B2b eMarketplaces: A classification framework to analyse business models and critical success factors

BY APRA BISHT PAURUSH RAUTHAN YATIN MALHOTRA

E-MARKETPLACE
e-Marketplaces are trading exchanges, sell-side hubs, and buy-side hubs that facilitate and promote buying, selling and business communities among trading partners within certain industries. Businesses have more complicated purchasing and selling processes. For example, large enterprises often negotiate framework contracts and then order within these contracts. E-marketplace: platform which caters buyers and sellers equally.

vertical e-Marketplace: very specific industry; completely oriented towards the distinct need of this particular group.
Horizontal e-marketplaces: tailored to functions or processes which are important in many industries.

E-Marketplaces

2-3

E-Marketplaces
E-Marketplace Components and Participants Infrastructure Front end -The portion of an e-sellers Customers business processes through which Sellers customers interact, including the sellers portal, electronic catalogs, a shopping Products and services cart, a search engine, and a payment digital products gateway Goods that can be transformed Back end -supports online order to digital format and delivered fulfillment, inventory management, over the Internet purchasing from suppliers, payment processing, packaging, and delivery
Intermediaries

2-4

Third parties that operates between sellers and buyers Other business partners Support services

Types of E-Marketplaces
Types of E-Marketplaces private e-marketplaces

Online markets owned by a single company; may be either sell-side and/or buy-side e-marketplaces sell-side e-marketplace A private e-marketplace in which one company sells either standard and/or customized products to qualified companies buy-side e-marketplace A private e-marketplace in which one company makes purchases from invited suppliers public e-marketplaces B2B marketplaces, usually owned and/or managed by an independent third party, that include many sellers and many buyers; also known as exchanges

2-5

Electronic Commerce, Seventh Annual Edition

Examples
Aeroxchange : A consortium for 13 airline companies

offers airframe, avionics, maintenance services, and general goods and

services
With web-based applications Covisint

Created by Ford, GM and DiamlerChrysler

For trading automobile related goods and services Attracts 20+ buyers and suppliers, such as Nissan, Renault and BASF. Exotar Formed by Boeing, Lockheed Martin, Raytheon and BAE Systems For aerospace and defense industry

Emarketplaces in its initial years

When business to business (B2b) eMarketplaces(also called online

marketplaces)entered the market, they were supposed to dramatically improve the effectiveness and efficiency of commercial processes between companies, radically changing traditional procurement strategies, and restructuring supply chains, organizations, and industries.

Reasons for the failiure

several eMarketplaces evolved the original business model mainly based on the open transactions between buyers and sellers . Some of them tried to incorporate the concept of software as a service
whereas others started to offer more complex services in order to support processes, such as supply chain management and new product development rather than commercial transactions alone. Yet again, others evolved into consulting companies.

JOURNAL
B2b eMarketplaces: A classification framework to analyse business models and critical success factors.
Raffaello Balocco, Alessandro Perego, Sara Perotti Industrial Management & Data Systems Vol. 110 No. 8, 2010

About the paper

The purpose of the paper is to look in depth at the role of business-to-

business (B2b)e Marketplaces in supporting B2b relationships, identifying the successful business models and the related critical success factors (CSFs) and to propose a new classification framework to classify eMarketplace business models.
The paper offers an overview of the eMarketplace business models linking them with the most relevant CSFs. On one hand, they say that CSFs must be considered by managers and entrepreneurs launching new eMarketplaces or managing existing ones, in order to define the strategy,the business model, and the value proposition for the company users.

Cont
On the other hand, managers facing the problem of adopting internet

technology to support a B2b relationship with business partners must learn to distinguish between the different B2b business models,
in order to understand their impact on processes and more precisely evaluate

the potential value offered by a B2b electronic intermediary.

Benefits of electronic applications to support B2b processes.

Helps in reducing the cost of coordinating economic transactions and the

cost of coordinating production. The electronic applications like eCommerce, eProcurement, and eOperations helps in achieving better payoffs to those companies that extensively have implemented eBusiness solutions. the reduction of purchasing costs, the decrease of inventory levels, The enhancement of process integration capabilities, the time savings in the sourcing activities purchasing activities, and the increase of the pool of potential suppliers Other benefits through internet-based applications As far as supply chain management process is concerned, the main benefits increase of productivity, the increase of service quality, and a more effective control of the material flows along the supply chain.

Buisness 2 business intermediaries

e-distributor

Collaboration

marketplace

aggregation private trading exchange

on the basis of the number of buyers and suppliers involved in the

transactions (i.e. few vs many) and of the primary purpose of the user who initiates the transaction

Critical success factors

on technical issues or analyze industry-specific or region-specific

eMarketplaces. the internal governance, the features provided to the company users, the partnership strategy, and the consistency of the elements setup. Depends on both internal and external CSFs, such as the influence of the policy makers in stimulating the adoption of the eMarketplace, the profile of the potential company users, and the quality of the services provided by the eMarketplace (i.e. the content quality, the service/value-added quality, etc.). Three main features at the basis of successful eMarketplace business models: the content (i.e. the customer focus and the nature of business), the structure (i.e. the revenue model and the service portfolio), the governance (i.e. the relevant shareholder).

