Anticipated emerging trends are that technology providers such as Oracle will try to depart from the application solutions, while telecom companies may still come up with a solution at a network proposition level, similar to what EDI once was.
E-marketplaces themselves are expected to become more value-added service providers or consultants, since they are not actually interested in the technology.
Regarding the future of Company E, it is believed the company will stay as it is for now, without doing anything dramatic. The firm could move away from the
Oracle application stack and become involved within the owner company’s telecom network.
5.6.8. Summary
Company E is a horizontal e-marketplace, mainly targeting European companies and offering services to facilitate their trade of a wide variety of direct and indirect products. The e-marketplace has been established and is wholly owned by BT, a large telecommunications company. Although the e-marketplace relies on its owner for marketing, sales, and technology, it operates fairly independently with its own budget and management team. Rather than focusing on providing value-added content, the main focus is on building a functionally great and technically excellent e-marketplace. The firm provides functionalities through three core modules that cover trading functions from purchase to payment and includes such services as basic procurement capability, management of catalogs, sales orders, and invoices, as well as e-sourcing and auction tools. The company’s technological platform is described as flexible, scalable, and secure.
The following factors are perceived as critical for the successful performance of e-marketplaces:
o Ability to lead the market
o Ability to capture the attention of buying organizations’ management
o Technical skills
o Sales and marketing abilities
o Ability to manage relationship with partners
The wait-and-see policy adopted by many prospective e-marketplace customers is perceived as a major factor contributing to the failure of e-marketplaces.
In short, the following issues are perceived as major challenges the e-marketplace has to meet in order to succeed:
o Carry out fundamental strategic changes when the e-marketplace is governed as a small business unit within a large telecommunications company
o Be obliged to rely on the owners’ sales force to get to the market
o Align e-marketplace activities to the owner’s core business
o Weak customer demand for e-marketplace services
o Find appropriate partner
o Keep a proper degree of freedom and a balance between the diverse interests of large owners, large customers, and the e-marketplace
Summarizing the various components of the company’s business model (i.e., Mission, Value proposition, Resources, Key activities, and Cost and revenue model) indicates that:
o Mission – is defined as providing complementary services to enterprise application providers, and the e-marketplace aims at enabling activities on an inter-enterprise level.
o Value Proposition – the e-marketplace offers proven connection, content, and trading services and maintains the latest standards; it also ensures efficient project management and functionality. The company’s value proposition includes values such as fast and accurate communication, open trading, more control and less risk, and a managed service.
o Resources – The backing of a large corporate owner is regarded as a major asset for the e-marketplace. This provides access to the owner company’s marketing, sales force, and technology, as well as a business environment characterized by a long-term focus.
o Key activities – the firm’s key activities deal with e-procurement, exchange, and sourcing processes.
o Cost and revenue model – Company E charges the buyer a base amount, a quarterly fee, and additional fees based on the use of services. The suppliers’ connection to the e-marketplace is free. The revenue model is perceived as important for the company’s performance.
Governmental organizations’ increased expenditure on IT and e-procurement is considered the most influential environmental factor.
Concerning the future, the following trends can be seen:
o The need to trade more efficiently will remain; thus, there will be a market for enabling trade in the future.
o It is not obvious which players will dominate this business. Technology providers, such as Oracle, might expand into offering typical e-marketplace services, and telecom companies are predicted to develop new network solutions.
o E-marketplaces are predicted to become more value-added service providers or consultants.
5.7. Company F
5.7.1. The Company
Company F (the e-marketplace) was founded in 2000 by a group of natural resource businesses, representing leaders in the global mining, metal, and mineral industries (i.e., metal and mining). The company is a global e-marketplace with locations in Australia, Brazil, Canada, Chile, France, Mexico, The Netherlands, Peru, Singapore, South Africa, and the United States. The membership profile includes buyers and suppliers from a variety of industries (e.g., metal and mining;
consumer package goods; oil and gas).
The marketplace provides e-business solutions that connect more than 400 buyers and about 25,000 suppliers, and handles more than €5.8 billion in order throughput annually (2005). In 2005, which was the first cash-flow positive calendar year, about 1.5 million purchase orders were processed through the e-marketplace. It is estimated that for 2006 the total value of transactions will exceed €6.8 billion and that about 500 buyers and 34,000 suppliers will be connected to the e-marketplace.
The company has achieved global reach, profitability, and the capability to offer several functionalities, which brings growth within the industry as an issue.
Merging with other e-marketplaces is a major alternative the company is evaluating.
5.7.2. Strategic Position
Focus
Being the only e-marketplace in the metal and mining industry provides an unchallenged position for the company, since most of the exchanges (about a dozen) that emerged within this industry are now gone. Instead, the company’s biggest competitors are internal systems of customers that in some cases decided to have in-house expertise, rather than invest in new technology (i.e., being connected to an e-marketplace). At the beginning, the firm had an ambition to create 149 different functionalities so it could have a unique strategic position, but this soon proved to be unrealistic. Thus, the firm started to connect the buyers to their most important suppliers; thereafter, the next most important suppliers were connected, and so on. Expenditures within the metal and mining industry can be divided into four categories: strategic goods, MRO (maintenance, repair, and
operations) goods, indirect material, and services (Table 5.2). Company F focuses mainly on MRO and indirect material, although some services and strategic goods are traded through the e-marketplace as well.
Table 5.2 Type of Expenditure within the Metal and Mining Industry Type of
expenditure
Percentage of total expenditure
Example
Strategic goods
15 Mission-critical suppliers; people who provide explosives or people who provide heavy equipment.
MRO 30 “Blue collar” MRO, e.g., belts, bearings, pumps, filters, and safety equipment. MRO is almost everything that is involved in running machinery or heavy equipment that is a part of a maintenance program.
Indirect material
30 “White collar” MRO, anything you probably consume in the process, e.g., office equipment, software, safety goggles, safety equipment.
Services 25 Related to, for example, blasting, drilling, and construction.
Due to the relatively small size of the industry, solution providers such as SAP did not create a platform. Thus, the e-marketplace, with the help of consultants, developed its own technological platform.
Today, suppliers join the e-marketplace solely through the buyers. Nevertheless suppliers initially could join the e-marketplace, and some marketing efforts were created in that respect. However, the result was poor and the outcome was that not more than 50–100 suppliers joined. Company F’s focus, which is presented in Figure 5.2, illustrates the distribution of suppliers in the metal and mining industry. The global metal and mining industry includes about 35,000 suppliers—
and approximately 200 of them, which are the major firms, are focused on strategic goods (e.g., Caterpillar, Komatsu, Shell). Then there are around 8,000 suppliers (e.g., 3M) offering MRO goods or services that are specific to the industry. The remaining 27,000 are suppliers of indirect material. However, few buyers wanted to connect all their strategic suppliers to the e-marketplace, while others wanted to start by connecting only their suppliers of indirect material. But, due to the fact that the large number of suppliers of indirect material represents only about 20 percent of total spending within the industry, the marketplace advice to the buyers is that suppliers of strategic goods should be connected first, followed by MRO suppliers and service providers. The company’s aim was to connect about 5,000–10,000 suppliers within the first three years.