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Business-to-Business (B2B) Net Markets

Business-to-business (B2B) business models are fairly young. But they're also evolving rather furiously. This section addresses some of the changes that are taking place in the area of net markets. However, a basic classification of the various types has already emerged. Broadly speaking, business-to-business applications can be further divided into the following categories:

  • Corporate procurement portals

  • Virtual distributors

  • Industry consortiums

  • Collaboration hubs

Corporate Procurement Portals

Corporations with substantial "buying power" are racing to create private portals for the procurement of both production-related goods and non–production-related goods. Production goods include raw materials, components, assemblies, and other items needed to produce a finished good. Non-production goods are items that businesses need to run day-to-day business operations: capital equipment; MRO (maintenance, repair, and operations) products; office, computer, scientific, and industrial supplies; and travel and entertainment.

However, for many companies, development of a truly effective integrated procurement strategy is still a long way off. For all but a relative few, there is no clear vision of what needs to be achieved through reengineering and integrating the procurement process, nor is there a good roadmap of how to get there—or even an idea of what "there" should look like.

Net Markets: Virtual Distributors, Auction Hubs

The first generation of Net markets (for example, VerticalNet) provided community features alone. However, in the second-generation, transaction revenue derived from buying and selling products is becoming crucial. An example of this genre of trading exchanges is virtual distributors. Virtual distributors offer one-stop shopping for a fragmented buyer and seller community by aggregating disparate product information, primarily associated with multiple catalogs, from multiple suppliers (that is, manufacturers) into one mega-catalog.

Virtual distributors help streamline the systematic sourcing of direct goods and lower transaction costs by issuing a single purchase order and parsing the order to each relevant supplier that ships the product direct. Many are starting to add richer services, such as meshing with software that handles a company's back-end operation—from order-taking to tracking inventory. Virtual distributors generally don't carry inventory, nor do they directly supply products, but instead assist buyers in arranging for third-party carriers to transport the order goods. The jury is out on this model.

Industry Consortiums: Joint Venture Industry Procurement Hubs

In response to startups, large companies are using their clout to create industry consortiums, of two types: buyer consortiums and supplier consortiums. In a buyer consortium, a group of large companies aggregate their buying power, the premise being that more buying power drives down price. Traditional industry players have a big advantage over Net-born startups when it comes to starting exchanges for high-volume commodity goods: instant commercial activity and liquidity. An example is MetalSpectrum, which plans to be the online neutral marketplace for aluminum, stainless steel, and other specialty metals.

In response to exchanges and buyer consortiums, supplier consortiums have begun to emerge. Similar to their buyer-centric cousins, these consortiums are forming in industries where a few firms comprise a high concentration of market power. The big difference is that supplier consortiums must give sponsors the opportunity to promote and differentiate their products. They must provide the most compelling environment for buyers by aggregating the key industry suppliers, and offering a compelling amount of product depth, breadth, and selection and service.

The future of industry consortiums is not clear. There are many issues to overcome around the areas of governance, technology, and antitrust. On the governance front, traditional competitors must form an independent company that promotes the interests of all the participants. The second big hurdle follows closely behind the first: technology selection. Again, with a cast of strong, powerful players, each with its own technology standards and systems, it will be difficult for the new entity to satisfy the requirements of all the members. The third hurdle is antitrust. In short, technology is no replacement for management or governance. And these issues have to be worked out.

Collaboration Hubs

Types of collaboration efforts can include product planning and design, demand forecasting, replenishment planning, and pricing and promotional strategies. Importantly, these platforms record historical trading data that can be analyzed in an effort to further improve future planning and forecasting, in turn enabling further compression of design and development cycles.

These emerging exchanges go far beyond the transaction phase to help companies manage the supply chain end-to-end. Collaboration hubs seek to create one common Web platform that enables participants throughout an entire industry supply chain (for example, raw-material providers, manufacturers, importers/exporters, distributors, dealers) to share information, execute transactions, and collaborate on strategic and operational planning. Not only should this common platform facilitate new trading partnerships, but it should enable channel participants to better match production with demand (thereby reducing excess inventories in the channel) and help speed cycle times.

Value-added services are the premium services that collaborative hubs provide to continuously drive market liquidity. By providing these services, collaborative hubs can increase site "stickiness," generate multiple revenue streams, and increase competitive barriers to entry. Providing these services is an essential component of a collaborative hub strategy if the collaboration expects to develop a sustainable advantage and be the market leader.

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