Relevance of the operator in the B2b market 1 City.biz Covering of all existing business models Availability for direct interview

Online sources Offline sources

30 case studies

6 through secondary sources General data Business model Strategy and competitive positioning Value chain and organization Perfomances

Adquira Agentrics Ariba Bayantrade Bravosolution Cc-Hubwoo ChemConnect Converge Covisint CPGmarket e2open eBaybusiness eLance eUtilia Exostar FirstIndex IBX Inttra Ironplanet Liquidity service Ofs-portal Pantavanij

Classification framework
this paper presents a new classification framework which

integrates and applies these three variables i.e. process, technology and people to B2b e Marketplaces. Two main variables were considered the service-provisioning model (that considers both the technology and the collaboration variables of the mentioned models); and the B2b processes supported by the eMarketplace (that considers the process variable of the mentioned models).

Service-provisioning model
Orthodox eMarketplace when the eMarketplace web site is

public and shared with the other company users (the term orthodox is used here because this model fits the original and first idea of a B2b eMarketplace). Several general services supporting trade interaction between companies are offered. Application service provider (ASP) when the B2b eMarketplace provides the company users with a technological platform on a pay-per-use basis (very similar to an ASP model in the software industry), together with various value-added services related to its exploitation. The company users can exploit the platform in a remote way, which is private and safe. Process outsourcer when some of the client-supplier processes are professionally managed on behalf of the company users and the technology is only a support tool.

B2B process supported

eSourcing, which refers to the tools supporting the search for new suppliers, the

definition of their status, the online negotiation through electronic auctions eCatalog The recursive buying process of products and services, usually based on web catalogues. eSupply chain execution the integration and digitalization of the order-to-payment cycle, including logistics and administrative activities. eSupply chain collaboration which refers to the collaborative activities between buyers and suppliers, including production and procurement plant,new product development, supply chain monitoring, and control.

The business models and the CSFs

Orthodox eMarketplaces
Public exchanges:

Public exchanges support the purchasing process of commodity products (chemicals, metals, information and communication technology products, etc.) through an exchange platform. They usually provide several services, e.g. financial services to handle credit (clearinghouse), logistics services, risk management services, and market intelligence services.

Three main CSFs were highlighted by these operators:

to guarantee the anonymity and neutrality in managing

the transactions between buyers and sellers; to establish trust and relationships with their customers, especially for those operators that offer services such asmarket intelligence and financial services; and to reach a high level of liquidity, due to the low level of gross margin per transaction and the high level of fixed costs.

Managerial implications
public exchanges are a real option only for those companies trading

commodity products; the value for the users is essentially related to the timely access to buying/selling opportunities; the level of anonymity and neutrality of the exchange must be seriously verified by the potential users; and the level of liquidity of the exchange is paramount, since it is the main guarantor of business opportunities for the users.

 eMarketplaces focusing on secondhand goods

and overstocks :
The second cluster comprises those eMarketplaces focusing on the sale of secondhand goods and overstocks through auction mechanisms. It is important for these eMarketplaces to guarantee the credibility of the sellers and to certify the quality of the products by means of different tools, such as user ratings, certification, and guarantee services.

Two main CSFs were highlighted by these operators:

to guarantee the credibility of the sellers and to

certify the quality of the products through different mechanisms; and to reach a wide number of targeted buyers through advertising activities.

 eMarketplaces focusing on supplier scouting:

These eMarketplaces use RFx systems to scout suppliers selling highly complex products/services (e.g. engineered goods and services). The revenue model is based on subscription fees, and the buyers are usually big companies willing to find new suppliers, either worldwide or in local markets.

Three main CSFs were highlighted by these operators: to increase brand awareness, in order to become a reference web site for the specific kind of sourcing market; to deepen the knowledge about specific sourcing markets in order to provide all the relevant information about the suppliers; and to ensure operational effectiveness, in order to interact with a large number of buyers and suppliers.

Managerial implications:
companies that are outsourcing the operations in foreign

markets can take advantage of these operators in order to plan a local sourcing strategy; and companies that are already pursuing a global sourcing strategy can exploit these operators to test new suppliers and to compare them with already existing ones.

 eMarketplaces focusing on the transportation

industry.
These eMarketplaces provide various services to the companies operating in the transportation industry, mainly focused on the exchange of transportation capacity. In this industry, the principal trend is towards the ASP model with the provision of private services to company owners. Two main CSFs were highlighted by these operators: to focus on unsold transportation capacity, even if it is very difficult to shift online a process operated by important intermediaries in a traditional way; and to reach a high level of liquidity, due to the low level of gross margin per transaction and the high level of fixed costs.

