E - m a r ke t p l a c e s : n ew
c h a l l e n g e s f or e n t e r pr i s e
policy, competition and
standar disation
Br us s el s , 23- 24 Apr i l 2001
W or ks hop R epor t
R ap p o rteu r:
R u ss N ath an
C h a irma n
T o ta l-R o mte c R e s e a rc h
russn@total-romtec.com
E-marketplaces: new challenges for enterprise policy, competition and standardisation
23-24 April 2001
Table of contents
1.
Introduction .............................................................................................1
2.
Development of e-marketplaces.........................................................2
2.1
2.2
Origins and role of e-marketplaces........................................................2
E-marketplace types.................................................................................3
3.
E-marketplaces operator’s perspective ...........................................5
3.1
3.2
3.3
3.4
Business model ........................................................................................5
Operating benefits ....................................................................................5
Sector penetration....................................................................................7
Sector examples of e-Marketplaces.......................................................8
4.
E-marketplace from the users’ perspective ................................. 10
4.1
4.2
4.3
4.4
Users are buyers and sellers ................................................................10
How do buyers view e-marketplaces? .................................................11
How do the sellers view e-marketplaces? ...........................................12
When the users are SMEs......................................................................12
5.
Growth and prospects for e-marketplaces................................... 14
5.1
5.2
Growth in e-marketplaces: 2000-2002..................................................14
Consolidation is already occurring ......................................................14
6.
The issues............................................................................................. 16
6.1
6.2
6.3
MyAircraft.com........................................................................................16
Volbroker.com.........................................................................................17
So, what are the issues?........................................................................18
6.3.1
6.3.2
6.3.3
6.3.4
6.3.5
6.3.6
6.3.7
Benefits....................................................................................................... 18
Market definition .......................................................................................... 18
Market dominance ....................................................................................... 19
Exchange of information............................................................................... 19
Joint purchasing/joint selling ......................................................................... 19
Discrimination/foreclosure/collusion............................................................... 20
Standardisation............................................................................................ 20
7.
Competition: Problems and possible solutions ......................... 22
7.1
7.2
7.3
Is there a problem? .................................................................................22
The information dilemma .......................................................................23
Conclusions.............................................................................................23
8.
Standards – What needs to be standardised and by whom? . 24
8.1
8.2
8.3
8.4
Enablement of interoperability..............................................................24
Protection of users’ interests................................................................25
The standardisation process.................................................................25
Organisation of the standards process ...............................................26
9.
Key messages and next steps......................................................... 28
E-marketplaces: new challenges for enterprise policy, competition and standardisation
1.
23-24 April 2001
Introduction
E-marketplaces are considered as one of the most important features of business-to-business (B2B)
electronic commerce and are expected to be a source of substantial efficiencies. So the new
challenge for policy makers is to ensure that numerous e-marketplaces can be developed in Europe.
This will give another boost to the internal market, with even more choice, transparency and
competition. But whereas the internal market was mainly completed by legal harmonisation and
mutual recognition of national laws, e-marketplaces will be shaped mainly by the market, by business
services, standards and new rules of the game.
DG Enterprise organised on the 23 and 24 April 2001 the Workshop “E-marketplaces: new challenges
for enterprise policy, competition and standardisation“. The event had two objectives:
-
To discuss the future agenda for enterprise policy in response to the new challenges posed by emarketplaces. The keywords here are “openness” and “interoperability”. This can be best ensured
by open standards. But also by the strict application of competition rules - and by actions to help
SMEs to be part of the new e-marketplaces.
-
To help the Commission to better understand the policy requirements associated with the
establishment of e-marketplaces, in particular with respect to standardisation. Clearly, standards
are voluntary and market-driven. But enterprise policy may help to establish open platforms for
consensus-building, thus accelerating the creation of efficient e-marketplaces in Europe.
This report summarises the findings of the Workshop and is intended to serve as an input to the policy
debate in this field. The views it expresses are those of the rapporteur and not necessarily of the
Commission, and reflect the valuable inputs that were provided during its preparation.
Despite the numerous written and slide presentations made at the different sessions, this report
makes no reference to specific interventions, with the exception of the opening speech of the
Commissioner Liikanen. All documentation, including the slide summaries of presentations, can be
found at: http://europa.eu.int/comm/enterprise/ict/e-marketplace_programme.htm .
Follow-up actions to support the active participation of SMEs in e-marketplaces will be explored and, if
1
needed, implemented in the framework of the GoDigital initiative . Furthermore, further support to
2
standardisation actions under the umbrella of the eEurope Standardisation Action Plan , as launched
by the European standardisation organisations, will be considered with the view to promoting open
and neutral platforms for electronic exchanges.
1
http://europa.eu.int/ISPO/ecommerce/godigital
2
http://www.etsi.org/eeurope/eeurope.htm
1
E-marketplaces: new challenges for enterprise policy, competition and standardisation
2.
Development of e-marketplaces
2.1
Origins and role of e-marketplaces
23-24 April 2001
E-marketplaces are one of the most significant developments of the Internet age to date. In broad
terms, an e-marketplace is a website at which multiple suppliers and multiple buyers can undertake
business transactions via the Internet. The origins of e-marketplaces in Europe date back to 1996,
when British Telecom became one of the first organisations to establish a Private Digital Exchange
(PDE) known as BT Trading Places. However, it was soon recognised to be too early on in the
evolution of e-business for the e-marketplace concept to work successfully and BT’s PDE was
withdrawn.
By 1998, the concept of e-marketplaces was becoming more widely accepted and, indeed, in this year
BT decided to re-launch BT Trading Places as a fully fledged, true e-marketplace. However, it wasn’t
until the latter half of 1999 that there was a worldwide explosion in the number of e-marketplaces
being developed, and hence the associated demand for e-marketplace ICT solutions and services
really began.
E-marketplaces work on a many-to-many basis. A company that conducts transactional e-commerce
via an e-marketplace is one of a community of companies that uses the e-marketplace to sell and/or
procure its products. This marketplace may have been established by the company as part of a
consortium to sell or procure products, or the company wishing to sell or procure via a marketplace
may register on to a marketplace that has been developed by an independent third party.
