1. Prentice Hall, 2002 1 Chapter 7 E-Marketplaces and B2B Exchanges

2. Prentice Hall, 2002 2 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

3. Prentice Hall, 2002 3 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

4. Prentice Hall, 2002 4 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

5. Prentice Hall, 2002 5 Opening Case: ChemConnect & Covisint ChemConnect uses a B2C business model where customers look for: Lowest price Fast shipment Good return policy Helpful customer service

6. Prentice Hall, 2002 6 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

7. Prentice Hall, 2002 7 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

8. Prentice Hall, 2002 8 ChemConnect & Covisint (cont.) Covisint (cont.) “Co” stands for Connectivity Collaboration Communication “Vis” stands for visibility provided by the Internet “Int” stands for integrated solutions

9. Prentice Hall, 2002 9 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)

10. Prentice Hall, 2002 10 Figure 7-2 Trading Communities

11. Prentice Hall, 2002 11 B2B E-Marketplaces and Exchanges (cont.) Dynamic pricing Ownership of exchanges Gains and risks of B2B exchange participation Governance Organization of exchanges

12. Prentice Hall, 2002 12 Information Portals Thomas register Alibaba.com The database The portal’s features Reverse auctions Services Languages Revenue model More on information portals

13. Prentice Hall, 2002 13 Figure 7-4 B2B Classified Ads

14. Prentice Hall, 2002 14 Figure 7-5 Supplier Aggregation Model

15. Prentice Hall, 2002 15 Figure 7-6 Buyer Aggregation Model Requests Responses - - - - - - -

16. Prentice Hall, 2002 16 Third-Party (Trading) Exchanges Suitability of third-party exchanges Fragmented markets Buyer-concentrated markets Seller-concentrated markets

17. Prentice Hall, 2002 17 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

18. Prentice Hall, 2002 18 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

19. Prentice Hall, 2002 19 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

20. Prentice Hall, 2002 20 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

21. Prentice Hall, 2002 21 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

22. Prentice Hall, 2002 22 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

23. Prentice Hall, 2002 23 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

24. Prentice Hall, 2002 24 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

25. Prentice Hall, 2002 25 Figure 7-7 The B-Cart Source: Lim and Lee (2001). Used with permission of Joe K. Lee, Chairman, International Conference on Electronic Commerce.

26. Prentice Hall, 2002 26 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

27. Prentice Hall, 2002 27 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.

28. Prentice Hall, 2002 28 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

29. Prentice Hall, 2002 29 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

30. Prentice Hall, 2002 30 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

31. Prentice Hall, 2002 31 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

32. Prentice Hall, 2002 32 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

33. Prentice Hall, 2002 33 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

34. Prentice Hall, 2002 34 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

35. Prentice Hall, 2002 35 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

36. Prentice Hall, 2002 36 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

37. Prentice Hall, 2002 37 B2B Networks and Extranet The Internet Intranets—intra-business delivery systems Extranets

38. Prentice Hall, 2002 38 Figure 7-9 An Extranet Source: Szuprowicz (1998), p. 6. Used by permission.

39. Prentice Hall, 2002 39 Implementation Issues Problems with exchanges Problems with public exchanges Transaction fees Cost savings Recruiting suppliers Too many exchanges Supply chain improvements

40. Prentice Hall, 2002 40 Implementation Issues (cont.) Problems with private exchanges Lack of trust Liquidity is questionable Software agents in B2B exchanges Disintermediation Evaluating exchanges

41. Prentice Hall, 2002 41 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

42. Prentice Hall, 2002 42 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