What's In An Online Marketplace? - business to business electronic exchange markets, analysis

Automotive Manufacturing & Production, April, 2001 by Lawrence S. Gould

WEB-BASED TRADING EXCHANGES ARE THE E-HOT E-SPOTS FOR BUYERS ANO SELLERS TO MEET ANO CONDUCT BUSINESS, FROM SIMPLE CATALOG PRESENTATIONS TO, IN THE FUTURE, FULLY INTEGRATED BACK-OFFICE TRANSACTIONS, HERE'S WHAT THOSE EXCHANGES ARE GOING TO LOOK LIKE.

"The B2B exchange market is in its early stages," a spokesperson from Dell Computer recently said in an announcement about Dell shutting down its 4-month-old Del marketplace.com line exchange for small businesses. "It's a paradigm shift for companies to buy and sell goods over e-marketplaces."

Indeed it is. Low customer adoption rates is one reason for that shutdown and the demise of dozens of other online marketplaces in the past year. Add to that too much competition (especially from conventional brick-and-mortar companies) and disappearing venture capital.

Yet amongst the e-wreckage are the foundations for future Web-based business-to-business (B2B) operations. Here is what that future might look like.

THE EVOLUTION of e-Business

The e-business evolution can be broken into three major phases. In the first phase, "way" back in 1998, business-related "dot-com" Web sites emerged all over the virtual world. Most of these were simple portals for Web surfers--customers and other interested parties--to view product specifications and ordering information. Soon after; basic procurement capabilities were added to these sites, particularly buyer-seller matching for indirect procurements that were both labor- and paper-intensive. (Maintenance repair operations, and travel and entertainment are two primary examples of indirect procurement.)

In the second phase, namely last year, Web-based technologies expanded. They began incorporating several core back-office processes, including order management, procurement, logistics, financial management, and supply chain planning. At the same time, online procurement systems began handling direct materials (those materials used in finished goods).

These activities proved the concept of electronic collaboration. The next step was to move the focus from the back office to the front office. Electronic collaboration in engineering and design became particularly attractive, given that these two business functions are themselves very much collaborative environments.

In the meantime, industry consortia and industry-based trading hubs started to develop. The goal of these hubs started out quite modestly: automate on-line (and mostly back-office) business operations by linking the information technology (IT) systems of trading participants to the IT systems of other customers and suppliers. This, connectivity is becoming the Mother Of All Integrations, involving standards in Internet-based data communications: data definition and formatting; data routing both in the virtual universe and within corporate firewalls; data translation so legacy systems can "talk" to each other; data capture for reporting; purposes, and more.

Now in Phase III, stand-alone trading exchanges are being connected together. This not only solidifies enterprise-to-enterprise collaboration, it also makes marketplace-to-marketplace interactions possible, depending on the business focus of the individual marketplaces. At a more detailed level, though, this interconnectedness links the back-office operations of individual businesses together. Some consultants and analysts are predicting that at some point trading exchanges will replicate enterprise resource planning (ERP) capabilities in virtual space. In fact, these exchanges will be the next-generation ERP systems, providing ERP across enterprises, across different industries, and across marketplaces. At this point, true back-end marketplace integration will be transparent.

The e-market continuum

"We are now in the throes of the third wave of electronic commerce," according to the Giga information Group (Cambridge, MA) in a report printed a year ago entitled Market Overview: B-Markets--A Natural Evolution of E-Procurement. "The first wave was sell-side, the second wave was buy-side, and the third wave brings buy-side and sell-side together in online marketplaces."

Giga sees these six types of online exchanges operating in a virtual continuum from one-to-many to true many-to-many:

One-to-Many Marketplaces are typically private exchanges linking one seller to several buyers. That one seller, typically the owner of the marketplace, has sufficient market leverage to force the marketplace participants to do business the seller's way. Dell's now-defunct exchange for general business supplies along with Dell computers was to be a one-to-many marketplace, though apparently Dell's market clout wasn't enough leverage to keep the online marketplace going.

Aggregator Hubs, at minimum, display the content of several suppliers' catalogs to potential buyers. Some of these hubs display other content, such as contracts and authorizations.

Broker Hubs match multiple buyers and multiple sellers together based on product pricing. Broker hubs are best suited for commodities, typically sold in bulk, and for limited-supply products that are purchased through auctions or some type of bidding process. Requests for quotes and proposals, contracts, and other transactions between buyers and sellers are handled through e-mail versus an automated bidding processes, though real-time dynamic transactions are becoming more prevalent.