e-Marketplaces

The emergence of Internet-based business-to-business (B2B) e-marketplaces in various industries is claimed to have opened up “real opportunities for online transactions” (Dai & Kauffman, 2002a, p. 41). In sectors such as industrial metals, chemicals, energy supply, food, construction, and automotive, “e-marketplaces are becoming the new business venues for buying, selling, and supporting customers, products, and services” (Raisch, 2001, p. 1).

In the year 2000, the number of B2B e-marketplaces soared, and in the spring of 2001, Forrester Research estimated that there were 2,500 B2B e-marketplaces worldwide (Turban & King, 2003). According to Stockdale and Standing (2002), it is not possible to accurately assess the number of e-marketplaces on the Internet. However, a network of mainly European trade promotion organizations, eMarket Services,⁴ provides a directory of e-marketplaces that host a platform for many-to-many interactions. While this directory covered data on more than 1000 B2B marketplaces in 2003, it currently includes data on about 800 B2B e-marketplaces (eMarket Services, 2006). The proliferation of e-e-marketplaces peaked in 2001. A period of consolidation began (Stockdale & Standing, 2002) and there is a common belief that e-marketplaces will eventually dominate the B2B e-commerce landscape (Grieger, 2003). Researchers predicted that transactions through B2B e-marketplaces would account for more than 50 percent of all B2B activities by the year 2004 (Knight, 2000; Turban & King, 2003).

There is not yet any commonly accepted definition of what an e-marketplace actually is. According to Grieger (2003, p. 281), “definitions are varying, attributes and characteristics seem to be innumerable and used arbitrarily.” E-marketplaces have been described as inter-organizational information systems (Bakos, 1991), electronic procurement solutions (Segev, Gebauer, & Faeber, 1999), intermediaries (Dai & Kauffman, 2002a), meeting points (Kaplan &

Sawhney, 2000), or digital marketplaces (Raisch, 2001). However, the common theme among the various descriptions of the phenomenon concerns the e-marketplaces’ characteristics of electronically connecting many buyers and

4. eMarket Services is a non-profit project funded by the trade promotion organisations of Australia, Denmark, Holland, Iceland, Italy, New Zealand, Norway, Portugal, Spain, and Sweden (eMarket Services, 2006).

suppliers to a central marketspace in order to facilitate exchanges of, for example, information, goods and services (cf. Bakos, 1991; Bakos, 1998; Dai & Kauffman, 2002a; Grieger, 2003; Kaplan & Sawhney, 2000; Raisch 2001; Segev, Gebauer, &

Faeber, 1999; Turban, King, Warkentin, & Chung, 2002). Additionally, in e-commerce literature, terms such as e-marketplace, e-hub, e-market, and exchange seem to overlap, and different people understand these concepts differently (Grieger, 2003). In line with the view presented by Grieger (2003), we consider an e-marketplace to be a central marketspace that possesses the unique feature of

“virtually” bringing multiple buyers and sellers together to exchange information, goods and/or services.

Since e-marketplaces bring together many buyers and sellers, and also provide the ability to automate transactions, doing business through the Internet is undoubtedly appealing. While e-marketplaces provide buyers with more choices and give sellers access to new customers, transaction costs could be reduced for all the players through the use of e-marketplaces (Kaplan & Sawhney, 2000). In fact, one of the main functions of e-commerce and e-marketplaces is to reduce costs. As an example, electronic invoicing is estimated to reduce cost for invoice processing with at least 40 percent, as compared to paper-based invoicing (UNECE, 2007).

Bakos (1998, p. 42) discusses the role and function of e-marketplaces, and states that they perform functions that include:

o “matching buyers and sellers,

o providing product information to buyers and marketing information to sellers,

o aggregating information goods,

o integrating the components of the consumer process,

o managing physical deliveries and payments, and

o providing relationships of trust and ensuring the integrity of the markets.”

Out of these functions, e-marketplaces create value mainly through matching and aggregation, which are two fundamentally different mechanisms. The aggregation mechanism implies that e-marketplaces aggregate many buyers and sellers “under one virtual roof,” which increases efficiency in procurement and reduces transaction costs. The matching mechanism is required for spot sourcing where prices, contrary to systematic sourcing, are determined at the moment of purchase (Kaplan & Sawhney, 2000, p. 100).

Dai and Kauffman (2002a) also discuss the role and function of e-marketplaces, and state that it is important to identify and characterize them in order to understand the various B2B business models that are emerging within the B2B e-commerce area. In addition to the three basic market functions, i.e., aggregation, matching, and facilitation, Dai and Kauffman state that e-marketplaces are beginning to emphasize other capabilities that aim to satisfy management needs and enable technological adaptation (Table 1.1).

Table 1.1 Summary of B2B Electronic Market Function.

