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Chapter7

Public B2B Exchanges

and Portals

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Prentice Hall 2004 2

LearningObjectives

1. Define e-marketplaces and exchangesand describe their major types.

2. Describe the various ownership andrevenue models of exchanges.

3. Describe B2B portals.

4. Describe third-party exchanges.

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LearningObjectives(cont.)

5. Distinguish between purchasing(procurement) and selling consortia.

6. Define dynamic trading and describeB2B auctions.

7. Describe the operation and benefits of

networks of exchanges.8. Discuss exchange management.

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LearningObjectives(cont.)

9. Describe the critical success factorsof exchanges.

10.Discuss implementation issues ofe-marketplaces and exchanges.9. Describe the major support services

of B2B.

10.Describe the role of extranets insupporting marketplaces andexchanges.

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ChemConnect:TheWorld

ChemicalExchangeThe Problem

Before the Internet, the B2B trading

process was slow, fragmented,ineffective, and costly

Buyers paid too much, sellers had highexpenses, and intermediaries wereneeded to smooth the trading process

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ChemicalExchange(cont.)The Solution

Traders meet electronically in a large

Internet marketplaceSave on transaction costs, reduce cycletime, and find new markets and tradingpartners around the globe

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ChemicalExchange(cont.)Trading Center consists of 3 tradingareas

1. Marketplace for buyers2. Marketplace for sellers

3. Commodity market platform

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ChemicalExchange(cont.)ChemConnect members use the TradingCenter to streamline sales and sourcingprocesses by automating requests forquotes, proposals, and finding newsuppliers

The center enables a member tonegotiate more efficiently with existingbusiness partners as well as with newcompanies the member may invite to thetable in complete privacy

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ChemicalExchange(cont.)The revenue model includes:

members annual transaction fees

monthly or annual subscription fees (fortrading and for auctions)

fulfillment service fees

Three trading locations provide up-to-the-

minute market informationBusiness partners provide several supportservices (payments, delivery, etc.)

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ChemicalExchange(cont.)The Results

Benefits of ChemConnect to its members

are:more efficient business processes

lower overall transaction costs

time saved during negotiations and biddings

sellers reach more buyers and liquidatesurpluses rapidly

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ChemicalExchange(cont.)What we can learn

Electronic exchange is owned and

operated by a third-party intermediaryBuyers and sellers, as well as otherbusiness partners, congregateelectronically to conduct business

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B2BElectronicExchanges

Public e-marketplaces (public exchanges):Trading venues open to all interested

parties (sellers and buyers) and usually runby third parties

Exchange:A many-to-many e-marketplace.Also known as e-marketplaces, e-markets,

and trading exchanges

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B2BElectronicExchanges(cont.)

Market maker:The third-party thatoperates an exchange (and in many

cases, also owns the exchange)Systematic sourcing:Purchasing donein long-term supplierbuyerrelationships

Spot sourcing:Unplanned purchasesmade as the need arises

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Vertical exchange:An exchange whosemembers are in one industry or

industry segmentHorizontal exchanges:Exchanges thathandle materials used by companies in

different industries

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Dynamic pricing:A rapid movement ofprices over time, and possibly across

customers, as a result of supply anddemand

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Process that results in dynamic pricing in mostexchanges includes1. A company posts a bid to buy a product or an offer to sell

one2. Anonymity is often a key ingredient of dynamic pricing

3. Buyers and sellers interact with bids and offers in realtime

4. A deal is struck when there is an exact match between abuyer and a seller on price, volume, and other variablessuch as location or quality

5. The deal is consummated, and payment and delivery arearranged

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Functions of exchanges

Matching buyers and sellers

Facilitating transactions

Maintaining exchange policies andinfrastructure

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Ownership of exchanges

An industry giant

A neutral entrepreneur

The consortia (or third-party co-op)

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Revenue models

Transaction feesFee for service

Membership fees

Advertising fees

Other revenuesources

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Governance and organization

Membership

the community in the exchange

Site access and security

information should be carefully protected

Services provided by exchangesprovide many services to buyers and sellers

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B2BPortals

B2B portals:Information portals forbusinesses

Pure information portals include:directoriesof products offered by eachseller

lists of buyers and what they wantother industry or general information

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B2BPortals(cont.)

Vortals:B2B portals that focus on asingle industry or industry segment;

vertical portals

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B2BPortalExamples

Thomas Registerinformation portalSellers distribute information on what

they have to sellBuyers can find what they need andpurchase over a comprehensive andsecure procurement channel

reduce costsshrink cycle times

improve productivity

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B2BPortalExamples(cont.)