The way in which e-marketplaces function is summarised in Figure 2.A.
Trading via an e-marketplace
• Many suppliers, many buyers (relative proportions of each depends on the e-marketplace type), trading via emarketplace hub
• An organisation may participate in an e-marketplace as a supplier (seller) or as a buyer (or in some cases as both)
• An organisation using an e-marketplace may, in some cases, have an ownership stake in the e-marketplace, or it
may simply operate as a participant (with no ownership stake).
Buyers
Suppliers
M
M
= E-marketplace hub
Figure 2.A Trading via an e-marketplace
Source: Total Romtec/EITO
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E-marketplaces: new challenges for enterprise policy, competition and standardisation
2.2
23-24 April 2001
E-marketplace types
There are four types of e-marketplace:
i.
buyer-driven e-marketplaces – established by a consortium of buyers in order to procure
products from their suppliers via the internet
ii.
sell-driven e-marketplaces – established by a consortium of suppliers/sellers that are
looking to sell their products on-line via the e-marketplace
iii.
independent e-marketplaces – established by independent organisations, whose main
motivation is to obtain revenues through operating the marketplace on behalf of
buyers/sellers.
iv.
technology provider e-marketplaces – established by an e-marketplace technology
provider. These are very similar in principal to independent e-marketplaces, but the
motivation for the technology provider to set up the e-marketplace can be quite different to
those of a company establishing an independent marketplace.
These four e-marketplace types all share one common dominator, in that they all bring together
multiple buyers and suppliers through one exchange engine (the software solution that runs the emarketplace), which enables companies to sell and/or procure products using the exchange engine.
Of the four types of e-marketplace, buyer-driven e-marketplaces are purely business-to-business
(B2B). The other three types are currently primarily B2B, but have the potential to also be B2C.
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E-marketplaces: new challenges for enterprise policy, competition and standardisation
23-24 April 2001
E-marketplace types
Buyer-driven
Sell-driven
(29% of all e-marketplaces)
(2% of all e-marketplaces)
Established by consortia of buyers
- more suppliers than buyers
Established by consortia of sellers
- more buyers than suppliers
eg. Covisint, GlobalNetXchange
Suppliers
Buyers
Few sell-driven e- marketplaces in existence at present ;
examples include Global Healthcare Exchange and MetalSite
Buyers
Suppliers
M
M
Solution & support for e-marketplace
hub generally provided by 3rd party
Solution & support for e-marketplace
hub generally provided by 3rd party
Independent
Technology Provider
(64% of all e-marketplaces)
(5% of all e -marketplaces)
Established by independent company, which
operates marketplace on behalf of buyers/sellers.
Most common type of e-marketplace
- many suppliers and buyers
Established by technology provider, which operates
marketplace on behalf of buyers/sellers
- many suppliers and buyers
e g. SAP - mysap.com, Oracle - oracleexchange .com
eg. Alibaba.com, BT Trading Places (www. bt.com/tradingplaces),
eBay (www.ebay.com), Enron ( enron.com), Tejari.com.
Buyers
Suppliers
M
Solution & support for e-marketplace
hub generally provided by 3rd party
M
Buyers
Suppliers
M
E-marketplace hub uses technology provider’s
(ie . the e-marketplace owners’) solution TP often provides all on-going support services itself.
= E -marketplace hub
= E-marketplace owner (equity stake in e-marketplace)
= Buyer (no equity stake in e-marketplace)
= Supplier (no equity stake in e-marketplace)
Note : Percentage figures denote Total Romtec’s estimate of the proportion of all e-marketplaces that the e-marketplace type
accounted for as of the end of 2000
Figure 2.B E-marketplace types
Source:Total Romtec/EITO
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E-marketplaces: new challenges for enterprise policy, competition and standardisation
3.
E-marketplaces operator’s perspective
3.1
Business model
23-24 April 2001
The e-marketplace operator’s role coincides with the function of the e-marketplace thus defined in the
previous section. It is the central role at the heart of an e-marketplace providing seamless access to
trading activities for customers and/or suppliers. The business model which varies by operator and
market sector, is illustrated in Figure 3.A.
Purchasing
Supplier
Supplier
Routing
Catalogue
Order
Maintenance Tracking
Customers
Receiving
CRM
Web Portal
Invoicing
SCM
Account
Information
Despatch
Suppliers
Figure 3.A E-marketplace operator’s business model
Source:Total Romtec
It is evident that in the last two years there has been exceptional activity to build e-marketplaces fast
to gain competitive advantage. The strategic drivers have either been related to serving new and
existing customers more effectively or gaining efficiency down the supply chain or both. "First mover"
advantage was seen by many as a reason to move quickly; others have favoured a “best mover”
approach taking more time to get the fundamentals right.
3.2
Operating benefits
Whichever route is taken by an e-marketplace operator they expect to show tangible benefits which
are, as far as possible, measurable in financial terms. The benefits vary according to whether the emarketplace operator is customer or supplier facing; a summary of the more common benefits is given
in Table 1.
5
E-marketplaces: new challenges for enterprise policy, competition and standardisation
Operator Benefit
23-24 April 2001
Applicability:
Customer
Support facing
facing
4
Inventory reduction
Cost and time savings on transactions
4
4
Improves company visibility/presentations
4
4
Better information in real time
4
4
4
Product cost reduction
Cheaper and more responsive communications
4
4
4
Improved procurement control
Cost and time effectiveness through collaborative
design and planning
4
4
Accelerated time to market
4
4
Efficient integration with SCM
4
4
Efficient integration with CRM
4
Table 1 Benefits for e-marketplace operators
Possible savings have been estimated and these are given in Table 2. It should be noted that the
savings given are inclusive of bi-lateral and e-marketplace activities. The percentage estimates refer
to cost savings on a like for like basis after replacement of a conventional sales or purchasing
operation with an e-equivalent.
