Focus
The firm is recognized as a horizontal e-marketplace, through which buyers and sellers worldwide trade a wide variety of direct and indirect products (e.g., office equipment, computers, and food). Although the e-marketplace is open to companies globally, it focuses on traders, manufacturers, and suppliers in Europe and the UK in particular. The company’s geographical focus has changed over time. While the primary focus has been on the UK market, additional markets, such as the U.S. and most of Europe, have been added. The move into the U.S.
market created a situation in which Company E’s owner ended up with two marketplaces, one in the U.S. and one in the UK. Merging these two e-marketplaces turned out to be very expensive; thus, in 2001 and 2002, Company E’s parent company (BT) dropped the U.S. focus. Consequently, the firm’s focus became very much U.K.-oriented again.
Constant change of policy by its owners dragged the firm in different directions.
The main reason for that situation was that, organizationally, the e-marketplace was treated solely as a department within the parent company at that time.
Therefore, although, the company had its own brand, it relied to some extent on the mother company for its marketing, sales force, and technology. The previous organizational structure could, on the one hand, be seen as a problem, while it was a benefit in terms of having a large corporate firm as support. Today, however, the
situation has changed for businesses within BT: “When a new venture is created, they are provided with capital and management capability and are treated independently. If the venture is successful and is grown to a certain size, it is brought back in-house again.”
The focus of the marketplace was to bring in large buyers, whereas suppliers were brought into the e-marketplace through these buyers. The company does not proactively gather suppliers.
Governance
Company E is wholly owned by British Telecommunications plc (BT), a multinational business active mainly within communications. The e-marketplace, with a turnover of about €4.4 million in 2004, constitutes a relatively small part of BT’s business; the total turnover for the group exceeded €26.5 billion for the same year. It is claimed BT’s long experience of managing its own supply chain has created an awareness of procurement challenges that large companies have to face, and this experience provides the basis for BT to operate an e-marketplace (i.e., Company E).
Functionality
The e-marketplace provides various functionalities through its three core modules:
o Exchange module, which facilitates content management and supplier connectivity
o Buy module, which empowers users to select, order, and authorize goods and services
o Source module,which lowers the cost and improves efficiency in sourcing new requirements
The core service covers trading functions from purchase to payment, and includes catalog publishing, catalog management services and basic procurement capability, and purchase order routine and sales order management, as well as invoice presentation and invoice management. The firm’s customers usually have some basic procurement functions on their own sites. Through the purchase order routine and sales order management, buyers can send their purchase orders, and the suppliers can view them either on the Web or through integration with their own applications.
The content the e-marketplace provides is not considered value-added. While the content includes information about the industry, it is not very extensive. However,
commerce content concerns direct and indirect products and is presented in an electronic catalog.
Unlike most vertical e-marketplaces that are building services around industry-specific content, the firm, as a horizontal entity, tries to provide services that are functional and reliable, with embedded technical excellence.
As for collaboration tools, Company E provides services such as electronic sourcing and auctions that help create a dynamic relationship between buyer and supplier; thus, they can work more efficiently.
Technology
Initially, the e-marketplace was developed on Commerce One technology, and BT was the first organization to launch a Commerce One marketplace outside of the U.S. However, because the firm was developed in the early days of the e-marketplace evolution, it took a lot of development, feedback, and testing of Commerce One’s technology. But, since the business was not profitable, the whole idea of operating an e-marketplace was questioned in 2001, and an evaluation was made. It was concluded, among other things, that the e-marketplace had the wrong partnership with respect to the technology. It was stated that Commerce One was not able to update its technology, and simultaneously, the ERP vendors had taken over by providing new applications for e-procurement. Oracle and SAP emerged as market leaders. Due to the fact that the owner of the marketplace already had a very strong corporate relationship with Oracle and used its technology internally, Commerce One was replaced by Oracle solutions in 2002.
