Business Models for B2B Hubs A/Prof. A. K. Ghose Dept. of Information Systems University of Wollongong

How do B2B Hubs create value ? 2 key mechanisms: 2 key mechanisms: –Aggregation –Matching (See Kaplan and Sawhney reference) (See Kaplan and Sawhney reference)

Aggregation Brings large numbers of buyers and sellers under one roof and reduce costs via “one-stop shopping” Brings large numbers of buyers and sellers under one roof and reduce costs via “one-stop shopping” Catalog hubs use aggregation Catalog hubs use aggregation Example: PlasticsNet.com allows plastics suppliers to issue a single purchase order for a large number of distinct products. The hub sources these from a diverse set of suppliers. Example: PlasticsNet.com allows plastics suppliers to issue a single purchase order for a large number of distinct products. The hub sources these from a diverse set of suppliers.

Aggregation works best when… The cost of processing a purchase order is high relative to the cost of items procured. The cost of processing a purchase order is high relative to the cost of items procured. Products are specialized and not commodity-like. Products are specialized and not commodity-like. Supplier universe is highly fragmented Supplier universe is highly fragmented Buyers do not understand dynamic pricing mechanisms Buyers do not understand dynamic pricing mechanisms Purchasing done via pre-negotiated contracts Purchasing done via pre-negotiated contracts

Matching Creates value by bringing together buyers and sellers to negotiate prices on a dynamic and real-time basis Creates value by bringing together buyers and sellers to negotiate prices on a dynamic and real-time basis Example: iMark.com offers a market for used capital equipment Example: iMark.com offers a market for used capital equipment Example: Altra Energy offers a market for energy/electricity Example: Altra Energy offers a market for energy/electricity Exchanges and yield managers use matching Exchanges and yield managers use matching Can benefit from aggregation as well Can benefit from aggregation as well

Matching works best when… Trading volumes are massive relative to transaction costs Trading volumes are massive relative to transaction costs Products are commodities or near-commodities Products are commodities or near-commodities Products are standardized and can be traded sight-unseen Products are standardized and can be traded sight-unseen Buyers and sellers understand dynamic pricing Buyers and sellers understand dynamic pricing Logistics and fulfillment can be done by 3 rd parties, often without revealing the identity of the buyer or the seller Logistics and fulfillment can be done by 3 rd parties, often without revealing the identity of the buyer or the seller Demand and prices are volatile Demand and prices are volatile

A taxonomy of B2B Hubs 2-way aggregators 2-way aggregators Dynamic market makers Dynamic market makers Seller aggregators (forward aggregators) Seller aggregators (forward aggregators) Buyer aggregators (reverse aggregators) Buyer aggregators (reverse aggregators) Forward auctioneers (seller-driven auctions) Forward auctioneers (seller-driven auctions) Reverse Auctioneers (buyer-driven auctions) Reverse Auctioneers (buyer-driven auctions)

2-way aggregators Negotiated catalogue based prices Negotiated catalogue based prices Benefits buyers and sellers by aggregating supply AND demand Benefits buyers and sellers by aggregating supply AND demand Need to maintain neutrality Need to maintain neutrality Need bilateral participation Need bilateral participation Ideal for systematic purchasing Ideal for systematic purchasing Ideal for markets with bilateral fragmentation Ideal for markets with bilateral fragmentation

Dynamic market makers Dynamic market-based prices Dynamic market-based prices Benefits buyers and sellers by aggregating supply AND demand Benefits buyers and sellers by aggregating supply AND demand Benefits buyers and sellers by improved matching and liquidity Benefits buyers and sellers by improved matching and liquidity Need to maintain neutrality Need to maintain neutrality Need bilateral participation Need bilateral participation Ideal for markets with bilateral fragmentation Ideal for markets with bilateral fragmentation Spot sourcing Spot sourcing

Seller/buyer aggregators Negotiated catalogue based prices Negotiated catalogue based prices Benefits buyers OR sellers by aggregating supply OR demand Benefits buyers OR sellers by aggregating supply OR demand Can be biased Can be biased Systematic purchasing Systematic purchasing Ideal for markets where large buyers/sellers benefit over smaller ones Ideal for markets where large buyers/sellers benefit over smaller ones

Forward/reverse auctioneers Dynamic market-based prices Dynamic market-based prices Benefits buyers OR sellers by improved matching and liquidity Benefits buyers OR sellers by improved matching and liquidity Can be biased Can be biased Spot sourcing Spot sourcing Ideal for markets with unilateral fragmentation Ideal for markets with unilateral fragmentation