Industry
Estimated savings
from business-tobusiness e-commerce
Aerospace machining
11%
Chemicals
10%
Coal
Communications
2%
5-15%
Computing
11-20%
Electronic components
29-39%
Food ingredients
3-5%
Forest products
15-25%
Freight transport
15-20%
Health care
Life sciences
Machining (metals)
Media and advertising
Oil and gas
5%
12-19%
22%
10-15%
5-15%
Paper
10%
Steel
11%
Table 2 Possible B2B e-commerce (inc. e-marketplace) operator savings by sector
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E-marketplaces: new challenges for enterprise policy, competition and standardisation
3.3
23-24 April 2001
Sector penetration
The benefits of e-marketplace operation are potentially more substantial in industries which are
fragmented, susceptible to demand shocks and lacking a streamlined distribution infrastructure. Also,
benefits are more likely to flow when products are relatively standardised, traded in high volumes and
low values and perishable (e.g. aircraft seat reservation, fruit and vegetables, energy, etc.)
The chart given in Figure 3.B assigns and “eMarketplace Opportunity Index” to industry sectors
according to their characteristics and products.
The eMarketplace Opportunity Index
5
Food and <
agriculture
Paper and office
Petrochemicals
products<
<
< Pharmaceutical
Consumer <
and medical
products
products
4
Motor
vehicles
<
Product fit
3
2
Heavy
industries
<
1
<
Aerospace
and defence
1
Shipping and
warehousing
< utilities
<
Computing and
electronics
Ultimate
eMarketplace
saturation
(% of online trade)
<50%
50%-60%
60%-70%
< Industrial
equipment and
supplies
2
3
4
>70%
5
Industry readiness
Figure 3.B eMarketplace Opportunity Index
(Source: Forrester)
Despite the range of potential benefits for e-marketplace operators, there are significant challenges
too.
The major challenge concerns return on investment. An e-marketplace operation represent a
significant investment, especially for SMEs, and the rate of return will be lower due to price pressures
and lower margins compared with old economy business models.
Attainment of critical mass is crucial for viability and sustainability. The volumes have to be high
enough to enable revenues to exceed costs and cash flows to be positive. Within sectors, there is
finite capacity for competitors to share. Too many competitors limit the possibilities for critical mass
achievement; too few and they may be vulnerable to charges of market aggregation, collusion and
other forms of anti-competitive behaviour. A hard balance to strike!
7
E-marketplaces: new challenges for enterprise policy, competition and standardisation
3.4
23-24 April 2001
Sector examples of e-Marketplaces
A selection of more prominent e-marketplaces is given in Table 3. This is by no means a complete
listing.
Sector
Aerospace/
Name of emarketplace
Type
Buyer
Seller
Member
Ind
4
Exostar
Boeing, Lockheed, BAe,
Defence
Raytheon,
MyAircraft.com
+
4
United Technologies,
Honeywell etc.
Motor vehicles
Covisint
4
Ford, GM, Daimler,
Chrysler etc
Consumer
products
4
Global Healthcare
Global NetXchange
Johnson & Johnson, GE,
Baxter, Abbott,
4
Sainsbury, Sears,
Carrefour
Worldwide Retail
4
Tesco, M&S, Kingfisher
Xchange
Transora
Heavy
4
Unilever, Gillette,
Kellogg, Heinz etc
4
MetalSite
Weirton, LTV
industries
Construction
AECventure
4
Balfour Beatty,
Kaeverner, Laing,
Deutsche Bank, SAP
Petrochemicals
ChemPlorer,
4
Bayer, Deutsche
Telekom, Chemfidence
ChemUnity
4
Wanadoo, World online,
Chello
EnronOnline
4
Trade-Ranger
4
cc-markets*
Utilities
BP Amoco, Shell + 12
others
BASF, Degussa, Henkel
4
Achilles
Scottish Power, United
Utilities, Northern
Electric + UK utilities
Financial
Services
VolBroker+
Cofunda
4
Six major banks
4
8
E-marketplaces: new challenges for enterprise policy, competition and standardisation
Sector
Airlines
Name of emarketplace
Type
Buyer
Seller
4
AeroXchange
23-24 April 2001
Member
Ind
Air Canada, All Nippon,
Cathay pacific, FedEx
etc
Hotels
4
Accor
Bass, Granada,
Compass, Hilton,
Whitbread
4
Hsupply
* Merging to form cc-chemplorer
+
Cleared by the Commission
Note – Technology provider e-marketplaces are not included. They are less prevalent (i.e. 5% of the total) and not identified in the workshop
proceedings.
Table 3 e-marketplaces examples
(Source:Total Romtec)
Covisint was referred to by several speakers in the workshop.:
Covisint – The name of this B2B exchange comes from Cooperation, Vision and Integration. It was
set up a little more than a year ago and has only recently appointed a CEO. Oracle and Commerce
One are the technology partners. Its main function is joint purchasing on behalf of its auto industry
backers, namely Ford, GM, Daimler Chrysler, Renault-Nissan, Toyota and Peugeot. Honda, BMW and
Volkswagen have not joined Covisint and could potentially set up a rival exchange.
9
E-marketplaces: new challenges for enterprise policy, competition and standardisation
4.
E-marketplace from the users’ perspective
4.1
Users are buyers and sellers
23-24 April 2001
Principally, the users are buyers (i.e. customers of e-marketplaces) or they are sellers (i.e. suppliers
to e-marketplaces). Users may be large corporations, SMEs, micro businesses, consumers or
government departments.
The level of participation by buyers and sellers in e-marketplaces varies widely. This can be illustrated
by the following scenarios:
F
Large corporations and government departments are more likely to buy from e-marketplaces in
larger volumes and values than smaller organisations or consumers.
F
Large corporations are more likely to be bigger sellers to e-marketplaces by absolute volume and
value but SMEs can be biggest sellers by percentage of their total output.
F
Government departments and consumers are unlikely to be sellers to e-marketplaces.
Government departments may become major buyers in their procurement role.
Clearly, organisations and individuals participate either, as buyers and/or sellers and in varying
proportions according to their own purchasing or sales volumes and values. As a consequence they
will connect with e-marketplaces occasionally and remotely (e.g. by internet browser and dial up line)
or frequently and integrally (e.g. by using a leased line and EDI techniques, increasingly XML/EDI).