B2B e-market roles B2B e-market functions Public e-cataloging Aggregation

Private e-cataloging Public bidding Matching

Private negotiating

Internet-based financial services Basic market functions

Facilitation

Delivery and logistics Procurement expertise and knowledge

Workflow management

Collaborative project management

Management needs

Business process support

Supply chain management System integrators

Standards providers Role of technology adapters

Outsourcing services Source: Adapted from Dai and Kauffman (2002a)

Dai and Kauffman (2002a, p. 69) foresaw that the adoption of e-marketplaces would have strategic implications to all market participants in the digital economy, since “there is no doubt about the value of these virtual markets, and of the efficient, effective transacting mechanisms they provide for buyers, sellers, and intermediaries.”

Evidently, the opportunity to connect businesses via e-marketplaces has generated tremendous interest in the business world in recent years, which has also led to a large number of initiatives and capital investments (Gebauer & Shaw, 2002).

However, many B2B e-marketplace operators have rushed online without sufficient knowledge of their customers’ priorities, with no distinctive offerings, and without a clear idea about how to become profitable (Wise & Morrison, 2000). According to Bruun, Jensen, & Skovgaard (2002, p. 287), “Many e-marketplaces built during the past few years have been founded on optimism and hope rather than on attractive value propositions and solid strategies.”

Consequently, many e-marketplaces have failed during the few years they have been around (ibid.).

The dramatic changes in the development of B2B e-marketplaces during the past few years has resulted in the evolution of a number of different trading models (Sculley & Woods, 2001), as well as different types of B2B e-marketplaces (Farhoomand & Lovelock, 2001). However, the increased competition among e-marketplace operators seems to be blurring the categories (Stockdale & Standing, 2002). For instance, the difference between vertical and horizontal⁵ e-marketplaces is becoming less distinct (Popovic, 2002). In line with this, Kaplan and Sawhney (2000) claim that it is increasingly difficult to make sense of the landscape as new firms with new business models enter the B2B space.

In addition, the rapid development within B2B e-commerce increases the degree of uncertainty, and thus makes business strategy development truly challenging for companies (Rayport & Jaworski, 2002; Timmers, 2000). According to Dai and Kauffman (2002b), Internet technology’s impact on organizational structures, business processes, and industrial structures, forces companies to explore new strategies.⁶ Defining the business model is included in the core of companies’ e-commerce business strategy process (Rayport & Jaworski, 2002).

In view of the above-mentioned development, many questions were raised concerning the characteristics of viable B2B e-marketplace models and the factors contributing to their success (Gebauer & Shaw, 2002). Both academic researchers and practitioners are concerned with the question of which B2B business models will lead to long-term success in the digital economy (Dai & Kauffman, 2002a).

5.Vertical marketplaces serve one specific industry or industry segment, whereas Horizontal e-marketplaces, also known as functional hubs, do not focus on any particular industry. Instead, they provide the same functions (e.g., human resources, procurement, logistics, and marketing) across different industries (Sawhney, 1999; Grieger, 2003).

6. Essentially, business strategy is about the long-term direction of the company, and deals with its overall plan for resource deployment. The central goal of strategy is to achieve sustainable competitive advantage in order to reach long-term profitability (Jelassi & Enders, 2005, p. 7).

Finding a business model that provides enough value to trading partners to justify the effort and cost of participation is also cited as a substantial challenge associated with the creation of an e-marketplace (Rayport & Jaworski, 2002).

To survive challenges and become successful in the increasingly competitive and dynamic e-marketplace environment, it is critical for B2B e-marketplace operators to understand the B2B landscape and strategies appropriate for adoption (Andrew, Blackburn, & Sirkin, 2000; Raisch, 2001). According to Stockdale and Standing (2002), this is especially true considering the fact that consolidation of e-marketplaces has begun, which bring the question about which are the probable survivors among the market makers and why, to the fore.

Bruun et al. (2002) claim that research within the field of B2B e-marketplaces is scarce and provides only fragmented answers to questions about, for instance, what would be appropriate business models and strategies. The lack of research is attributed to the novelty of the B2B e-marketplace phenomena, the oftentimes chaotic development within this area (Gebauer & Shaw, 2002; Bruun et al., 2002), and the fact that research on e-commerce in general is difficult to confine to specific disciplines (Ngai & Wat, 2002). Consequently, the limited previous research, together with the aforementioned development within the area of B2B e-commerce in general, and B2B e-marketplaces in particular, clearly indicates that this phenomenon needs to be studied in more detail.

Therefore, in view of the rapid growth of B2B e-commerce, the significant contribution of e-marketplaces to this growth, and the fact that research concerning B2B e-commerce and e-marketplaces is scarce, this thesis will focus on assessments of e-marketplaces as they relate to B2B.