Chapter 7
Public B2B Exchanges
and Portals
Learning Objectives
1. Define e-marketplaces and exchanges
and describe their major types.
2. Describe the various ownership and
revenue models of exchanges.
3. Describe B2B portals.
4. Describe third-party exchanges.
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Learning Objectives (cont.)
5. Distinguish between purchasing
(procurement) and selling consortia.
6. Define dynamic trading and describe
B2B auctions.
7. Describe the operation and benefits of
networks of exchanges.
8. Discuss exchange management.
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Learning Objectives (cont.)
9. Describe the critical success factors of
exchanges.
10. Discuss implementation issues of
e-marketplaces and exchanges.
9. Describe the major support services of
B2B.
10. Describe the role of extranets in
supporting marketplaces and exchanges.
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ChemConnect: The World
Chemical Exchange
• The Problem
– Before the Internet, the B2B trading process
was slow, fragmented, ineffective, and costly
– Buyers paid too much, sellers had high
expenses, and intermediaries were needed to
smooth the trading process
5
ChemConnect: The World
Chemical Exchange (cont.)
• The Solution
– Traders meet electronically in a large Internet
marketplace
– Save on transaction costs, reduce cycle time,
and find new markets and trading partners
around the globe
6
ChemConnect: The World
Chemical Exchange (cont.)
– ChemConnect provides a trading marketplace
and an information portal to over 7,500
members in 135 countries
– Members are:
•
•
•
•
•
Producers
Consumers
Distributors
Traders
Intermediaries involved in the chemical industry
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ChemConnect: The World
Chemical Exchange (cont.)
– Trading Center consists of 3 trading areas
1. Marketplace for buyers
2. Marketplace for sellers
3. Commodity market platform
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ChemConnect: The World
Chemical Exchange (cont.)
– ChemConnect members use the Trading
Center to streamline sales and sourcing
processes by automating requests for quotes,
proposals, and finding new suppliers
– The center enables a member to negotiate
more efficiently with existing business
partners as well as with new companies the
member may invite to the table in complete
privacy
9
ChemConnect: The World
Chemical Exchange (cont.)
– The revenue model includes:
• members’ annual transaction fees
• monthly or annual subscription fees (for
trading and for auctions)
• fulfillment service fees
– Three trading locations provide up-to-theminute market information
– Business partners provide several support
services (payments, delivery, etc.)
10
ChemConnect: The World
Chemical Exchange (cont.)
• The Results
– Benefits of ChemConnect to its members are:
•
•
•
•
more efficient business processes
lower overall transaction costs
time saved during negotiations and biddings
sellers reach more buyers and liquidate
surpluses rapidly
11
ChemConnect: The World
Chemical Exchange (cont.)
• What we can learn…
– Electronic exchange is owned and operated
by a third-party intermediary
– Buyers and sellers, as well as other business
partners, congregate electronically to conduct
business
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B2B Electronic Exchanges
• Public e-marketplaces (public exchanges):
Trading venues open to all interested parties
(sellers and buyers) and usually run by third
parties
• Exchange: A many-to-many e-marketplace. Also
known as e-marketplaces, e-markets, and
trading exchanges
13
B2B Electronic Exchanges (cont.)
• Market maker: The third-party that
operates an exchange (and in many
cases, also owns the exchange)
• Systematic sourcing: Purchasing done in
long-term supplier–buyer relationships
• Spot sourcing: Unplanned purchases
made as the need arises
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B2B Electronic Exchanges (cont.)
15
B2B Electronic Exchanges (cont.)
16
B2B Electronic Exchanges (cont.)
• Vertical exchange: An exchange whose
members are in one industry or industry
segment
• Horizontal exchanges: Exchanges that
handle materials used by companies in
different industries
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B2B Electronic Exchanges (cont.)
• Dynamic pricing: A rapid movement of
prices over time, and possibly across
customers, as a result of supply and
demand
18
B2B Electronic Exchanges (cont.)