These are some of the important consequences for organisations (public and private sector) in terms
of their adoption level of e-business. This is illustrated in Figure 4.A.
10
E-marketplaces: new challenges for enterprise policy, competition and standardisation
E-
Ordering
Marketing
e
r
ac
tpl
ble
na
rke
re
ma
se
Eow
l/br
na
sio
ca
Oc
Messaging
External
Integration
P
ER
Internal
Integration
rce
me
m
Co
SS
ER
M
O
ST
M
CU
CR
d
ble
na
Le
XM
ace
DI/
tpl
t/E
en
rke
qu
ma
Fre
E-
E
of
l
e
v
Le
ss
ine
s
-bu
ess
sin
u
B
E-
on
pti
o
ad
23-24 April 2001
Payment
Fulfilment
e
ffic
O
ck
Ba
M
SC
RS
LIE
P
P
SU
Figure 4.A Access to e-marketplaces enabled by stage of e-business adoption
Notes: CRM – customer relationship management
SCM – supply chain management
ERP – enterprise resource management
Back Office – administrative and finance operations
(Source: Total Romtec)
4.2
How do buyers view e-marketplaces?
At first sight, buyers view e-marketplaces as they view hypermarkets – they offer a wide range of
products, keen prices and convenience.
Smaller organisations are likely to take the hypermarket view subject to acceptable service levels and
assured trust. Providing small buyers receive what they order in a reasonable delivery time and the
financial transaction is completed securely, they will be satisfied. E-marketplace operators may and
should want to go further in developing the trading relationship with tailor made information, special
deals, added value services and the like.
Large organisations have more at stake. They’re probably considering investment in “external
integration” with EDI/XML interfaces (see Figure 4.A) and need to operate a controlled procurement
process, for example, to eliminate “maverick buying”, i.e. purchasing of non recommended products,
abuse of purchasing procedures and reduction of overspending. These organisations will also be
expecting the same benefits as the e-marketplace operator.
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E-marketplaces: new challenges for enterprise policy, competition and standardisation
4.3
23-24 April 2001
How do the sellers view e-marketplaces?
Sellers view e-marketplaces as one of their distribution channels; they would be unwise to conduct all
their business through this channel. They can reasonably expect to benefit from a wider customer
base (i.e. all relevant customers of the e-marketplace) and enjoy reduced marketing and catalogue
costs. As an additional sales channel e-marketplaces should reduce sales costs and increase sales
volumes.
Service levels and trust are important to sellers as well, but these take different forms. Service levels
for sellers connect with sales volumes achieved by the e-marketplace at viable prices with a minimum
level of end customer support requirement. Trust will be dealt with in the terms of a formal trading
agreement.
The relationship between seller and e-marketplace can be highly beneficial in terms of “down the
supply chain” activities. These range from cooperative design and development, marketing support,
collaboration on production scheduling and assistance with e-business system development.
The benefits which flow from being a seller to e-marketplaces are proportionately more significant for
SMEs.
4.4
When the users are SMEs
End-user research conducted by Total Romtec for EITO shows that large organisations are far more
likely than small/medium enterprises (SMEs) to have installed sell-side and buy-side applications (see
Table 4) whether these be for bilateral or e-marketplace trading.
By company size – number of employees
E-ordering E-payments E-availability E-progress
E-post-sales
Info
Info + order
Base
e-procure-
e-procure-
(no. of
checks
tracking
support
ment
ment
respondents)
Small/Medium (<500)
24%
7%
14%
8%
10%
13%
7%
272
Large (500+)
32%
12%
18%
15%
20%
18%
10%
228
Figures show % of all European organisations that have a web site that have installed each one-to-many e-commerce application
Table 4 Current penetration of one-to-many e-commerce applications by company size
Source:Total Romtec/EITO
It has also typically been the large organisations that have had the necessary finances, resources and,
indeed, motivation, which are needed to establish an e-marketplace. On the buy-side, the larger the
supplier, the greater its procurement activity will generally be, and thus the higher the motivation for
establishing either a one-to-many e-procurement system or an e-marketplace, since the potential cost
savings and efficiency benefits are that much greater.
SMEs are participants in e-marketplaces - they are not generally the types of company that establish
e-marketplaces (i.e. few become e-marketplace owners, except for specialist start-up companies).
12
E-marketplaces: new challenges for enterprise policy, competition and standardisation
23-24 April 2001
Participating in e-marketplaces is extremely attractive for SMEs (particularly small organisations) due
to several factors:
F
Many of those SMEs that have tried to sell-direct using a one-to-many e-commerce model have
found that, unless their company/brand is very well known, not enough people are visiting their
websites to purchase products/services to justify the investment made (the most fundamental
reason for the low purchase levels being that potential customers are simply not aware of the site).
F
SMEs find it far tougher than large organisations to find the resources/finances necessary to
establish a one-to-many e-commerce model - whether it be for buy-side or sell-side applications.
When it comes to e-marketplaces, most SMEs would find it extremely difficult to set up their own
e-marketplace, even if they formed it as part of a consortium with other SMEs. The workshop did
receive presentations from several organisations which offer services which could potentially
assist SMEs to address this challenge: The EuroInfoCentre Technical Assistance Office operates
in EEA and certain CEEC countries to inform SMEs of the practical benefits of e-business and
how to go about it. They provide value added information on legal aspects, impact on business
and practical solutions. The Swedish Trade Council provides similar services in that country. At
the implementation level, BravoBuild.com offers affordable e-business system building blocks.
Should SMEs want to outsource their e-marketplace activity they can contract with Mondus.
BENE-BUS exists to benchmark the results of any of these approaches.
F
Selling or procuring via an e-marketplace that has already been established gives SMEs a number
of potential benefits, at a relatively small cost.
In turn, large organisations that are using an e-marketplace to procure are interested in being able to
work with smaller companies via the e-marketplace, since it gives them the opportunity to lower the
high cost transactional overheads that are associated with working with a small supplier.
13
E-marketplaces: new challenges for enterprise policy, competition and standardisation
23-24 April 2001
5.