Alibaba.comstarted as a pure informationportal and is moving toward becoming atrading exchange

Huge database is a horizontal information portalwith offerings in a wide variety of productcategories

Reverse auctions

Featuresfree email, email alerts, etcRevenue modeladvertisement and fees forspecial

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ThirdParty(Trading)

ExchangesThird-party exchanges arecharacterized by two contradicting

propertiesthey are neutral, not favoring eithersellers or buyers

they do not have a built-in constituency

of sellers or buyers and sometimes havea problem attracting enough buyers andsellers to attain financial viability

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ThirdParty(Trading)

Exchanges(cont.)

A major problem is:

Market liquidity:The degree to which

something can be bought or sold in amarketplace without affecting its price

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ThirdParty(Trading)

Exchanges(cont.)

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ThirdParty(Trading)

Exchanges(cont.)

Buyer aggregation modelbuyers RFQs are aggregated and then

linked to a pool of suppliers that areautomatically notified of the RFQs

Suitabilityaggregation models work best with MROs

and services that are well defined, thathave stable prices, and where thesupplier or buyer base is fragmented

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ThirdParty(Trading)

Exchanges(cont.)

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ConsortiumTrading

ExchangesConsortium trading exchange (CTE):Anexchange formed and operated by a group

of major companies to provideindustrywide transaction services

Three basic types of environments:

1. Fragmented markets

2. Seller-concentrated markets

3. Buyer-concentrated markets

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ConsortiumTrading

Exchanges(cont.)

CTEs, defined by two main criteria:whether they focus on buying or selling

whether they are vertical or horizontal4 types of CTEs

1. Purchasing oriented, vertical

2. Purchasing oriented, horizontal

3. Selling oriented, vertical

4. Selling oriented, horizontal

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ConsortiumTrading

Exchanges(cont.)

Purchasing-oriented consortia

Vertical Purchasing-Oriented CTEs

all the players are in the same industry

Horizontal Purchasing-Oriented CTEs

owner-operators are large companies fromdifferent industries that unite for the purpose

of improving the supply chain of MROs usedby most industries

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ConsortiumTrading

Exchanges(cont.)

Selling-oriented consortia

Most selling-oriented consortia are

verticalParticipating sellers have thousands ofpotential buyers within a particularindustry

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ConsortiumTrading

Exchanges(cont.)

Other issues for consortia

Legal challenges for B2B consortia

level of collaboration among both competitorsand business partners

antitrust and other competition laws must beconsidered

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ConsortiumTrading

Exchanges(cont.)

Critical success factors for consortia

Appropriate business and revenue models

Size of the industryAbility to drive user adoption

Elasticity

Elasticity:The measure of the incrementalspending by buyers as a result of the savingsgenerated

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ConsortiumTrading

Exchanges(cont.)

Management of intensive information flow

Smoothing of supply chain inefficiencies

Harmonized shared objectives

Combining consortia and third-partyexchanges

dot-consortialarge consortia + third-partyowner

combination may bring about the advantageof both ownership and minimizing third-partylimitations such as low liquidity

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DynamicTrading:

MatchingandAuctions

Dynamic trading:Exchange tradingthat occurs in situations when prices

are being determined by supply anddemand (e.g., in auctions)

Matching

supply and demandquantity, delivery times, and locations

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DynamicTrading:

MatchingandAuctions(cont.)

AuctionsExchanges offer members the ability to

conduct auctions or reverse auctions inprivate trading roomsauction services as one of its many activities

fully dedicated to auctions

Many-to-many public auctionsvertical,horizontal, run on the Internet or overprivate lines

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BuildingE-Marketplaces

Building e-marketplaces is a complexprocess

usually performed by a major B2Bsoftware company

Commerce One

Ariba

Oracle

IBM

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BuildingE-Marketplaces(cont.)

Integration issue

Seamless integration is needed between

the third-party exchange and theparticipants front and back-officesystems

In private exchanges the sellerscomputing system must be integratedwith the customers systems

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External communications

Web/client access

Data exchangeDirect application integration

Shared procedures

Process and information coordination in

integrationhow to coordinate external communicationswith internal information systems

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Use of Web services in integrationWeb Services enable different Web-basedsystems to communicate with each other using

Internet-based protocols such as XMLSystem and information management inintegration

management of software, hardware, and

several information components, includingpartner-profile information, data and processdefinitions, communications and securitysettings, and users information

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SupportServicesforPublic

andPrivateMarketplaces

Directory services and search engines

Directory services help buyers and sellers

manage the task of finding potentialpartners

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andPrivateMarketplaces(cont.)

