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Chapter 7 E-Marketplaces and B2B Exchanges

Chapter 7 E-Marketplaces and B2B Exchanges. 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. Learning Objectives (cont.).

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Chapter 7 E-Marketplaces and B2B Exchanges

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  1. Chapter 7E-Marketplaces andB2B Exchanges 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 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 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 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 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 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 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 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) Prentice Hall, 2002

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

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

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

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

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

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

  20. 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 Dynamic Trading:Auctions and Matching 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 Prentice Hall, 2002

  22. Building and Integrating Marketplaces and Exchanges (cont.) • Integration • Between 3rd-party exchange and back-office systems of participants • Across multiple, incompatible exchanges • External communications • Web/client access • Data exchange • Direct application integration • Share process 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 transformation Exception handling • System and information management—involves management of: Software Hardware Information components 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 Prentice Hall, 2002

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

  27. 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 Prentice Hall, 2002

  28. 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 Prentice Hall, 2002

  29. 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 Prentice Hall, 2002

  30. 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 Prentice Hall, 2002

  31. 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 Prentice Hall, 2002

  32. 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 Prentice Hall, 2002

  33. 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 Prentice Hall, 2002

  34. 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 Critical Success Factors (cont.) Choice of business/revenue models Prentice Hall, 2002

  35. 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 Prentice Hall, 2002

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

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

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

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

  40. 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 Prentice Hall, 2002

  41. 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 Prentice Hall, 2002

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