Growth and prospects for e-marketplaces
5.1
Growth in e-marketplaces: 2000-2002
According to Total Romtec, there are currently 2,000 marketplaces world-wide, 650 of which (a third)
are in Europe. The number of e-marketplaces, both globally and in Europe, will increase dramatically
over the next two years, with 2,700 estimated to be existence in Europe by the end of 2002 (see
Figure 5.A).
A recent research study, conducted by Belcon on the German e-marketplace, provides a further
insight into the level of activity within he European e-marketplaces (20 of which are still at the
formation phase). Note that more new e-marketplaces were launched in Germany in the first six
months of 2000 than in the whole of 1999.
Growth in the number of e-marketplaces : 2000 - 2002
12000
10,500
10000
Worldwide
8000
5,200
6000
4000
2,700
2,000
Europe
1,500
2000
650
0
2000
2001
2002
Source : Total Romtec
Note : Figures are as of end of each year
Figure 5.A Growth in the number of e-marketplaces: 2000-2002
Source: Total Romtec/EITO
Of the 650 e-marketplaces currently in existence in Europe, independent e-marketplaces account for
the vast majority (64% - Total Romtec estimate).
5.2
Consolidation is already occurring
There will be some consolidation between e-marketplaces – for instance, some existing emarketplaces within certain industry sectors will consolidate through mergers or acquisitions, whilst
certain e-marketplaces will fall by the wayside simply through inadequate funding or insufficient trade
volumes (this has been happening of late in the US). However, the consolidation will be countered by
the sheer increase in the number of start-up e-marketplaces, resulting in a substantial net increase.
However, lack of critical mass as previously defined, will be a strong driver for e-marketplaces to
merge; failing this they won't survive. The niche players with established loyalties transferred from the
14
E-marketplaces: new challenges for enterprise policy, competition and standardisation
23-24 April 2001
old economy business model may be sufficient to sustain others. Some sources have predicted an
80% fall-out through merger or failure by 2004. This could mean that only 100 or so viable emarketplaces will survive in Europe.
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E-marketplaces: new challenges for enterprise policy, competition and standardisation
6.
23-24 April 2001
The issues
It is widely assumed that e-marketplaces can have significant pro-competitive effects. In the previous
sections of this report there is much to feel enthusiastic about: e-marketplaces are shaped by market
forces and are driven forward by key players in receptive industry sectors. They are a symbol of
progression employing the latest IT and Internet technologies with an expected favourable impact on
growth and prosperity.
Despite this constructive prognosis, there are many concerns, even anxieties, about the potential
disadvantages of e-marketplaces. A useful way to explore these is to review two recent competition
investigations conducted by the Commission in the context of existing European regulations.
6.1
MyAircraft.com
The first case illustrates issues related to market definition. The pertinent question for the definition of
the product market will often be whether an electronic marketplace competes with conventional
bilateral sales or whether it constitutes a separate, narrower product market. The former would be
likely if participants used electronic marketplaces only as an additional sales channel; the latter if the
exchange offered additional services which clearly differentiate it from other sales forms.
These questions are being discussed in the Commission clearing the creation of MyAircraft.com, a
marketplace operated by United Technologies and Honeywell to provide manufacturing and sales of
aerospace products and services through a one stop shopping and supply management process. The
software partner is i2 Technologies. The objective is to make operations within the aerospace sector
quicker, more efficient and less costly. MyAircraft.com is not alone in its field; Exostar, a joint venture
involving Boeing, BAE Systems, Lockheed Martin and Raytheon was announced last July.
In this case, the Commission investigated the question whether this online exchange was part of the
wider market for airline equipment or whether it constituted part of a narrower market for exchanges
for airline equipment.
The parties submitted that the relevant product market for this transaction would be the market for
aerospace parts and services. E-commerce should only be considered as one segment among the
many modalities by which companies transact business. Customers would remain free to decide how
they want to conduct business with UTC, Honeywell or other suppliers, e.g. by using MyAircraft.com,
e-mail, fax, telephone etc.
The Commission’s market investigation largely confirmed this view. It revealed that third parties in
general considered B2B e-commerce as one segment among the many modalities by which
companies transact business. Some third parties seemed to believe that it would not be relevant to
distinguish between the general sector of e-commerce and the sub-segment of B2B e-commerce. In
any case, third parties considered it premature to draw distinctions between B2B e-commerce in
different aerospace parts and services and some even seemed to believe that it would be too early to
draw any distinctions between B2B e-commerce in different industry segments.
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E-marketplaces: new challenges for enterprise policy, competition and standardisation
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The results of the investigation seem to suggest that the B2B electronic marketplace constitutes part
of a wider market. It should be noted, however, that in this case the precise relevant product market
definition was left open since irrespective of the market definition chosen, the proposed concentration
did not give rise to the creation or strengthening of a dominant position.
When looking at the definition of the relevant geographic market, the relevant question is likely to be
the question whether the geographic market will be widened as geographic location becomes less
important for the interaction between buyers and sellers. One can expect that such a widening of the
geographic market will indeed be brought about by many B2B electronic marketplaces. In the
MyAircraft case, however, this question was largely irrelevant, as even the ‘traditional’ market for
aerospace products and services is likely to be world-wide.
6.2
Volbroker.com
The second case illustrates issues related to ownership. Ownership can raise competition problems in
particular where an online marketplace is controlled by a number of market participants. These
owner-participants could be then use the rules to exclude certain participants from the most efficient
marketplace, thus putting them at a competitive disadvantage. An issue of both information sharing
and discrimination could arise if certain market participants (e.g. the founders) would receive
privileged information about transactions in the market.
This issue has been addressed in the Volbroker case, the first e-marketplace cleared under Article 81
ECT. In this case, six major banks set up a joint venture offering an electronic brokerage service for
trading foreign currency options. The case raised concerns regarding the access to confidential
information by the parent companies. To deal with this concern, the owners of the Volbroker.com
exchange gave the following assurances to the Commission:
F
None of Volbroker.com’s staff or management would have any contractual or other obligation
towards any of the parents and vice versa.
