Prentice Hall, Chapter 7 E-Marketplaces and B2B Exchanges

Prentice Hall, 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

Prentice Hall, 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

Prentice Hall, 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

Prentice Hall, Opening Case: ChemConnect & Covisint ChemConnect uses a B2C business model where customers look for: Lowest price Fast shipment Good return policy Helpful customer service

Prentice Hall, ChemConnect & Covisint (cont.) ChemConnect—world 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 rooms—private online auctions Up-to-the-minute market information Large electronic catalog Independent intermediary

Prentice Hall, ChemConnect & Covisint (cont.) Covisint—e-market of automotive industry B2B integrated buy-side marketplace General Motors Ford DaimlerChrysler Entire industry gains Lower costs Easier business practices Increased efficiency

Prentice Hall, ChemConnect & Covisint (cont.) Covisint (cont.) “Co” stands for Connectivity Collaboration Communication “Vis” stands for visibility provided by the Internet “Int” stands for integrated solutions

Prentice Hall, 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)

Prentice Hall, Figure 7-2 Trading Communities

Prentice Hall, B2B E-Marketplaces and Exchanges (cont.) Dynamic pricing Ownership of exchanges Gains and risks of B2B exchange participation Governance Organization of exchanges

Prentice Hall, Information Portals Thomas register Alibaba.com The database The portal’s features Reverse auctions Services Languages Revenue model More on information portals

Prentice Hall, Figure 7-4 B2B Classified Ads

Prentice Hall, Figure 7-5 Supplier Aggregation Model

Prentice Hall, Figure 7-6 Buyer Aggregation Model Requests Responses

Prentice Hall, Third-Party (Trading) Exchanges Suitability of third-party exchanges Fragmented markets Buyer-concentrated markets Seller-concentrated markets

Prentice Hall, 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

Prentice Hall, 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

Prentice Hall, Consortium Trading Exchanges (cont.) Critical success factors of consortia Size of industry Ability to drive user adoption Elasticity—measure 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

Prentice Hall, Dynamic Trading: Auctions and Matching Auctions Private trading rooms—members 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

Prentice Hall, Building and Integrating Marketplaces and Exchanges Step 1—Think ahead Step 2—Planning Step 3—System analysis and design Step 4—Building the exchange Step 5—Testing, installation, and operation Step 6—System evaluation and improvement

Prentice Hall, Building and Integrating Marketplaces and Exchanges (cont.) Integration Between 3 rd -party exchange and back-office systems of participants Across multiple, incompatible exchanges External communications Web/client access Data exchange Direct application integration Share process

Prentice Hall, Building and Integrating Marketplaces and Exchanges (cont.) Process and information coordination—how to coordinate external communications with internal information systems External process Internal process Data transformationException handling System and information management— involves management of: SoftwareHardware Information components

Prentice Hall, Building and Integrating Marketplaces and Exchanges (cont.) Shopping carts—allow 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 buyer’s PC instead of seller’s site Interoperable interface between heterogeneous e-marketplaces and e-procurement system

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

Prentice Hall, 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

Prentice Hall, Figure 7-8 Connecting E-Marketplaces Source: Reprinted from Interactive Week, January 10, 2000 with permission. Copyright © 2001 Ziff Davis Media, Inc. All rights reserved.

Prentice Hall, Critical Success Factors Early liquidity Liquidity refers to volume of business conducted Business’s 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

Prentice Hall, 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

Prentice Hall, 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

Prentice Hall, 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

Prentice Hall, 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

Prentice Hall, 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

Prentice Hall, 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

Prentice Hall, Critical Success Factors (cont.) Garner diverse and multiple revenue streams Software licensing Advertising Sponsorship Critical mass of users will garner more value-added services Auction services Financial services Business reporting Data mining services Choice of business/revenue models

Prentice Hall, Critical Success Factors (cont.) Blending content, community, and commerce Content and community perspective— stimulate traffic EC transaction perspective—creates 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

Prentice Hall, B2B Networks and Extranet The Internet Intranets—intra-business delivery systems Extranets

Prentice Hall, Figure 7-9 An Extranet Source: Szuprowicz (1998), p. 6. Used by permission.

Prentice Hall, Implementation Issues Problems with exchanges Problems with public exchanges Transaction fees Cost savings Recruiting suppliers Too many exchanges Supply chain improvements

Prentice Hall, Implementation Issues (cont.) Problems with private exchanges Lack of trust Liquidity is questionable Software agents in B2B exchanges Disintermediation Evaluating exchanges

Prentice Hall, 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

Prentice Hall, 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