Introduction | What is B2b eMarket | Revenue Sources | Business Models | Landscape | The Alternative | Conclusion | eMarketplaces | Web Resources | Bibliography

The e-Marketplaces Landscape

According to Deloitte Consulting, globally, the number of e-marketplaces has soared to around 1500 e-marketplaces over the past few years. Other sources count from 500 to more than 4000 e-marketplaces present today on the market. Although it is not possible to quantify their exact number, it is possible to claim with certainty that the number has reached the peak and that e-marketplaces are entering a period of consolidation. Already, a handful of high profile sites have failed. Amongst them, Equipp.com, an online exchange for industrial equipment shut down after running out of capital; Industrial Vortex, unable to get a second round of financing, went belly-up as well.

The most obvious obstacle for the growth of e-marketplaces is capital. Many e-marketplaces overestimated their ability to raise second and third rounds of financing from their investors. After the dotbomb in March 2001, the high risk capital has dried up. Venture capitalists have become much more choosy. The e-marketplaces that remained in business are now re-thinking their strategy. To bring liquidity into the market, a number of them are either letting their buyers and sellers take an equity share or merge with other competing companies. For instance, Neoforma, an independent provider of services in the medical products, supplies and equipment market, recently implemented a stock incentive for VHA, a network of 2000 community owned health care organizations and their affiliated physicians. VHA, which signed up 133 of its hospitals with Marketplace@Novation, was given a warrant to purchase over 30 million shares of Neoforma stock. A lot of other independent e-marketplaces followed the same logic. Most of them offered equity shares to their participants according to the transaction volume they brought into the market, compromising neutrality for the sake of liquidity in order to survive. On the other side, a number of e-marketplaces merged. For instance, the two competitors, CheMatch, trading chemicals, polymers, feed stocks and fuel products online, and ChemConnect, trading chemicals and plastics, recently merged under the ChemConnect name. Buyers and sellers of chemicals and plastics worldwide warmly welcomed the merger, since it cleared up a lot of confusion about where companies should be putting their trading volumes. The press is already speculating, probably inspired by the number of other mergers and acquisitions that recently occurred within B2B, that ChemConnect may likely want to partner with Elemica, an order processing company in the chemical industry, to solve connectivity issues.

In the future, the relationships between e-marketplaces may as well take a form of other types of workable partnerships, such as joint ventures, technology sharing or co-development, revenue sharing, sales and marketing alliances and other seamless joint operation projects. In fact, the vendors of e-markets building software, such as Ariba, CommerceOne, RightWorks and Calico Commerce, are already touting the idea of partnership as a way to ply the network effect. Ariba has developed a capability called “punch-out”, that enables the integration of a company’s internal enterprise system into an e-marketplace. The company calls the capability “Junior M2M”, indicating that it could be used as well to establish linkages between different e-marketplaces, giving that the other conditions are met. CommerceOne went much further. The company has partnered with 23 companies, among them Compaq, Covisint, Exostar, Siemens and other well-known names, to create the Global Trading Web Association, targeting global electronic commerce. The association became the world’s largest open B2B Internet-based trading community. By using the Internet to break down geographical barriers, it enabled a buyer on a member e-marketplace to conduct business with any supplier on another member e-marketplace through a single connection. Business service providers on one member e-marketplace got the opportunity to provide services to a buyer, supplier, or other service provider on any other member e-marketplace. The concept of building such alliances was tempting for other e-marketplaces as well. According to Boston Consulting Group, 68% of the e-marketplaces that responded to their survey said that they had already been approached about the matter of linking with another e-marketplace.

Three types of strategic linkages have been discussed. First, vertical e-marketplaces showed an interest to create linkages with horizontals. In that case, they could quickly leverage domain expertise in infrastructure, supplier contracts and processes that horizontals have developed, to help their members reduce their indirect spending. Both e-marketplaces would profit from boosting the volume and liquidity. Second, broad-based industry verticals are likely to link with numerous niche e-marketplaces as well. The broad e-marketplace would fulfill most of the business needs, while the smaller niche players would fill the holes. At the end, buyer-driven and seller-driven e-marketplaces are both considering to enter strategic alliances. If those e-marketplaces were to link with each other, they could achieve value chain synergies, avoid duplication of efforts and accelerate the establishment of individual customer and supplier relationships. Finally, from the point of view of the end-users, the prospect of the e-marketplaces network creation is attractive as well, since it would enable them to conduct a business with countless partners around the globe just by hooking up into one local e-marketplace. But, practically, the global interoperability is still just a concept that has to be worked out. The main obstacle, especially on the international scene, is the lack of communication standards. The XML, eXtensible Markup Language, is widely accepted, but the problem is not just the markup language. The real challenge lies in the communication between dissimilar e-marketplaces, because for them, to transfer information, they have to dwelve down into semantics of XML, which is where the variations lie. According to Josh Greenbaum, senior consultant at Enterprise Applications Consulting, the second, even more serious obstacle, lies in the fact that most e-marketplaces don’t have enough critical mass to justify building links to other marketplaces. Most e-marketplaces are still focusing on getting brand names signed up, which leaves tens of thousands of companies down the supply chain out of the game. A propos this situation, Greenbaum states: “Until it is easy for a small supplier to make a connection, there will always be a gap in the ability of an M2M e-hub to deliver the liquidity that would come from connecting multiple entities.”

Home | Up