F
Volbroker.com’s staff and management would be in a geographically distinct location from that of
the parents.
F
The representatives of the parents on Volbroker.com’s Board of Directors would not have access
to commercially sensitive information relating to each other or to third parties.
F
The parents would not have access to the information technology and communication systems of
Volbroker.com.
The commitment thus aims to build “Chinese walls” between the Joint Venture operating the exchange
and the parent companies which are active as market participants.
To alleviate further concerns related to market access, the parent companies also agreed to allow socalled voice brokers to participate in Volbroker.com where they are acting as principals.
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E-marketplaces: new challenges for enterprise policy, competition and standardisation
6.3
23-24 April 2001
So, what are the issues?
Bearing in mind the foregoing sections describing the e-marketplace (Sections 1-4) and, earlier in this
section, the two specific cases of MyAircraft and Volbroker illustrate a number of important issues:
6.3.1
Benefits
It is widely assumed that B2B electronic markets can have important pro-competitive effects. They
potentially increase market transparency and contribute to a further integration of separate geographic
markets; further they provide access to wider geographic markets and offer the possibility of more
customers. In addition, e-marketplaces are expected to be a source of substantial efficiencies, as they
should allow a reduction in transaction costs and an improvement of inventory management.
Nevertheless, the quantification of these benefits is currently difficult and many claims as to their size
are comprised of qualitative judgements (see Table 1) and estimates (see Table 2). Relevant
questions are:
F
What will be the impact of e-marketplaces on prices?
F
Which efficiencies can result from organising market transactions in form of e-marketplaces?
The answers to these questions will vary according to sector, size of organisation and, degree of
involvement.
6.3.2
Market definition
Suppliers
Bilateral trading
eMarketplaces
But/Sell
Channel
Options
"
"
"
"
"
Mail
Fax
In person
E-mail
E-commerce
Buyers
Figure 6.A Buy/Sell Channel options
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E-marketplaces: new challenges for enterprise policy, competition and standardisation
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As illustrated in Figure 6.A, it can be expected that in many buying and/or selling modes an
organisation uses one or more bilateral channels supplemented by participation as a buyer or seller in
an e-marketplace or e-marketplaces. The relevant questions are:
F
Do e-market places constitute separate product markets?
F
What determines the degree of substitution between bilateral trading and e-market places in a
given industry?
6.3.3
Market dominance
Network effects are present when the value of a system to the individual user increase with the
number of users. They can lead to market ‘tipping’ and the creation of a dominant market position if
the network effects are strong enough to induce all market participants to use the same network. This
problem could also arise in the context of e-marketplaces, as the benefits will often increase with the
number of buyers and suppliers that are linked to the same system. Relevant questions are:
F
How strong are network effects in e-marketplaces?
F
What determines the size of these effects?
F
How many market places are viable in a given industry?
6.3.4
Exchange of information
This concern relates to the ability of the buyers or sellers to exchange or to discover sensitive
information on prices and quantities. It is linked, among other things, to the design of the system, in
particular its openness in terms of individual data originating with other parties. Relevant questions
are:
F
Will e-market places be the “smoke filled rooms” of the future, where sensitive information
between competitors is exchanged and cartels created?
F
Which safeguards are necessary to decrease this risk?
6.3.5
Joint purchasing/joint selling
This concern relates to the question if the participants in an electronic market can effectively bundle
purchasing or selling volumes. If this is the case, a competition concern could arise if they would be
able to coordinate their behaviour as buyers or as sellers. Relevant questions are:
F
How relevant are joint purchasing and joint selling for the attainment of the benefits that e-market
places promise?
F
Which rules should be formulated as regards the permissibility of joint purchasing or joint selling in
an e-market place?
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E-marketplaces: new challenges for enterprise policy, competition and standardisation
6.3.6
23-24 April 2001
Discrimination/foreclosure/collusion
This concern relates to the ownership of the e-market places and the rules of governing them. These
rules could be used, for instance, to exclude certain participants from the most efficient market place,
thus putting them at a competitive disadvantage. An issue of discrimination could arise if certain
market participants (e.g. the founders) would receive privileged information about transactions in the
market. To deal with this issue certain market places are setting up “Chinese walls” to impede any
information flows between the parent companies and the joint venture. Relevant questions are:
F
Should the Commission insist on open, non-discriminatory access to all e-marketplaces?
F
Will competition between marketplaces ensure that foreclosure does not become a problem?
F
To what extent can the Commission rely on the self-interest of the founders to run an open
marketplace attracting as many customers as possible?
6.3.7
Standardisation
As in the traditional business environment, these new market places need technical rules, as well as
common, agreed business practices. Additionally, participation in e-marketplaces often requires
radical organisational changes (e.g. back office, accounting and billing systems, stock, and logistics).
Technical interoperability and mutually compatible business practices are therefore necessary to
ensure their smooth functioning.
Fully functional e-marketplaces can be achieved either through competition leading to a dominant
market player who effectively sets the “standard” for interoperability or through formal or informal
consensus-building platforms. New forms of standardisation – based on voluntary consensus building
– may play a key role here, making e-marketplaces another catalyst for standardisation, as the internal
market was a few years ago. Without standards – business as well as technical – the efficiency of emarketplaces will be limited, and networking benefits and critical mass may never be achieved.
Consensus–building platforms for the assurance of trust and security were mentioned by several
participants. At one level, security and trust is something that is essentially personal, and
standardisation cannot adequately replace it. At another level, different consensus elements of
security and trust can be provided by company standards, consortia or recognised formal bodies. The
relevant questions are:
F
How can interoperability best be ensured, and which consensus-building platforms are best placed
to develop the standards and specification necessary?
F
Is the standardisation process as currently structured producing the results required by the
market?
F
How can the framework of the marketplace be structured so as to impose no higher legal duties
on the participants?
F
How can the necessary coherence in e-marketplace standardisation be brought about? What is
the appropriate role of public authorities?