Managerial implications:
these eMarketplaces are useful for companies that want to buy

extra transportation capacity, exceeding the contracts typically ongoing with their usual suppliers, just-in-time when needed and/or at low prices; these operators can also be a resource for big logistics and transportation companies to trade unsold transportation capacity and to buy capacity from smaller companies; and for some small transportation companies, especially for the onetruck companies, these eMarketplaces could be a valuable opportunity to get in touch with the market efficiently and effectively.

Application service providers

Consortium-based service providers.
These online eMarketplaces provide companies in a specific industry, clustered in a consortium, with eSourcing and eSupply chain services that exploit the technological platform in a private and secure way

Two main CSFs were highlighted by these operators: the commitment of the companies belonging to the consortium; in the past, many failures occurred due to a low level of commitment of the companies participating in the consortium, determining several problems in terms of governance; and a high level of customization of the technological platform for the specific industry; the company users need to exploit a technological platform customized on the basis of the processes, activities, practices, and type of documents commonly used within the specific industry.

Managerial implications: companies belonging to the consortium must clearly define the governance mechanisms; and companies that are willing to join the eMarketplace must verify both the governance rules and the level of customization of the technological platform to the needs of the specific industry.

 Independent sourcing-based service providers.

eMarketplaces in this group for instance Adquira, IBX, and 1City.biz provide eSourcing services through an ASP technological platform, mainly to large companies in different industries. Two main CSFs were highlighted by these operators: to focus on business development and market growth, in order to leverage the investment made to develop the technological platform; and to guarantee the scalability of the technological platform; for these operators, it is important to offer their technological services in a standard way to companies belonging to different industries, with a low level of customization of the technological platform.

Managerial implications : these eMarketplaces provide useful technological platforms for eSourcing, but the process competences must remain within the user companies; big companies that have already adopted internal eSourcing applications (i.e. extranets) can exploit these service providers to source specific kinds of products or to satisfy spot sourcing needs; and B2b eMarketplaces small and medium companies can adopt these service providers to organize electronic negotiations with both existing suppliers and new ones.

 Independent integration-based service providers:

These operators offer eSupply chain execution services to exchange documents and to support integrated supplier networks. The operators in this category usually tend to expand their service by adding eCatalog to the basic eSupply chain execution services.

Two main CSFs were highlighted by these operators: to increase the number of suppliers, in order to reach a critical mass of company users; and to deepen the knowledge of industry standards, in order to translate the documents in the different standards required by the company users.

Managerial implications : these eMarketplaces can be interesting alternatives to privately managed hubs or extranets; the company users must look for value-added services in addition to the basic document exchange services, such as enterprise resource planning integration, data alignment, and process accountability; and a fundamental feature of these eMarketplaces is the extension of the network of companies they can reach, either directly or via agreements with other providers.

 Independent eCatalog service providers:

The players in this cluster provide companiesin a specific industry with eCatalog tools and services. The most critical control factors in this group are the technological platform, which should be customized on the basis of the buyers needs, and the operating model, which should manage the complex logistics of the end-to-end process.

Three main CSFs were highlighted by these operators:

in-depth knowledge of the buying process within a specific industry, in

order to offer a buying workflow customized on the basis of the industry needs; to develop a technological platform (catalog) customized on the basis of the buyers needs; and to offer high-quality logistic services.

Managerial implications :
companies that are willing to adopt eCatalog services must analyze their

present procurement process trying to highlight the activites that could be supported by the external provider; and the level of customization of the technological platform must be carefully checked by potential company users, in order to integrate the external eCatalog process with the internal procurement process.

Process outsourcers
The research results show that there is only one important business model in this category: that of eSourcing process outsourcers. These operators manage the eSourcing processes on behalf of their customers and also provide consulting services. They usually focus on large and medium companies either on the supplier or on the buyer side.

Three main CSFs were highlighted by these operators:

in-depth knowledge of the sourcing markets and product categories; a large base of well-known suppliers; and a highly effective and customizable technological platform.

Managerial implications :
big companies that have already adopted internal eSourcing

applications (i.e. extranets) can exploit these service providers to source new products/services or existing products/services in new markets; small and medium companies can adopt these service providers to fully outsource the sourcing process of specific kinds of products and services; and potential user companies must choose the degree of outsourcing, thetechnological platform alone vs the sourcing process as well, leveraging on the sourcing competencies of these service providers.

Factors Driving Online Trade Adoption

B-to-B Online Trade Forecast

Mapping Online Potential of Industry Segments

Conclusion
Companies are using Internet and Web technologies to improve their

purchasing and logistics primary activities

EDI
First developed by freight companies to reduce the paperwork burden Internet Now providing the inexpensive communications channel that EDI lacked

Supply chain management Incorporates several elements that can be implemented and

enhanced through the use of the Internet and the Web Models for B2B electronic commerce Private marketplaces Industry consortia-sponsored marketplaces

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