Thursday, January 31, 2008

Emerging e-Marketplaces

In its traditional sense, a 'marketplace' allows information to be disseminated and activity between buyers and suppliers to be co-ordinated. Before the slump in 2000, many firms took a huge 'leap of faith', investing large sums of money into new forms of technology and the associated business practices, without always fully realizing the implications of doing so. In the B2B electronic marketplace arena in particular, new exchanges appeared overnight, and from a peak of some 8,000 the inevitable shake-out reduced the number to about 2,000 in early 2002 (according to, February 2002). The e-Marketplace industry is therefore only just beginning to evolve, and a wealth of confusion currently exists as to the optimal strategy for companies to adopt. Many commentators see it as the next wave of the IT/information revolution.

The division of markets by spatial competition is now evaporating because of the scalability and virtual geographical nature of the Internet. The emergence of B2B e-Marketplaces is leading to more open collaboration among buyers and suppliers, and the rise in information-based products and services on the Internet has led to the circumvention of traditional intermediary business and information brokers. As evidenced by the travel industry, traditional market structures are being transformed and are giving rise to new forms of intermediaries and business models. With the introduction of new technologies that take advantage of this e-Marketplace phenomenon, markets can perform transactions on a glob scale, and thus grow exponentially.

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Some of the most notable early impacts on market structure have been i the financial services industry, where online brokerage services such as E*Trad have stolen market share away from many of the established brokerage firm such as Goldman Sachs. Each user of E*Trade benefits from a larger network, since online booking enables a larger number of transactions to be made. It facilitates the exchange of 'investor tips' and the usage of discussion forums on the membership Web pages. As a result, more and more traders are willing to in the E*Trade 'community' and thus use the E*Trade platform for trading. An optimum e-Marketplace entry strategy must take into consideration a umber of factors:

  • the estimated lifespan of the market;
  • the degree of change required to existing business processes;
  • the costs of imitating the pioneer;
  • the extent of financial resources available;
  • the likely cost of customer acquisition.

At present, despite the ongoing shake-out, many marketplaces are striving each critical mass. The initial focus has been on transactions, with only a -term view taken towards collaboration. Some, particularly independent marketplaces such as Chemdex (chemicals) and Opitmark (equities), have already been forced to close down. Transactions are limited and costly at this stage, and there is little incentive for many industry participants to take advantage of what is currently available. Moreover, creating an online catalogue remains complex process, and the willingness of many companies to use marketplaces a medium of exchange has been less than enthusiastic. Some prefer to keep prices confidential and negotiate closely with their customers. In addition, most of the FTSE 100 and Fortune 500 companies are locked in to existing electronic technologies such as EDI, which represents an expensive point-to-point trading network.

Despite current low usage levels, the potential for e-Marketplaces is evidenced by many recent studies. For example in a research report conducted by Forrester Research (2001), more than 75 per cent of companies envisaged trading online by 2004, and at least 50 per cent expect to participate in four or more e- Marketplaces by 2004. According to Durlacher (2000), B2B e-Commerce is estimated to account for almost 20 per cent of GDP in the UK and approximately 12 per cent of GDP in all of Europe by 2004. Forrester Research (2001) notes that while industries are moving at different speeds in order to take advantage of B2B initiatives, the automobile industry is leading the way with a forecast spend of almost 200,000 million euros by 2005. For example, Covisint, owned by Ford Motor Co., DaimlerChrysler AG, General Motors Corp., Renault SA, Nissan Motor Co., Commerce One Inc. and Oracle, plans to reduce supply chain costs and bring efficiencies to its owners' business operations. As a result, many B2B e-Marketplaces are incorporating a variety of value-added services in their offering in order to attract participants and differentiate themselves from competitors, and thus create a sustainable revenue model that is also profitable. These services vary across different industries and products, but some of the most common features include:

  • auctioning;
  • collaborative planning, forecasting and replenishment (CPFR);
  • improved knowledge management, reporting and visibility;
  • e-Procurement;
  • supply-chain management;
  • e-Logistics services.

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