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E-marketplaces: new challenges for enterprise policy, competition and standardisation
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Collectively, each of these issues (i.e. 5.3.1 – 5.3.7 inclusive) and their resolution will determine the
extent to which a free e-marketplace can exist or, conversely, whether some degree of formality is
required. How these issues may be addressed, particularly in the context of competition regulation
and standardisation, is covered in the following sections.
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E-marketplaces: new challenges for enterprise policy, competition and standardisation
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7.
Competition: Problems and possible solutions
7.1
Is there a problem?
E-marketplaces provide additional supply routes and distribution channels which don’t necessarily
replace traditional economic structures. From the viewpoint of buyers and sellers they will continue to
trade electronically and conventionally, the electronic option continuing to have a non majority share of
trading volumes for the foreseeable future. E-marketplaces are currently a minor electronic trading
option for most organisations in terms of volumes and percentages on sales and purchases compared
with bi-lateral trading via e-business websites, Minitel and EDI. The proportionality of online versus
offline trade is illustrated in Figure 7.A.
100
Dynamic
marketplace
75
Marketplace
trade
%
Bilateral
trade
50
Total offline
trade
25
0
98
99
00
01
02
03
Figure 7.A Online trade versus offline trade
Source: Forrester
When does fair and healthy competition surpass the point of acceptability and become anticompetitive behaviour? In short this is the case when competitors conspire together to the
disadvantage of customers or when a dominant position is created and abused. Thus, “first movers”
and corporates with great financial strength who succeed are not in themselves anti-competitive even
when they become successful. The main possible competition problems may be summarised as
follows:
F
Market dominance – High market shares, either obtained through internal growth or through
acquisitions, mergers and joint ventures, may in the presence of “network effects” lead to “market
tipping” and market dominance. Issues arising here would be dealt with either under the Merger
Regulations or the Treaty provisions on dominance.
F
Collusion – Secret agreements on purchasing and/or sales terms, conditions and prices, leading
to cartels. Issues arising here would be dealt with under the Treaty provisions on restrictive
agreements.
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E-marketplaces: new challenges for enterprise policy, competition and standardisation
F
23-24 April 2001
Exchange of information – Restriction of freedom of suppliers and/or customers to participate on
even terms.
F
Joint purchasing – Concentration of purchase volumes on a subset of suppliers with a risk of
creating buyer power.
F
Joint selling – Concentration of sales volumes on a subset of customers with a risk of selling
power.
7.2
The information dilemma
Information transparency is a desirable characteristic of e-marketplaces for buyers and sellers alike. It
provides easy access to information and business opportunities resulting in more market players being
able to compete; theoretically, Internet technology aids this. Conversely, e-marketplaces may offer
participants multiple opportunities to take advantage of the transparency contrary to the principle of
secret competition and leading to competition problems summarised above.
A further dilemma is created where information is not accessible to all parties but restricted to
“insiders” i.e. the controlling directors and owners of e-marketplace operations. Competition problems
related to insider information could be mitigated by:
F
Structural safeguards – Externalisation on controlling directors/owners by remote location,
Chinese walls, no majority control etc.
F
Conduct safeguards – No recent individual company data, recent data only on an aggregated
basis, compliance programme/sanctions.
F
Technical safeguards – Firewalls, password access control, encryption and VPNs/Extranets.
F
Outsourcing – Management of e-marketplace operations and resources by a third party
outsourcing contractor.
7.3
Conclusions
Is EU competition policy up to the challenge? The “constitutional principles” are still valid. The key
question is whether these provisions need to be more focused to deal with the particular conditions
anticipated in e-marketplaces. For the time being it may be concluded that:
F
Many B2B exchanges will not raise competition problems.
F
Nevertheless, potential competition questions remain.
F
Development in case law will provide further guidance
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E-marketplaces: new challenges for enterprise policy, competition and standardisation
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8.
Standards – What needs to be standardised and by
whom?
8.1
Enablement of interoperability
Interoperability is crucial to e-marketplaces and standards are key. The basic principles of emarketplace operation require seamless communication between all participants. A recent survey by
Forrester concluded that the main barriers to online SCM (e.g. e-marketplaces) are lack of
collaborative functionality in IT systems and lack of understanding of the impact that such
collaboration will make. At a superficial level the standards exist in the form of web browser driven
access to trading websites. Software vendors have attempted to build market share through the
imposition of proprietary solutions, sometimes using consensus-building consortia, but this approach,
successful in the IT market generally, has not so far succeeded in B2B e-commerce applications.
The headings under which standards making occurs may be classified as follows:
F
Physical and communications levels – Transmission protocols, file formats, message routing,
data synchronisation, security, etc.
F
Information level – data formats, product coding e.g. XML tags and schemas, etc.
F
Application level – user interface format/design, catalogue conventions, language options, etc.
The relationship between these levels is illustrated in Figure 8.A:
Communication & Information
Business Processes
‘Best Practice’
Applications
Application
Information
Presentation
Middleware
e.g. CORBA
Session
Communication
Transport
Network
Physical
Data Link
Infrastructure
Physical
Wide area
network
e.g. the Internet
Local
networks
e.g. Ethernet
Fig 8.A 7 layer model as a reference for standardisation
Source: Professor Kai Jakobs, Technical University, Aachen
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E-marketplaces: new challenges for enterprise policy, competition and standardisation
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Whilst many aspects of the business process level have not been regarded as candidates for
standardisation, it seems clear that the production of consensus documents on best practice would be
considerably helpful to reduce user confusion.
8.2
Protection of users’ interests
Although it is in the best interests of suppliers to meet user needs there is a tendency for standards to
be supplier driven without taking full and conscientious account of user requirements. At an
interoperability level this may be sufficient but at the user interface level more needs to be done. For
example, there are some formal measures which can be implemented by operators with user
protection in mind:
F
Privacy, for example by encryption and conformance to data privacy laws,
F
Authentication, for example using digital signatures, and,
F
Integrity, for example through certification and providing credentials and references.
Alternatively, a free market approach can be adopted in which the operator engenders trust by:
F
Establishing reassuring brand values,
F
Developing and maintaining good supplier and customer relationships,
F
Delivering ordered products in complete conformity with what was ordered and consistent with
advertised terms and conditions, and,
F
Effective mechanism to deal with problems and provide customer support.