Today, the technological platform is basically an Oracle solution with some gateways inside; these were developed by the e-marketplace itself to enable the pure Oracle capabilities to talk to other types of platforms. The respondent further explains: “Since the e-marketplace still has customers that use Commerce One technology, integration capability has been created; thus the gateway software allows Commerce One traffic, its translation, and applications.” The respondent explains that the telecommunication industry very much resembles the finance industry concerning security: “You don’t launch anything at the customer without very rigorous security processes being devoted. You have an audit function that keeps reviewing you every six to 12 months. The security level is very solid, and security is extremely important.” In summary, the existing platform is defined as flexible, scalable, and secure, with a capability to build new services if customers require it. Since the firm has access to engineering teams in the UK and India that possess high degrees of expertise regarding the platform, the firm has the capability to rather easily modify or develop new services.
For the development of new services the strategy is that the scope and price are set in the UK but construction is outsourced to India, due to the low cost and existing production flexibility.
Partnership
The e-marketplace has a strong alliance with Oracle; however, the firm has its own helpdesk and supporting environment. Technological development is outsourced to partners in India, due to cost issues (the cost for development of technology in India is about €70 per day, compared to a daily rate of approximately €1,000 for the same job in the UK).
At present the firm is evaluating different directions it can choose. The options are merging and outsourcing of major activities, by which substantial growth can be achieved. If the required growth is not achieved in due time, the business will be closed.
5.6.3. Critical Success/Failure Factors
A successful e-marketplace is one that provides services through a network and a single point of connection to which customers can easily plug in. Since not all e-marketplaces can provide easy connectivity, they have tried to compensate by adding/creating additional added-value services.
The ability to lead the market, as well as the ability to capture the attention of top-level/mid-level management within buying organizations, are considered to be critical success factors. Another factor crucial for e-marketplace success is having the technical ability to operate the platform successfully. Additional contributing factors are sales and marketing capabilities. From the management point of view, managing the relationship with Oracle is one of the critical success factors for this firm.
As to critical failure factors, the wait-and-see policy adopted by many prospective customers could be a major contributing factor to the failure of e-marketplaces.
The respondent explains the UK market is not big enough for more than one or two horizontal e-marketplaces; currently, about five such firms operate in the UK.
Thus, a consolidation is necessary and foreseeable. But, due to the fact that all five believe their e-marketplace is the particular one that will survive, the necessary consolidation has not occurred. Because everyone is waiting for something to happen, buyers and suppliers are afraid of selecting the wrong e-marketplace; that is, one of those that eventually may have to shut down. Instead, they do not use the service provided.
5.6.4. Challenges
The fact that Company E is a very small business unit within a very large telecom firm (BT) creates major challenges for the e-marketplace that management has to handle. While Company E certainly can modify its service offerings to meet customers’ demands, it is very difficult to get the parent company’s management to make fundamental strategic changes for the e-marketplace.
A lack of sales force and a reliance on the owners’ sales force still is one of the major challenges Company E has to deal with. Other major challenges are identified as aligning the e-marketplace’s activities to the owner’s core business, i.e., telecommunications, and getting sales and accounting people to understand the e-marketplace concept and sell it. Basically, the e-marketplace gets neither attention nor money, as it does not truly fit into the structure of a large telecom company. Weak customer demand and finding an appropriate partnership structure are other issues the firms had to deal with.
Company E’s initial strategy to achieve critical mass was to have the agreement of a few large early adopters (firms) and bring their suppliers onto the e-marketplace.
The strategy failed due to the fact that the e-marketplace totally misunderstood the internal dynamic within each of those organizations. While the idea was that large buyers would use their power to urge their suppliers to trade through the e-marketplace, in reality, on the technical and strategic level, the buying companies were simply not ready to do it. Their procurement departments and finance departments were not motivated to force their suppliers to use the e-marketplace.
5.6.5. Business Model Components
Mission
In an October 2002 press release published on the owner company’s Web site, it is stated that the company’s B2B e-commerce strategy was taken into a new phase through its partnership with Oracle. The aim of the firm’s strategy is formulated as “Driving the adoption of e-procurement and overcoming some of the major challenges faced by companies—technical complexity, integration, and supplier adoption.”
The firm’s mission is to provide complementary services to enterprise application providers like Oracle. While Oracle builds at an enterprise level and is very good at facilitating finance, human resources and procurement applications, e-marketplaces such as Company E’s aim at enabling activities on an inter-enterprise level (e.g., procurement and sale).
