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The Emergence of Marketplaces

Online marketplaces are virtual forums that enable buyers and suppliers to meet, exchange information, and perhaps even contract to purchase a product or service. If this sounds like an example of the convergence of content and community for commerce, it is!

Network economics and the opportunity to reduce the costs of acquiring and utilizing information are advantages of marketplaces. They come in different shapes, sizes, and market focuses and reflect sourcing characteristics, constituent bias, product or service orientation, and industry or market view. They also differentiate around value proposition, transactional model, domain expertise of the host, degree of market neutrality, value-added services, technological infrastructure, and so on.

Business-to-business marketplaces have superficial similarities to business-to-consumer marketplaces. There are suppliers and there are buyers. There are catalogs, search mechanisms, ordering, payment, order tracking, and delivery. These similarities, valid at the highest aggregate level, hide important differences and processes below the surface; the differences are explored in Chapter 6, "The Commerce Stack." In its simplest sense, intermediaries facilitate interactions between buyer and seller organizations while enlarging the overall market and its attractiveness to both. Efficient marketplaces faciliate transactions and promote liquidity. Liquidity, in this context, reflects the "attractability" of the marketplace for both buyers and sellers.

So what are the attractions?

Several, ranging from price competitiveness to product variety, information content, ability to engage in supplier contracts, simplifying the purchasing process, etc. In trying to accommodate suppliers and buyers and position themselves as marketplaces of choice, intermediaries often serve as catalog aggregators (some call this a portal), digital exchanges, and the now-popular auction sites, online business forms that are discussed at various points throughout the book. Intermediaries are equally effective in B2B as well as B2C.

In addition to facilitating transactions, intermediary-driven marketplaces also offer a range of value-added services such as a technological infrastructure, directory services, content management, advisory services, and trust relationship and transactional services that include pre-qualification, credit verification, payment mechanism, escrow, insurance, fulfillment, and settlement.

Intermediaries coalesce around one of these biases: seller-centric and buyer-centric.

A "seller-centric" marketplace, or seller hub, often has a dominant supplier or distributor on one side and a large number of buyers on the other. Seller-centric markets support purchases of maintenance, repair, and operations (MRO) products and services; however, there are many others that deal with primary goods needed by Original Equipment Manufacturers (OEMs). OEMs like Intel, Cisco Systems, and Dell all host their own private marketplaces, which feature content aggregation, set up purchasing rules and order requisition standards for their customers, manage workflow, and provide some backend integration into financial systems, payment, and fulfillment.

Organizations have long-term relationships with their suppliers that they would like to preserve. "Buyer-centric" marketplace solutions, or buyers' hubs, are the initiatives of large buyers and generally enforce participation on suppliers who risk losing vendor status if they don't participate. General Motors, Ford, and Daimler Chrysler formed Covisint, shown in Figure 1.2, to create a front-end to a marketplace where their collective purchasing requirements can be placed in front of a number of qualified suppliers. Such a marketplace could jeopardize many long-term relationships between members of the automotive supply chain, but if the automakers can make good on their claims of taking as much as $4,000 in costs out of each car, the customer wins and the system becomes more efficient.

Obviously, businesses are complex operations and purchasing tends to be equally complex. Purchase value, both at an item level and at a consolidated level, tends to be high. It therefore requires spend limits by function or position, approvals, information about pricing, contracts, suppliers, payment, and fulfillment. There is also the audit trail, requiring documentation, verification, and analysis.

In a perfect world, all these different elements are seamlessly tied together, providing senior management with important metrics about who spends how much on what, when, where, and why.

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