Home > Articles > Software Development & Management

This chapter is from the book

The Future of e-markets

In fact, so popular and lucrative has the entire market become that there has arisen a number of third-party vendors that specialize in building and operating e-markets, boasting that a basic trading hub can be set up in three to six weeks for a few hundred thousand dollars. This has meant that many people with an entrepreneurial flair and a good working knowledge of a vertical industry supply chain have been tempted to plunge into the market with their own trading hub. Venture capitalists, understanding the popularity and the potential "winner-take-all" scenario for those entering these e-marketplaces, have been only too keen to provide the funding.

There are drawbacks, of course. As with any independent many-to-many portal at this time, both suppliers and buyers still have to update their internal systems manually with each transaction. Although obviously the trend is toward full integration, there are currently any number of differences—in buying parameters, payment systems, shipping and delivery techniques—that mean that purchasing through an e-market is still not much different (at least in terms of process efficiencies) from negotiating price over the telephone. This leaves the "e-market revolution" much less revolutionary than its proponents claim, in that neither the buyer nor the seller are fundamentally changing anything about their businesses.

However, many industry watchers and software vendors would counter that it is only a matter of time before that higher level of integration is provided by the e-market portal owners. In fact, this need has already been partly addressed by a whole new platform of third-party integration software known as connectors (see "Translation and Connectivity" in Chapter 5).

Many of the early exchanges and auctions that focused on spot markets found that they were soon overtaken by larger, better-funded trading communities sponsored by alliances between market creators and the large software companies. Moreover, many of the smaller auction sites have found that contractual details and performance guarantees, necessary to ensure that buyers won't get burned badly by participating, require software and processes that incorporate a sophisticated and detailed approach to automated bidding—levels of expertise that they do not have and software that very few of them can either build themselves or afford to buy.

But of all the controversial issues that this revolutionary shift toward trading hubs raises, one of the most important is that it runs completely counter to the prevailing wisdom—that has been gaining momentum over the past decade—of the value of strategic sourcing. The idea behind strategic sourcing is that a few, preselected, tested, and trusted vendor partnerships are far more cost-effective—because of familiarity with processes and expectations, negotiated discounts, and ability to be trusted with secure information—than many partnerships with unknown or untested vendors, even if they are offering one-off low prices for their goods. Dedication to this premise is, according to many, the very reason why companies want and need to digitize their procurement systems, in that once their procurement specialists are no longer laboring with low-cost, high-volume indirect goods, they can spend their time much more valuably in developing closer, tightly-negotiated arrangements with a few highly-trusted partners.

Over the past several years, for example, IBM has significantly reduced the number of vendors from which they purchase ORM materials. In Europe, only 10 suppliers provide the company with some three-quarters of all of its purchases. But this vendor rationalization is not as straightforward as it might appear. The ultimate number of suppliers may well be what it was before consolidation. It is simply that IBM has, because of its considerable market leverage, been able to force the costly and cumbersome responsibility for negotiating and buying from thousands of suppliers down one level to its selected and trusted "clearinghouse"-type partners. It is a form of strategic sourcing, but not one that is easily adopted by smaller, less influential buyers.

On the other hand, many procurement specialists—both buyers and sellers—assert that spot markets, auctions, and many-to-many exchanges completely undermine the trusted one-to-one relationship that is at the heart of the strategic sourcing movement. On the contrary, at least until these e-market portals can be closely and securely integrated with a buying company's ERP and back-end systems, item price becomes the single most important criteria for trading with a particular vendor, which may be one of thousands of suppliers, each one selling on multiple horizontal and vertical industry e-markets. It is an unexpected strategic paradox that promises to divide the procurement community.

In the end, of course, it is the very fears expressed by industry watchers that a single e-marketplace will become dominant (winner take all) that are part of the motivation for venture capitalists to risk money backing a myriad of these e-marketplace startups. So volatile is this portion of the economy that there is some merit in spreading your risk. But there can be little doubt that the vast majority of startup exchanges will rapidly collapse as they are tested in the rough-and-tumble of the day-to-day procurement market. Customers will increasingly demand higher levels of service and integrated functionality from trading hubs, forcing a form of natural selection to take place in each industry vertical.

Much in the same way, there is also little doubt that customer demand, legal barriers permitting, will soon force these multiple and competing groups—e-procurement software vendors, ERP firms, market creators, auctions, exchanges, ASPs—toward consolidation. Customers are already demonstrating that they don't want to have to deal with a myriad of different vertical and horizontal suppliers. They want one or two organizations that can provide centralized sourcing for them. Many research groups contend that the need for a single, integrated solution for the full e-procurement process—for both indirect and direct materials and with an acceptable balance of systems integration capability and security—will quickly force a consolidation of the now fragmented e-procurement marketplace.