Partner relationship management(PRM):Business strategy that focuses

on providing comprehensive qualityservice to business partners

E-communities and PRMB2B application needs to provide

community services such as chat rooms,bulletin boards, and possibly personalizedWeb pages

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andPrivateMarketplaces(cont.)

Integration (as per Keenan Report)

Business-to-exchange (B2X) hubs connect

all of the Internet business servicese-merchant services

exchange infrastructure

buying and selling

member enterprises

other B2X exchanges

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ImplementationIssues

Private vs. public exchanges

Private exchanges:E-marketplaces that

are owned and operated by onecompany. Also known as company-centricmarketplaces

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ImplementationIssues(cont.)

Problems with private exchanges

Transaction feesrequired to pay transactionfees with existing customers

Sharing informationdo not want to sharebusiness data with competitors

Cost savingsnot great enough to attract buyers

Recruiting supplierslose direct contact withcustomers

Too many exchanges

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Supply chain improvers

Companies want to streamline their

internal supply chains, which requiresintegration with internal operationsinstead of plugging in to an exchangesinfrastructure

Major problem is trust in the largecorporation running the exchange

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Software agents in B2B enable customizedsyndication of content and services frommultiple sources on the Internet to anydevice connected to the Internet

provide real-time, tighter integration betweenbuyers and sellers

facilitate management of multiple tradingpartners and their transactions across multiplevirtual industry exchanges

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Example:Asite

Asites B2B marketplace for theconstruction industry

B2B e-marketplace for the constructionindustry in the United Kingdom

This industry is typified by a high degreeof physical separation and fragmentation,and communication among the membersof the supply chain is a primary problem

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Asite(cont.)

Two of the major advantages of theInternet:

ability it provides to communicate more

effectivelyincreased processing power made possible byInternet technologies

Asite decided not to build its own

technology, but to establish partnershipswith technology vendors that have highlyspecialized products

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Asite(cont.)

Commerce One provides the businesssolution for the portal

Microsoft provides the technology platform

and core applications

Attenda is the designer and manager of theInternet infrastructure

Asite is committed to strong partnershipsthat allow it to seamlessly interact withother e-marketplaces

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Asite(cont.)

Internet browser is all that is needed toconnect to Asites portal

Ease of access makes it particularly wellsuited to an industry such as construction

Construction firms streamline theirsupply chains

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Asite(cont.)

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ManagingExchanges

Open standards mean that thetechnology can be incorporated easily

with participating firms back-endtechnologies, allowing full visibility ofthe supply and demand chains

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ManagingExchanges(cont.)

Networks of exchanges (E2E)

Large corporations may work with several

exchanges, and they would like theseexchanges to be connected in a seamlessfashion

Commerce One and Ariba developed a

strategy that allows them to plug a broadrange of horizontal exchanges into their mainnetworks

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Centralized management

Managing exchanges and providing

services to participants on an individualbasis is expensive

Build families of exchanges managedjointly in order to operate several

exchanges from a unified, centralizedplace

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Manages all of the exchanges:

Catalogs

Auction places

Discussion forums

Managing and centralizing:

Accounting

FinanceHuman resources

IT services

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Critical success factors for exchangesaccording to Ramsdell:

1. Early liquidity2. The right owners

3. The right governance

4. Openness5. A full range of services

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Other CSF:

Importance of domain expertise

Targeting inefficient industry processes

Targeting the right industries

Brand building

Exploiting economies of scope

Choice of business/revenue modelsBlending content, community, and commerce

Managing channel conflict

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New directions in B2B marketplaces

Early failures of exchanges were due

mainly to the failure of thesemarketplaces to foster a broad-basedsharing of information

Recognize the fundamental asset

provided by their member base is theunique knowledge of the industry

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e-distributors

Take title to the goods they sell

Aggregate those goods for the convenienceof buyers

Advise buyers which to choose

Reach hard-to-find buyers

Result in extra valuefor buyers and decentprofits for sellers

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ManagerialIssues

1. Have we done our homework?

2. Can we use the Internet?

3. Which exchange to join?4. Will joining an exchange force

restructuring?

5. Will we face channel conflicts?6. What are the benefits and risks of

joining an exchange?

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Summary

1. E-marketplaces and exchangesdefined and the major types ofexchanges.

2. Ownership and revenue models.

3. B2B portals.

4. Third-party exchanges.

5. Consortia and e-procurement.

6. Dynamic pricing and trading.

ec2004_ch07

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