•
Process that results in dynamic pricing in most
exchanges includes
1.
2.
3.
4.
A company posts a bid to buy a product or an offer to sell one
Anonymity is often a key ingredient of dynamic pricing
Buyers and sellers interact with bids and offers in real time
A deal is struck when there is an exact match between a buyer
and a seller on price, volume, and other variables such as
location or quality
5. The deal is consummated, and payment and delivery are
arranged
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B2B Electronic Exchanges (cont.)
• Functions of exchanges
– Matching buyers and sellers
– Facilitating transactions
– Maintaining exchange policies and
infrastructure
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B2B Electronic Exchanges (cont.)
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B2B Electronic Exchanges (cont.)
• Ownership of exchanges
– An industry giant
– A neutral entrepreneur
– The consortia (or “third-party” co-op)
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B2B Electronic Exchanges (cont.)
• Revenue models
–
–
–
–
–
Transaction fees
Fee for service
Membership fees
Advertising fees
Other revenue
sources
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B2B Electronic Exchanges (cont.)
• Governance and organization
– Membership
the community in the exchange
– Site access and security
information should be carefully protected
– Services provided by exchanges
provide many services to buyers and sellers
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B2B Electronic Exchanges (cont.)
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B2B Electronic Exchanges (cont.)
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B2B Portals
• B2B portals: Information portals for
businesses
• Pure information portals include:
– directories of products offered by each seller
– lists of buyers and what they want
– other industry or general information
27
B2B Portals (cont.)
• Vortals: B2B portals that focus on a single
industry or industry segment; “vertical
portals”
28
B2B Portal Examples
• Thomas Register—information portal
– Sellers distribute information on what they
have to sell
– Buyers can find what they need and purchase
over a comprehensive and secure
procurement channel
• reduce costs
• shrink cycle times
• improve productivity
29
B2B Portal Examples (cont.)
• Alibaba.com—started as a pure information
portal and is moving toward becoming a trading
exchange
– Huge database is a horizontal information portal with
offerings in a wide variety of product categories
– Reverse auctions
– Features–free email, email alerts, etc
– Revenue model—advertisement and fees for special
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Third Party (Trading) Exchanges
• Third-party exchanges are characterized
by two contradicting properties
– they are neutral, not favoring either sellers or
buyers
– they do not have a built-in constituency of
sellers or buyers and sometimes have a
problem attracting enough buyers and sellers
to attain financial viability
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Third Party (Trading) Exchanges
(cont.)
• A major problem is:
Market liquidity: The degree to which
something can be bought or sold in a
marketplace without affecting its price
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Third Party (Trading)
Exchanges (cont.)
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Third Party (Trading)
Exchanges (cont.)
• Buyer aggregation model
buyers’ RFQs are aggregated and then linked
to a pool of suppliers that are automatically
notified of the RFQs
• Suitability
– aggregation models work best with MROs and
services that are well defined, that have
stable prices, and where the supplier or buyer
base is fragmented
34
Third Party (Trading)
Exchanges (cont.)
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Consortium Trading Exchanges
•
•
Consortium trading exchange (CTE): An
exchange formed and operated by a group of
major companies to provide industrywide
transaction services
Three basic types of environments:
1. Fragmented markets
2. Seller-concentrated markets
3. Buyer-concentrated markets
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Consortium Trading Exchanges
(cont.)
•
CTEs, defined by two main criteria:
– whether they focus on buying or selling
– whether they are vertical or horizontal
•
4 types of CTEs
1.
2.
3.
4.
Purchasing oriented, vertical
Purchasing oriented, horizontal
Selling oriented, vertical
Selling oriented, horizontal
37
Consortium Trading Exchanges
(cont.)