No longer able to focus on simply providing buyers with purchasing leverage and sellers with a broader market, those that survive, claim analysts, are being forced to add value by offering supply chain management expertise, back-end systems integration, integrated banking, and data security protection, all in a single, cost-effective offering. This will mean that when market forces take their course, according to the Gartner Group, there will only be room for about three vertical portals in each industry. The others will go the way of the e-commerce dotcom startups of the past several years.

There is already evidence that that vertical industry shakeout has begun. One good example is EFDEX, the e-market that had hoped to become the dominant exchange in the catering industry, bringing together online restaurants and hotels with catering suppliers for food and drink. At one point, their staff had jumped from 20 to 200, but in the end, investor concerns about cost and the site's ability to attract the number of users necessary meant that EFDEX failed to secure the necessary funding to even go live.

Similarly, IndustrialVortex, the industrial automation product e-exchange, collapsed after only six months of trading, despite more than $20 million in RFQs processed in a single month in the summer of 2000. Neoforma, a highly praised health care exchange, was forced to lay off 25% of its workforce, its stock price dropping from $60 to $3.508.

Most spectacularly, Ventro, which operates many different marketplaces, was forced to close two of its once most promising vertical exchanges. Chemdex, a market site for medical products, and Promedix, which provided an exchange for specialty medical products, were both at one time cited as sterling examples of the promise of vertical markets, but ultimately failed to attract enough participants or make enough money to survive.

It may well be that if only as a matter of survival, as some argue, e-markets will move quickly to build in the third-party delivery and quality assurance services necessary to reassure buyers. The larger and more progressive trading communities—and this is where things become potentially revolutionary—are already providing a marketplace for direct materials, creating a much closer integration of supply chain systems than could have been contemplated only two years ago. There are many reasons for this, not least that the potential earnings are so good that the e-procurement and ERP software groups are scrambling to reshape themselves as partners in these hubs and exchanges, and are bringing valuable procurement expertise to add on to the features of the industry focus.

The reason that these types of Internet-based markets are so important, then, is that they may well be the catalyst that will push e-procurement away from the limited one-to-many extranet model, focused on a single buyer and several preferred vendors, toward a many-to-many arrangement where, even for many direct materials, buyers will go to a single online portal in order to bid on materials being sold on a real-time market.

InformIT Promotional Mailings & Special Offers

I would like to receive exclusive offers and hear about products from InformIT and its family of brands. I can unsubscribe at any time.


Pearson Education, Inc., 221 River Street, Hoboken, New Jersey 07030, (Pearson) presents this site to provide information about products and services that can be purchased through this site.

This privacy notice provides an overview of our commitment to privacy and describes how we collect, protect, use and share personal information collected through this site. Please note that other Pearson websites and online products and services have their own separate privacy policies.

Collection and Use of Information

To conduct business and deliver products and services, Pearson collects and uses personal information in several ways in connection with this site, including:

Questions and Inquiries

For inquiries and questions, we collect the inquiry or question, together with name, contact details (email address, phone number and mailing address) and any other additional information voluntarily submitted to us through a Contact Us form or an email. We use this information to address the inquiry and respond to the question.

Online Store

For orders and purchases placed through our online store on this site, we collect order details, name, institution name and address (if applicable), email address, phone number, shipping and billing addresses, credit/debit card information, shipping options and any instructions. We use this information to complete transactions, fulfill orders, communicate with individuals placing orders or visiting the online store, and for related purposes.


Pearson may offer opportunities to provide feedback or participate in surveys, including surveys evaluating Pearson products, services or sites. Participation is voluntary. Pearson collects information requested in the survey questions and uses the information to evaluate, support, maintain and improve products, services or sites, develop new products and services, conduct educational research and for other purposes specified in the survey.

Contests and Drawings

Occasionally, we may sponsor a contest or drawing. Participation is optional. Pearson collects name, contact information and other information specified on the entry form for the contest or drawing to conduct the contest or drawing. Pearson may collect additional personal information from the winners of a contest or drawing in order to award the prize and for tax reporting purposes, as required by law.


If you have elected to receive email newsletters or promotional mailings and special offers but want to unsubscribe, simply email information@informit.com.

Service Announcements

On rare occasions it is necessary to send out a strictly service related announcement. For instance, if our service is temporarily suspended for maintenance we might send users an email. Generally, users may not opt-out of these communications, though they can deactivate their account information. However, these communications are not promotional in nature.

Customer Service

We communicate with users on a regular basis to provide requested services and in regard to issues relating to their account we reply via email or phone in accordance with the users' wishes when a user submits their information through our Contact Us form.