Value Proposition
The e-marketplace ensures efficient project management, as well as offering proven connections, content, and trading services, and maintains the latest standards through the following values43:
o Fast and accurate communication: ensures that buyers can work effectively with their suppliers and maximize the benefits of e-commerce.
o Open trading: offering a variety of value-added services, including consultancy and technical support, which could free buyers’ procurement professionals from time-consuming manual processes. It also offers immediate access to a trading community with more than 450 suppliers.
o More control and less risk: offering core service as modules that are built on a common platform. The buyers could introduce the service gradually, which gives greater control and enables the buyers to expand their commitment in line with the benefits achieved.
o A managed service for peace of mind: the marketplace manages all activities on behalf of the buyer, meaning that the buyer can achieve a procurement solution that maximizes service quality, minimizes risk, reduces maintenance, and cuts costs.
By using the e-marketplace, customers are said to gain such benefits as44:
o Lower net prices
o Reduction of process costs: electronic transactions reduce the need for manual intervention
o Elimination of negotiation and order management cycle through electronic catalogs, online auctions and electronic communications
o Reducing need for working capital: no need to invest in in-house procurement systems
o Improved access to management information: e-procurement and a common database of information facilitates faster and more effective gathering of information
o Achieving a low-cost, low-risk entry solution through a managed service and the ability to introduce Company E’s solutions module by module
o Gaining the most appropriate supplier relationships through Company E’s open-trading network
43 Extracted from the company’s official Web site
44 Extracted from the company’s official Web site
With respect to services, the firm claims to offer a very functional product set rather than focusing on value-added content.
Resources and Key Activities
While being owned by a large corporation can be problematic, as was indicated before, it also could be seen as a great asset. The e-marketplace can benefit from having access to a large company’s marketing, sales force, and technology to some extent. The fact that the respondent perceives sales and marketing as critical success factors indicates that having access to the parent company’s sales and marketing capabilities and assets impacts on company performance. Having a large corporate owner also provides a business environment characterized as being more patient and with a long-term focus, compared to a small firm environment; the e-marketplace, therefore, will have more time to achieve success.
As indicated on Company E’s Web site, the firm’s key activities include e-procurement and exchange and sourcing processes. E-e-procurement activities consist mainly of streamlining and automating the purchasing process, which allows authorized buyers to access a single, up-to-date, electronic catalog containing approved products.
Exchange solution is a trading network which enables customers to extend their procurement processes to suppliers. It provides an open platform that numerous procurement and supplier applications can access. Additionally, a managed supplier engagement program ensures that suppliers are introduced to the new systems in a structured way.
The sourcing solution, which is provided on a common procurement platform, facilitates the online sourcing of goods and services and includes two key elements: online auctions and RFQs. The Web-based auction solution offers a fully integrated bidding system operating in real time. The RFQ solution provides online tools that automate workflow to help customers manage the communication process related to competitive sourcing.
Cost and Revenue Model
Initially, the revenue model was based on a combination of different fees. Buyers were charged a fee for the software (i.e., the Commerce One application), a monthly connection fee, and a transaction-based fee. Besides paying a fee for connecting to the e-marketplace, suppliers also paid a transaction fee. The idea was that the e-marketplace would handle activities more efficiently and thus be
able to charge buyers and suppliers fees that amounted to 10 percent of their traditional cost. In reality, it turned out to be quite difficult to motivate buyers and suppliers to pay those fees, since existing purchasing operation costs are very invisible in a company, as they are typically treated as overhead charges. Thus, the suggested revenue model was not successful. Suppliers were also reluctant, and were not prepared to pay €1,400 up front plus €0.15 per transaction, despite the projected cost savings. The revenue model was subsequently changed and the current model is said to be much more efficient. Today, Company E charges the buyer a base amount, a quarterly fee, and additional fees based on the use of services. For suppliers, the service is now free.
After the adoption of a new revenue model, resistance to the fee structure has declined, and the firm’s performance has improved dramatically, which has resulted in attracting new customers.