The most realistic approach may be to encourage a responsible free market in which the formal
measures are adopted as warranted by supplier and customer interests; clearly, work needs to be
done to find ways in which this can be achieved. At the end of the day, a dissatisfied buyer or seller
should be able to make representation to the operator of the e-marketplace and seek effective
address.
8.3
The standardisation process
Despite improvements already made, many observers still see the standardisation process as
cumbersome, compromise-laden and slow. They’re also aware of a variety of bodies who participate
in the process either as formally recognised standards bodies (e.g. CEN, CENELEC, ETSI, ISO, IEC,
ITU, etc.) or open or proprietary consortia (e.g. W3C, Open Group, UDDI, GCI, RosettaNet, Odette,
etc) which are producing some kind of published consensus documents. Current estimates range from
200-300 ICT standardisation consortia open to membership of interested parties. It should be noted
that many consortia are not open (e.g. Bluetooth).
This plethora of organisations causes problems in terms of lack of interoperability of solutions – socalled standardised products that don’t work with others, in terms of competing proprietary solutions
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E-marketplaces: new challenges for enterprise policy, competition and standardisation
23-24 April 2001
that cannot command enough market acceptance to foster critical mass, and in terms of confusion
amongst potential users of the technologies, who lack often the basic information on who is
standardising what, let alone how to implement the results.
In general, standards should be developed in an environment:
-
that is open to all market players and involving a critical mass of the relevant market players,
-
that is transparent in terms of decision making process,
-
where results from other bodies are readily taken into account and used, and,
-
where the resulting standards are freely available without any barriers to embodiment in products
(IPR should either be free or available on an open and non-discriminatory basis).
More specifically, the following principles emerged to guide future standards making:
F
In the first place consider the management and business process re-engineering issues; some
observers believe that the standards making process does not consult sufficiently on this level.
F
Build a standards based infrastructure which meets application requirements in that it is modular,
flexible, adaptable, scalable, robust and transparent.
F
Ensure relevant standards incorporate trust-building measures in order to provide globally
recognised certificates and credentials, using a range of optional encryption standards which are
easy to implement, work reliably and are simple to use.
F
Consult more widely including representatives from all participating communities in emarketplaces and well regarded independent advisors. For example, SMEs, the IT departments
of medium and large organisations and external software contractors who implement emarketplace systems. Conversely, restricting consultation to software and system vendors and
academics runs the risk of not fully allowing for the user issues. The differences in operation of
formal standardisation and of fora standardisation need to be borne in mind.
F
Sub-divide the process into discrete phases with defined objectives and outputs. Test the
outcomes , including practical deployment, with all relevant communities. Specifically, don’t wait
until the end of a multi-year development to find out that the support and buy in isn’t forthcoming.
F
Don’t reinvent the wheel! If useful solutions or components exist anywhere make best use of
them. Be pro-active in knowing about standards activity worldwide. Encourage consolidation to
reduce overlapping, even competing, contributions from involved organisations.
8.4
Organisation of the standards process
A popular quotation was “the great thing about standards is that there are so many to choose from!”
Although amusing this can also be read as an indictment of the organisation of standardisation
activities.
The complex web of standardisation consortia, open and closed, does not help to encourage ebusiness. The European Standardisation Organisations have made efforts, including through the ICT
Standards Board, to improve coordination and information about consortia activities. There are also
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E-marketplaces: new challenges for enterprise policy, competition and standardisation
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some encouraging signs in the context of B2B e-commerce of a desire for a better overall consensus
– for example the ebXML Initiative, already reasonably comprehensive and non-proprietary, is in
active discussion with similar activities. CEN/ISSS has made efforts not only to act as a European
arm of such activities as ebXML, but also to help develop consensus on industry sector requirements
for e-commerce.
Nevertheless, there remains a general lack of collaboration and information on formal and fora
standards activities. The Commission should therefore continue to encourage efforts by the European
standards organisations to co-ordinate and provide information, and CEN, CENELEC and ETSI should
continue to develop a coherent approach towards the global consortia. In practical terms, there
should be strong support for moves towards a tighter association of the global consortia, both in terms
of the provision of information to the users, and in terms of continued support for consensus on
European industry sector requirements. A strengthening of the ICT Standards Board may also be
desirable to achieve better coordination of the work of a wider range of standards bodies and
consortia.
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E-marketplaces: new challenges for enterprise policy, competition and standardisation
9.
23-24 April 2001
Key messages and next steps
F
E-marketplaces are an innovative application of e-business technologies and processes.
F
They offer great potential for cost and revenue benefits in many sectors with reservations for
SMEs. The benefits have yet to be formally measured and remain as estimates.
F
It's important to recognise that e-marketplaces offer one alternative to a range of bilateral trading
options already available which, in most sectors, continue to account for over 70% of trading
activity.
F
It cannot be a forgone conclusion that e-marketplaces will be dominant in any sector, although
vigilance is advised.
F
SMEs may not have the critical mass necessary to develop and operate e-marketplaces
successfully; there are also related concerns about their ability to fund the investment required.
F
Consolidation of e-marketplaces is already occurring. The main challenge is to increase the
number of suppliers of goods and services participating in the e-marketplaces. This requires a
balance of interest and mutual trust.
F
Meanwhile, the workshop recognised and discussed several issues which were accepted by many
workshop participants to be important:
F
§
market definition
§
market dominance
§
joint purchasing/selling
§
discrimination/foreclosure/collusion
§
standardisation
A majority of workshop attendees were in favour (by show of hands) of the Commission
encouraging and facilitating a collaborative framework for standards bodies.
F
Workshop attendees want to see an effective balance struck between information transparency
necessary for e-marketplace users and restrictions on transparency necessary to counterproblems
of collusion and dominance.
F
Workshop attendees gave approximately equal support (show of hands not counted) to a formally
regulated environment as opposed to a freer self-regulated alternative.
F
Enhancement of the GoDigital programme has been recognised as a good way to address the
challenges specific to SMEs, including focused e-learning, best practice support, affordable
broadband access and investment support.
28