Other Collection and Use of Information

Application and System Logs

Pearson automatically collects log data to help ensure the delivery, availability and security of this site. Log data may include technical information about how a user or visitor connected to this site, such as browser type, type of computer/device, operating system, internet service provider and IP address. We use this information for support purposes and to monitor the health of the site, identify problems, improve service, detect unauthorized access and fraudulent activity, prevent and respond to security incidents and appropriately scale computing resources.

Web Analytics

Pearson may use third party web trend analytical services, including Google Analytics, to collect visitor information, such as IP addresses, browser types, referring pages, pages visited and time spent on a particular site. While these analytical services collect and report information on an anonymous basis, they may use cookies to gather web trend information. The information gathered may enable Pearson (but not the third party web trend services) to link information with application and system log data. Pearson uses this information for system administration and to identify problems, improve service, detect unauthorized access and fraudulent activity, prevent and respond to security incidents, appropriately scale computing resources and otherwise support and deliver this site and its services.

Cookies and Related Technologies

This site uses cookies and similar technologies to personalize content, measure traffic patterns, control security, track use and access of information on this site, and provide interest-based messages and advertising. Users can manage and block the use of cookies through their browser. Disabling or blocking certain cookies may limit the functionality of this site.

Do Not Track

This site currently does not respond to Do Not Track signals.


Pearson uses appropriate physical, administrative and technical security measures to protect personal information from unauthorized access, use and disclosure.


This site is not directed to children under the age of 13.


Pearson may send or direct marketing communications to users, provided that

  • Pearson will not use personal information collected or processed as a K-12 school service provider for the purpose of directed or targeted advertising.
  • Such marketing is consistent with applicable law and Pearson's legal obligations.
  • Pearson will not knowingly direct or send marketing communications to an individual who has expressed a preference not to receive marketing.
  • Where required by applicable law, express or implied consent to marketing exists and has not been withdrawn.

Pearson may provide personal information to a third party service provider on a restricted basis to provide marketing solely on behalf of Pearson or an affiliate or customer for whom Pearson is a service provider. Marketing preferences may be changed at any time.

Correcting/Updating Personal Information

If a user's personally identifiable information changes (such as your postal address or email address), we provide a way to correct or update that user's personal data provided to us. This can be done on the Account page. If a user no longer desires our service and desires to delete his or her account, please contact us at customer-service@informit.com and we will process the deletion of a user's account.


Users can always make an informed choice as to whether they should proceed with certain services offered by InformIT. If you choose to remove yourself from our mailing list(s) simply visit the following page and uncheck any communication you no longer want to receive: www.informit.com/u.aspx.

Sale of Personal Information

Pearson does not rent or sell personal information in exchange for any payment of money.

While Pearson does not sell personal information, as defined in Nevada law, Nevada residents may email a request for no sale of their personal information to NevadaDesignatedRequest@pearson.com.

Supplemental Privacy Statement for California Residents

California residents should read our Supplemental privacy statement for California residents in conjunction with this Privacy Notice. The Supplemental privacy statement for California residents explains Pearson's commitment to comply with California law and applies to personal information of California residents collected in connection with this site and the Services.

Sharing and Disclosure

Pearson may disclose personal information, as follows:

  • As required by law.
  • With the consent of the individual (or their parent, if the individual is a minor)
  • In response to a subpoena, court order or legal process, to the extent permitted or required by law
  • To protect the security and safety of individuals, data, assets and systems, consistent with applicable law
  • In connection the sale, joint venture or other transfer of some or all of its company or assets, subject to the provisions of this Privacy Notice
  • To investigate or address actual or suspected fraud or other illegal activities
  • To exercise its legal rights, including enforcement of the Terms of Use for this site or another contract
  • To affiliated Pearson companies and other companies and organizations who perform work for Pearson and are obligated to protect the privacy of personal information consistent with this Privacy Notice
  • To a school, organization, company or government agency, where Pearson collects or processes the personal information in a school setting or on behalf of such organization, company or government agency.


This web site contains links to other sites. Please be aware that we are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of each and every web site that collects Personal Information. This privacy statement applies solely to information collected by this web site.

Requests and Contact

Please contact us about this Privacy Notice or if you have any requests or questions relating to the privacy of your personal information.

Changes to this Privacy Notice

We may revise this Privacy Notice through an updated posting. We will identify the effective date of the revision in the posting. Often, updates are made to provide greater clarity or to comply with changes in regulatory requirements. If the updates involve material changes to the collection, protection, use or disclosure of Personal Information, Pearson will provide notice of the change through a conspicuous notice on this site or other appropriate way. Continued use of the site after the effective date of a posted revision evidences acceptance. Please contact us if you have questions or concerns about the Privacy Notice or any objection to any revisions.

Last Update: November 17, 2020