• Purchasing-oriented consortia
– Vertical Purchasing-Oriented CTEs
all the players are in the same industry
– Horizontal Purchasing-Oriented CTEs
owner-operators are large companies from
different industries that unite for the purpose of
improving the supply chain of MROs used by
most industries
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Consortium Trading Exchanges
(cont.)
• Selling-oriented consortia
– Most selling-oriented consortia are vertical
– Participating sellers have thousands of
potential buyers within a particular industry
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Consortium Trading Exchanges
(cont.)
• Other issues for consortia
– Legal challenges for B2B consortia
• level of collaboration among both competitors
and business partners
• antitrust and other competition laws must be
considered
40
Consortium Trading Exchanges
(cont.)
– Critical success factors for consortia
•
•
•
•
Appropriate business and revenue models
Size of the industry
Ability to drive user adoption
Elasticity
Elasticity: The measure of the incremental spending
by buyers as a result of the savings generated
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Consortium Trading Exchanges
(cont.)
• Management of intensive information flow
• Smoothing of supply chain inefficiencies
• Harmonized shared objectives
– Combining consortia and third-party
exchanges
• dot-consortia—large consortia + third-party
owner
• combination may bring about the advantage of
both ownership and minimizing third-party
limitations such as low liquidity
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Dynamic Trading:
Matching and Auctions
• Dynamic trading: Exchange trading that
occurs in situations when prices are being
determined by supply and demand (e.g., in
auctions)
• Matching
– supply and demand
– quantity, delivery times, and locations
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Dynamic Trading:
Matching and Auctions (cont.)
• Auctions
– Exchanges offer members the ability to
conduct auctions or reverse auctions in
private trading rooms
• auction services as one of its many activities
• fully dedicated to auctions
– Many-to-many public auctions—vertical,
horizontal, run on the Internet or over private
lines
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Building E-Marketplaces
• Building e-marketplaces is a complex
process
– usually performed by a major B2B software
company
•
•
•
•
Commerce One
Ariba
Oracle
IBM
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Building E-Marketplaces (cont.)
• Integration issue
– Seamless integration is needed between the
third-party exchange and the participants’
front and back-office systems
– In private exchanges the seller’s computing
system must be integrated with the customers
systems
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Building E-Marketplaces (cont.)
– External communications
•
•
•
•
Web/client access
Data exchange
Direct application integration
Shared procedures
– Process and information coordination in
integration
how to coordinate external communications
with internal information systems
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Building E-Marketplaces (cont.)
– Use of Web services in integration
Web Services enable different Web-based
systems to communicate with each other
using Internet-based protocols such as
XML
– System and information management in
integration
management of software, hardware, and
several information components, including
partner-profile information, data and
process definitions, communications and
security settings, and users’ information
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Support Services for Public
and Private Marketplaces
• Directory services and search engines
– Directory services help buyers and sellers
manage the task of finding potential partners
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Support Services for Public
and Private Marketplaces (cont.)
• Partner relationship management (PRM):
Business strategy that focuses on
providing comprehensive quality service to
business partners
• E-communities and PRM
B2B application needs to provide community
services such as chat rooms, bulletin boards,
and possibly personalized Web pages
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Support Services for Public
and Private Marketplaces (cont.)
• Integration (as per Keenan Report)
– Business-to-exchange (B2X) hubs connect all
of the Internet business services
•
•
•
•
•
e-merchant services
exchange infrastructure
buying and selling
member enterprises
other B2X exchanges
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Implementation Issues
• Private vs. public exchanges
Private exchanges: E-marketplaces that are
owned and operated by one company. Also
known as company-centric marketplaces
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Implementation Issues (cont.)
• Problems with private exchanges
– Transaction fees—required to pay transaction fees
with existing customers
– Sharing information—do not want to share business
data with competitors
– Cost savings—not great enough to attract buyers
– Recruiting suppliers—lose direct contact with
customers
– Too many exchanges
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Implementation Issues (cont.)
