E-Marketplace - Facts & Fiction
Title: E-marketplace - Facts and Fictions
Author: Nowshade kabir
Not long ago, industry pundits were touting B2B marketplaces or
exchanges as Internet era panacea for productivity and
cost-cutting problems of corporate world. Buoyed by excessive
investor interest and driven by a desire to cash in on the
enormous dot-com valuations of late 90s, marketplaces were
sprouting like autumn mushrooms. With the collapse of stock
market, it did not take much time for burgeoning B2B
marketplaces to come to a screeching halt!
When in 2001 high profile marketplaces like Chemdex, a life
science marketplace started to tumble down, and most of the
marketplaces started to show sign of disappointing growth rate,
it became clear that something is wrong with the prevailing
business model of b2b e-marketplaces.
Optimists claim nothing is wrong with B2B e-marketplaces, as a
new technology, it is merely going through the normal
evolutionary stages. Others feel that business processes are way
too complex an issue, substantially based on human behavior and
intricate relationships; and this complexity will prevent wide
spread implementation of online supply chain mechanisms through
But, the truth is probably somewhere in between! There is no
doubt that any business, irrelevant to its size, is able to
create some sorts of value if they use B2B marketplace
effectively. As far as B2B E-commerce is concerned, most agree,
that eventually businesses have to do significant part of their
transactions online. The only thing is - it might take a bit
more time for widespread adoption, than initially expected.
Slow implementation of B2B e-marketplaces is a natural
consequence of some inadvertent stumbling blocks.
1. The investment in B2B sector started to dry up at the end of
2001 as unrealistic expectations of many investors and funds did
not materialize. As a result of this, many exchanges were forced
to close down; and much needed transformation in the technology
process slowed down in existing ones due to liquidity challenges.
2. Many early marketplaces were built in a hurry to exploit
prevailing at that time budding stock market. For these
marketplaces, value creation for the participants was not a
priority. By the time they realized that members need something
more than comparison shopping and product display ability, it
was a bit too late for quite a few of them.
3. Contrary to popular believe, buyers did not start flocking on
to the e-marketplaces as expected. As it became clear, buyers
require real incentives in order to go through the complex
process of online dealing. In most cases, in order to get
integrated to an e-marketplace, buyers are ready to learn, hire
professionals, and invest on technology if they know that most
of their offline suppliers are available on a particular
exchange. But, until then, they prefer to refrain from changing
their way of doing business.
4. There are number of reasons why suppliers don't expedite the
process either. They are mainly scared of comparison shopping
and brand dilution. Complexity of back end office integration
and product catalog conversion also creates major impediment in
mass adoption of e-marketplaces within the supplier community.
Suppliers with websites, who previously had disappointing
e-commerce experience, are also quite skeptical about the
benefits that they might achieve from exchanges.
5. Many exchanges' revenue depends on the percentage-based
transaction fee, imposed upon the participants. Some companies
consider that these fees will reduce their net profit margin,
especially, in a down market. This is another cause, why many
are not very keen to participate in e-marketplaces.
All these conditions are maybe right and, probably mass scale
adoption of e-marketplaces won't take place another several
years. However, don't think that companies should relax. As some
industries are more advanced in their adoption of B2B
technology, companies should constantly check where they stand.
If their competitors are already practicing e-business actively;
or many of their suppliers are by now on some sorts of
exchanges, this is the right time for these companies to
consider their online business approach seriously.
The sooner companies understand the benefits that they can reap
from B2B exchanges the better it would be for them. For
suppliers e-marketplaces offer benefits like liquidity
improvement, cost savings, better inventory management, demand
forecasting, dynamic pricing etc. Buyers benefits include: cost
reduction, real-time purchase, best available price and many
others. Research indicates that companies, thanks to B2B
exchanges, can gain remarkable cost reductions: 20 to 40 percent
of overhead expenses, 5 to 15 percent of buying cost, Purchase
Order processing cost from US$ 75 to just US$ 6-8; and decrease
of document errors from 20 percent to less than one percent.
Apart from these benefits, early adoption of B2B marketplaces
also has great implications for companies. Early birds get
considerable information advantage over their competitors; have
enough time to learn from trial and error and participate in
setting the rules for the exchanges as opposed to - forced to
abide by the rules as it would be the case for late-comers.
Whatever approach the companies decide to take in their quest of
B2B technology, one thing is for sure that the e-marketplaces
are here to stay. Over time, they will definitely evolve and
their business models will also change, however, there is no
doubt that a major portion of e-business will transact through
e-marketplaces in near future.
About the author:
Nowshade Kabir, Ph.D., is the founder, primary developer and
present CEO, of Rusbiz.com, a global business to business
e-commerce portal with feature like storefronts, aggregated
catalog, e-marketplace, trade leads, internal messaging system
supply chain solutions, etc. With a doctorate in Information
Technology, Dr. Kabir has worked an advisor to government
projects and has over 12 years experience in International