDI was designed to process high volumes of highly structured data. EDI sends
structured transactions in batch mode. EDI has had a major impact in reducing errors
and shrinking processing times for certain types of transactions but with significant
costs.
Moreover, EDI technology is not flexible and therefore difficult to change in a
dynamic marketplace. Transactions must be defined according to standards
published by the United Nations Standard Messages Directory for EDIFACT and
transmitted in a pre-defined sequence.
EDI networks routed transactions disintermediated between buyer and seller, but the
buyer had to already know the seller and the precise product to be ordered and there
is no sense of marketplace or community. EDI is a relatively simple but costly one-to-
one connection.
EDI was destined for the support of less complex products and processes. For that
reason, its use for more complex product and process transactions is limited and has
to be complemented by the use of other, traditional communication mediums.
(Morgan Stanley Dean Witter)
The economics does not work for more fragmented industries without enough
transactions to a given buyer to drive the investment throughout the supply chain.
However, many of these orders are automatically generated out of an ERP system
based on inventory replenishment rules under long-term contracts. Many of these
orders are more efficient without human interaction and are governed under long-
term contracts. According to Morgan Stanley Dean Witter Research, there may
evolve a model in which EDI transactions check pre-selected sources in an exchange
before generating an automatic replenishment order. Many of the EDI networks
would move their network participants to a marketplace over time.
Figure 8: On-Line Trading Segment
3.2 Models of e-Marketplaces 19
3.2.1.3
On-line Trading Segment B
Basic e-Commerce
The Web-site selling initiated basic e-commerce between
buyers and seller without an intermediary. A few early
adopters began pushing their Web sites as a primary
sales channel (e.g., Cisco and Dell). The early adopters
were largely technology companies with technology-
savvy customers and little or manageable channel conflict. This e-marketplace model
for most companies is about displaying catalog content and publishing marketing
collateral.
Private e-Procurement Marketplace
The first major development in automating commerce activities between businesses
is the procurement of indirect goods via buy-side procurement applications. First-
generation buy-side procurement applications introduced by companies such as
Ariba and CommerceOne were essentially corporate extranets tied into the buyer's
back-office systems allowing large buying organizations to work with a handful of
key suppliers to automate the business process and workflow of purchasing non-
production goods (including office supplies, MRO, equipment and facilities, and travel
and entertainment). The value proposition of these early applications centered on
significantly reducing maverick buying and reducing purchase-order processing
costs. With the commercial development of the Internet, buy-side procurement
applications have evolved into hybrid Intranet/Internet applications where large
buying organizations run the procurement application behind their firewall and fan out
purchase-order request to pre-approved suppliers across the Internet. The focus
remains squarely on automating large buyers' commerce processes for indirect
goods with a select and limited network of trading partners. (Fleet Boston Robertson
Stephens) The top of the wave of establishing private
e-procurement marketplaces in Europe had been reached at the end of 1999 and
beginning of 2000, where major companies took their first steps with the B2B
e-business era by procuring in the first field only indirect materials.
Consortium
A new force of industry incumbents have begun to band together, forming consortia
to create e-marketplaces to fulfill the procurement needs of the industries they serve.
These consortia-led
e-marketplaces, according to Goldman Sachs, will compete with
the dot-com start-ups for participants and transaction volumes, since winning B2B
e-marketplaces will need liquidity.
One of the key distinctions of a consortium-driven exchange is who wields the power
of the exchange. Covisint is buyer-centric, powered by the large automotive
manufacturers Ford, GM, and DaimlerChrysler while the exchange in the paper
industry is sellercentric, driven by the large paper producers Georgia Pacific,
International Paper, and Weyerhaeuser. Most industries are buyer-centric; the
supplier base is more fragmented and the suppliers will be forced to participate in the
exchanges to stay competitive. Seller-driven exchanges are not as profuse and they
will have more trouble gaining traction due to concerns of price collusion and the
ability to use non--participating suppliers. The more oligopolistic an industry is, the
Figure 9: On-Line Trading Segment B
3.2 Models of e-Marketplaces 20
more likely a consortium will form to address e-procurement. The small number of
powerful players can force the adoption by suppliers to do business with them. The
large buyers realize that the value of the exchange is in fact their supply chains.
While large buyers have been primary establishers of e-marketplaces, there are also
supplier-driven or seller-driven e-marketplaces in which large suppliers are taking an
active role in forming e-marketplaces. This has been for both offensive and defensive
reasons. For example, five large suppliers to the health care industry, including
Johnson & Johnson, GE Medical Systems, Baxter International, Abbott Laboratories,
and Medtronic, joined forces to form their own e-marketplace, in which there will be
no transaction fees. Additionally, six leading suppliers to the automotive industry
-Dana, Delphi Automotive Systems, Eaton, Motorola, TRW, and Valeo- are
establishing their own exchange. Most probable is that those e-marketplaces
represent defensive moves by large suppliers, which are not looking favorably on the
buyer-driven e-marketplaces' current plans to charge transaction fees. (Legg Mason
Wood Walker)
e-Hub-based Trading Model
Within industries with high product/process complexity, e-hub-based Trading Models
evolve. While the Internet will change the medium of transaction between the parties,
such as private Value-Added-Network (VAN) to public Internet, the channel master
model will hold. The segment is exemplified by General Motors Corporation's recent
launch of its e-GM (Detroit, MI) business unit. E-GM will be responsible for
developing the infrastructure to link suppliers, dealers, and consumers. With this
business unit, GM will be able to more rapidly design, engineer, and manufacture a
new car. GM, the channel master, does not need a third party to manage its on-line
value chain.
3.2.1.4
On-line Trading Segment C
Enabling commerce through aggregation many-to-many commerce
e-Trading Exchanges are public e-marketplaces, based on a many-to-many
constellation of buyers and sellers that focus either on specific cross-industries, the
so-called horizontal business processes or specific industry verticals business
processes. As an independent exchange, they are not dominated neither by buyers
nor by sellers. Those neutral e-marketplaces use various market-making
mechanisms to mediate any-to-any transactions among businesses through their
possibility to inter-connect with other e-marketplaces, providing the complete offering
portfolio for the participant's needs such as vertical-specific processes, horizontal
processes such as the purchase of indirect materials, as well as many value-added
services by connecting to third-party e-marketplaces. These firms tend to be venture-
backed and were early dotcom innovators such as Ventro, Instill, and Healtheon/
WebMD. (Morgan Stanley Dean Witter; University of Chicago)
Figure 10: On-Line Trading Segment C
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- Birgit Hartmann (Author), 2001, Strategic Design of B2B e-Marketplace Business Models, Munich, GRIN Verlag, https://www.grin.com/document/185580
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