Lecture 5: B2B Models and Services
Lecture Outline
• Concepts and Characteristics of B2B
• B2B Models
• Sell-Side Marketplaces: One-to-Many
• Buy Side Marketplaces: One-from-Many
• Exchanges
• Managing exchanges
• Services
 Hypermediation
1

Companies attempt to automate trading to improve the process
2 types of marketplace
 Private e-marketplace —one-to-many mode
 Public e-marketplace —many-to-many mode (aka exchange)
2 types of transaction
 Spot buying —determined by dynamic supply and demand
 Supported by third party exchange
 Strategic sourcing —long term contracts
 Supported by efficient supply chain
How is B2B conducted?
 Directly between buyer and seller (disintermediation) or via online intermediary
 Along the supply chain:
 Raw material, manufacturer, distributor, retailer
Benefits of B2B models:
 Eliminate paper, Expedite cycle time, Reduce errors and costs
 Better partnership management
Collaborative commerce – companies share information e.g. to predict orders

1. Company-centric models
 Sell-side marketplace (one-to-many)
 Buy-side marketplace (many-to-one)
2. Many-to-many marketplaces —the exchange (lecture 6)
 Buyers and sellers meet to trade
3. Other B2B models and services
 Helping to optimise the value chain
Vertical vs. horizontal marketplaces
 Vertical —one industry or industry section – steel, chemicals
 Horizontal
—service or product used in several industries
Virtual service industries in B2B
 Travel and tourism services
 Real estate
 Electronic payments
 Online stock trading
 Online financing
 Other online services
3

Three main methods:
1. Direct sales from catalogs
 Like B2C - Configuration and customisation
 Successful cases: Dell, Intel, IBM, Cisco
2. Selling via intermediaries
3. Forward Auctions (highest bidder wins)
 Increases: revenue, page views and membership
 Can be done on seller’s site or through intermediary
 Intermediary services:
Search and report all auction activities
Calculate billing and handle payment
4

No equivalent in B2C
Purchasing agents (buyers)
 Direct materials - Use material in manufacture
 Critical to keep production line running
 Usually involves long term relationship with vendor
 Indirect materials – Maintenance, repairs, operations (MRO)
 20% of cost but 80% of purchased items  receive less attention
 Inefficiencies in procurement management for MROs
 Procurement reengineering – automation; save money; reduce maverick buying From non contract vendor
Buy-Side marketplaces – let the sellers do the work
 Reverse auctions (lowest bidder wins)
 Web based auctions are faster and cheaper – lecture 6
 Aggregate suppliers’ catalogs on organisation’s server
 Group purchasing
 Internal aggregation – quantity discounts + less overhead e.g. GE
 External aggregation – third party aggregates demand 5

Direct Material Indirect MROs Classification:
Systematic Sourcing Vertical Distributors
Aggregation, fixed prices
Spot Sourcing
Horizontal Distributors
Aggregation, fixed prices
Vertical Exchanges Horizontal Exchanges
Matching, Dynamic Pricing Matching, Dynamic Pricing
(Dynamic pricing = different prices to different customers)
Also: Purchasing oriented or selling oriented
Ownership
 Industry Giant – IBM’s patent exchange delphian.com
 Neutral Entrepreneur – third party intermediary – unbiased
 Liquidity = ability to recruit large numbers of buyers/sellers
 Consortia – several industry players – no one dominates
 Purchasing oriented consortia – group of buyers pressure sellers to lower prices
 Can also have selling oriented consortia
 Legal challenges – anti-trust scrutiny e.g. industry pricing policies
 Warning signs: price increases, reduced quality, denial of qualified parties
 Response: less information transparency to inhibit access to competitors’ information, participation broadly available, neutral autonomous management
6

Revenue models
 Transaction fees – commission on each sale
 Service fees - i.e. level of service: consultancy on policy, phone calls etc.
 Membership fees – annual or monthly
 Advertisement fees – ads on the portal
Critical Success factors
 Early liquidity – leads to low transaction fees, increases liquidity
 Liquidity refers to volume of business conducted
 Business’s chance of survival is best when liquidity is achieved early
 Openness – organisational and technological (open standards)
 Targeting right industries – high product search/comparison costs
 Brand building is critical – because switching costs are low
 Value added services – industry news, hosting, financial services
 Exchanges team up with banks, logistic services and IT companies to help
 Multiple revenue streams from services  lower fees
7

 Desire to concentrate on core business
 Need to have services up and running quickly
 Lack of expertise for support services
 Economy of scale not possible from inside
 In-house options do not meet changing demands
 Too many services for one company to handle
8

 Licensed and incorporated in client system or real-time via
ASP
 Industry standards —XML, XSL (extensible style language)
 Business hosting - popular for SMEs;
 Large businesses need a dedicated server – dellhost.com
 Free Web hosting – advertising revenue
 MSPs – like ASPs but manage IT infrastructure (not applications)
9

Order Fulfillment, Logistics, and Supply Chain Services
 supply chain management and transportation services – e.g. UPS
Marketing and advertising
 Ad server network provider – brokers banner ad sales
 Electronic wholesalers – intermediary who sells to businesses
Infomediaries and Online Data Mining Services
 Collect consumer data  analyse it  repackage  sell for marketing
 Clickstream data – monitor user’s clicks
Providing content
 Syndication: knowledge creators use syndicators to distribute content
 For dynamic content E.g. news, sports, weather, stock quotes
 Cheaper than producing your own content
 Catalog content
 full service exchanges offer catalog services
 Content maximization and streaming services
 companies provide media rich content to reach target audience
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 E.g. Video clips, Music, Flash media

Financial B2B services
 Payment Systems
 Purchasing cards – used by governments or universities – geographical limits
 Electronic letters of credit (LC) – can work internationally
( payment upon presentation of documents that comply with terms)
 TradeCard.com – cheaper than LCs; uses MasterCard’s trusted brand
 Venture capital to fund EC initiatives – VC firms and “angel investors”
 Internet incubators – develop EC initiatives then move on
 Credit reporting firms
 Credit intermediaries – guarantee against loss
Reintermediation:  redefining value added role of traditional intermediaries
 new electronic intermediaries  Cybermediation
Hypermediation : intermediaries flourishing
 Content providers
 Affiliate sites
 Search engines
 Portals
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ISPs
Software makers
Other entities in future
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Concepts and Characteristics of B2B
 types of transaction, marketplace, conduct, benefits
B2B Models – company-centric, many-to-many
Sell-Side Marketplaces: One-to-Many
Buy Side: One-from-Many, E-Procurement
Exchanges – types, ownership, models
Managing exchanges – revenue, management, success factors
Services – outsourcing, Web hosting, financial, logistics, marketing, providing content, directories, newsletters….
 Hypermediation
• QUIZ 6
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