• Supply chain improvers
– Companies want to streamline their internal
supply chains, which requires integration with
internal operations instead of “plugging in” to
an exchange’s infrastructure
• Major problem is trust in the large
corporation running the exchange
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Implementation Issues (cont.)
• Software agents in B2B enable customized
syndication of content and services from multiple
sources on the Internet to any device connected
to the Internet
– provide real-time, tighter integration between buyers
and sellers
– facilitate management of multiple trading partners and
their transactions across multiple virtual industry
exchanges
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Example: Asite
• Asite’s B2B marketplace for the
construction industry
– B2B e-marketplace for the construction
industry in the United Kingdom
– This industry is typified by a high degree of
physical separation and fragmentation, and
communication among the members of the
supply chain is a primary problem
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Asite (cont.)
– Two of the major advantages of the Internet:
• ability it provides to communicate more
effectively
• increased processing power made possible by
Internet technologies
– Asite decided not to build its own technology,
but to establish partnerships with technology
vendors that have highly specialized products
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Asite (cont.)
• Commerce One provides the business solution
for the portal
• Microsoft provides the technology platform
and core applications
• Attenda is the designer and manager of the
Internet infrastructure
– Asite is committed to strong partnerships that
allow it to seamlessly interact with other emarketplaces
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Asite (cont.)
– Internet browser is all that is needed to
connect to Asite’s portal
– Ease of access makes it particularly well
suited to an industry such as construction
• Construction firms streamline their supply
chains
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Asite (cont.)
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Managing Exchanges
• Open standards mean that the technology
can be incorporated easily with
participating firms’ back-end technologies,
allowing full visibility of the supply and
demand chains
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Managing Exchanges (cont.)
• Networks of exchanges (E2E)
– Large corporations may work with several
exchanges, and they would like these
exchanges to be connected in a seamless
fashion
Commerce One and Ariba developed a strategy
that allows them to plug a broad range of
horizontal exchanges into their main networks
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Managing Exchanges (cont.)
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Managing Exchanges (cont.)
• Centralized management
– Managing exchanges and providing services
to participants on an individual basis is
expensive
– Build “families” of exchanges managed jointly
in order to operate several exchanges from a
unified, centralized place
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Managing Exchanges (cont.)
– Manages all of the exchanges’:
• Catalogs
• Auction places
• Discussion forums
– Managing and centralizing:
•
•
•
•
Accounting
Finance
Human resources
IT services
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Managing Exchanges (cont.)
•
Critical success factors for exchanges
according to Ramsdell:
1.
2.
3.
4.
5.
Early liquidity
The right owners
The right governance
Openness
A full range of services
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Managing Exchanges (cont.)
• Other CSF:
–
–
–
–
–
–
–
–
Importance of domain expertise
Targeting inefficient industry processes
Targeting the right industries
Brand building
Exploiting economies of scope
Choice of business/revenue models
Blending content, community, and commerce
Managing channel conflict
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Managing Exchanges (cont.)
• New directions in B2B marketplaces
– Early failures of exchanges were due mainly
to the failure of these marketplaces to foster a
broad-based sharing of information
– Recognize the fundamental asset provided by
their member base is the unique knowledge of
the industry
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Managing Exchanges (cont.)
– e-distributors
• Take title to the goods they sell
• Aggregate those goods for the convenience of
buyers
• Advise buyers which to choose
• Reach hard-to-find buyers
• Result in extra value for buyers and decent
profits for sellers
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Managerial Issues
Have we “done our homework”?
Can we use the Internet?
Which exchange to join?
Will joining an exchange force
restructuring?
5. Will we face channel conflicts?
6. What are the benefits and risks of joining
an exchange?
1.
2.
3.
4.
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Summary
1. E-marketplaces and exchanges defined
and the major types of exchanges.
2. Ownership and revenue models.
3. B2B portals.
4. Third-party exchanges.
5. Consortia and e-procurement.
6. Dynamic pricing and trading.
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