The e-commerce market opportunities in the B2B space are exceptionally greater than those in B2C. GartnerGroup, one of the leading analyst firms, predicts that B2B e-commerce will amount to over $7 trillion by the year 2004. The interoperability and integration complexities are also multidimensional in comparison to those in B2C space. Sean Rhody, JDJ editor-in-chief, touched on this very topic in the March issue (Vol.5, Issue 3). Consumers have benefited from the dot-com phenomenon in terms of cost savings, convenience and automation. Buyers and sellers in the B2B space are after those same cost-saving benefits to increase bottom-line profitability.
Rise of the Digital Marketplace
Recent developments have seen the rise of the digital marketplace, a centralized location where multiple buyers and sellers meet and exchange goods, services and information. This centralized approach eases the buying and selling of products in a fragmented industry. Organizations aren't quite sure how they're going to participate in an electronic marketplace, but they know they'll have to. Primarily, they fear they'll lose their competitive advantage if they don't. But the benefits for all parties involved are tremendous.
Key Digital Marketplace Components
Digital marketplaces strive to be the business portals of the future. Their goal is to attract as many buyers and sellers as possible and provide them with the tools to exchange goods and services. Not only must they enable e-commerce, but they must also foster communication and speed the sales cycle for members to become more profitable. Marketplaces typically make their money by taking a percentage of the transaction revenue; in the future however, market makers will have to offer value-added services in order to grow their revenue and gain customer loyalty.
Marketplaces address the following functions:
B2B Commerce Models Are Varied and Unique
- Content: A catalog content management system enables suppliers to offer their catalogs electronically, giving them a tremendous reach into a much wider potential audience of buyers. For buyers, a centralized location for purchasing goods allows them to find the best price, quality, terms and conditions or any other key buying criteria that may be important to them.
- Commerce: Although marketplaces typically service a unique trading community and provide different levels of marketplace functionality, they all share the common requirement of automating the exchange of information and transactions in a distributed environment between buyers and suppliers.
- Community: Building a sense of community is essential to attracting more buyers and suppliers to obtain critical mass. By providing the latest news, information and data, the marketplace will encourage regular visits. Also, real-time collaboration between trading partners significantly expedites the trading process.
- Services: Value-added service offerings will become the norm as digital marketplaces battle for business loyalty and a comparative advantage. The market maker has access to large amounts of product, transaction and market data that will be invaluable for trading partners to grow their business.
There's no doubt that the ubiquity of the Internet has created what seem like endless opportunities and has resulted in some interesting and creative business models. Thousands of marketplaces have evolved, each with its own approach, implementing multiple revenue models including auctions, reverse auctions, independent exchanges and hubs. Forrester Research estimates that 75% of these marketplaces will provide more than one transaction mechanism within two years.
Complex Products and Business Relationships
In the B2C e-commerce space, the product remains fairly static and price becomes the differentiating factor. However, in the B2B space the product and transaction variables are much more complex. Products have multiple dimensions and origins, and an entire list of quality specifications. Transactions have to incorporate many variables, including payment terms and conditions, order status and shipment confirmation. In addition, buyers may use a marketplace to work solely with a group of preferred suppliers and to trade on prenegotiated contract terms. The list continues to grow...
The rapid growth of the Internet has resulted in an uncoordinated approach to the adoption of Internet business models, resulting in complex integration and interconnectivity issues between trading partners. The number of marketplaces is expected to reach 100,000 in the next three to five years. The very trend that aims to centralize fragmented markets will be threatened by fragmentation itself. Take the example of ATM networks, which were forced to integrate with one another to serve the needs of customers. Marketplaces will be required to do the same, so market makers should plan accordingly. The eCo Framework from CommerceNet offers an XML-based solution that enables businesses to simply register their product and service offerings in order to participate in a market without requiring them to change the way they do business.
Open, Standards-Based Infrastructure Solutions
To effectively support these numerous product attributes, complex transactions, multiple e-commerce models, unique business relationships and marketplace interoperability, a digital marketplace must fundamentally be very flexible. Previous buy-and-sellside solutions were too rigid, took a long time to realize a return on investment and couldn't easily adapt to an organization's business processes. Market makers will look to open, standards-based solutions to protect their investment and provide the flexibility to adapt the marketplace to meet future e-business needs. Java, XML and messaging-based middleware will be the enabling technologies to effectively exchange data and information in real-time between trading partners and their existing systems. In addtition, market makers should look to the eCo Framework from CommerceNet to empower marketplaces to interoperate with one another.
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Digital marketplaces are rapidly on the rise and here to stay. To learn more about them and how your organization can benefit either as a market maker or trading partner, follow the following links: www.netmarketmakers.com, http://eco.commerce.net
Alex Roedling is director of marketing at Fiorano Software, an e-businss infrastructure solutions company. He holds an MBA from the Montery Institute of International Studies.