E-Commerce Lecture 11

EBay Launches B2B Marketplace in Challenging Climate

Hoping to extend its popularity into the small and mid-size business arena, eBay (Nasdaq: EBAY) has formally launched a new section called eBay Business. The section currently features about 500,000 product listings, focusing heavily on office technology products, such as computers and networking devices, as well as wholesale lots of consumer goods and services, such as insurance and shipping. Click here to read the rest of the article

The learning objectives of lesson 4 include:

However, more specifically this learning objective includes trying to evaluate the way the B2B exchanges work.

First, what is a B2B exchange? A B2B exchange is simply a website that facilitates trades between suppliers and buyers. Wait a minute? Isn't this a middleman? What about the elimination of a middleman? Maybe! There are two basic kinds of exchanges. A horizontal exchange and a vertical exchange. The horizontal exchange involves the brokerage of goods and services that are not a direct impact on the value chain. For example, office supplies.

Vertical exchanges serve a specific industry and provide deep expertise and content for a given domain. PaperExchange (paper), and PlasticsNet.com (plastics). The following attributes help identify industries that lend themselves to vertical exchanges:

• Low concentration of buyers — fragmented market
• High number of geographically dispersed suppliers
• High number of existing intermediaries (distributors
and resellers)
• Low touch, standard products (that lend themselves to
online identification) as a high percentage of total
production
• High number of repeat trades per product (e.g.,
stocks) versus one-time sale (some perishables)
• Industry with few self-service options and low
customer service levels
• Frequent excess capacity that is inefficiently reallocated;
industries with unpredictable demand and
hence production needs
• Regional markets that could potentially go global
• Low brand-name impact; product availability more
important than seller’s identity

A great example is Plasticsnet. Read the following excerpt from Business 2.0:

A quick glance at PlasticsNet's brief history-launching an ecommerce holding company back in '95, turning down a $10 million offer for the Website the following year-makes it seem like Tim Stojka, co-founder of both Commerx and PlasticsNet (he is also CEO of Commerx and president of PlasticsNet), has been eerily prescient about the future of B-to-B ecommerce. But he makes no such claim, insisting that PlasticsNet's early success has come from building it around the needs of the buyers first, sellers later.

"Everybody is calling these things vertical markets, but we're just focusing on a buyer segment-plastics converters, companies who need and buy raw materials equipment, process it, and produce some sort of end product," says Nick Stojka, the company's co-founder and executive vice president. "Unlike the other verticals, we're uniquely focused on the buyer.... We're not just providing them with the raw materials, we're providing everything they buy on a regular basis, from a light bulb to spare parts...even the additives or resins."

Along with 30,000 grades of materials, plastics buyers need a tailor-marketed slew of expensive machinery-blenders, feeders, heaters, loaders, granulators, pulverizers, and the like-to get their work done. Each of those are high-ticket ($10,000 to $15,000 is typical), high-margin items on which Stojka has his eyes.

But long before a buyer comes to PlasticsNet in search of anything, the site boasts community services to lock them in for many returns. Visitors sign up free to become PlasticsNet members. What do they get for their eyeballs? Here's a brief inventory:

"It's a different strategy than a lot of portals," says Cary Weldy, Commerx's 33-year-old director of strategy development who spearheaded the ecommerce launch of PlasticsNet. Like the Stojkas, Weldy is no wet-behind-the-ears Java hotshot flown in from Silicon Valley. He's another son of a plastics-business father, and a former marketing manager at General Polymers, one of the biggest plastics suppliers in the country. "Anybody can launch an auction and call it whatever.com, but what makes something long-term sustainable is the ability to develop community."

There four general exchange types under which there are many variations

Buyer Managed
Large buyers have established their own exchanges, most of them private, and usually in conjunction with
technology partners.

Supplier-Managed
Distributors/Market Makers are independent exchanges not dominated by buyers or sellers. These firms tend to be
venture-backed and were early dotcom innovators (e.g., Ventro, Instill, Healtheon/WebMD).

Content aggregators
These firms take on the messy job of building and maintaining multi-vendor catalogs.

Supplier-Managed
Producers with dominant market share or limited, proprietary product establishes supplier-managed exchanges. Large suppliers or distributors (e.g. Works.com and Grainger.com) that serve fragmented, small buyers may be better served by running their own marketplace since their customers might alternatively set up a series of small buyer-managed exchanges.

Exhibit 48 in the reading examines the basic challenge of B2B. In order for B2B to truly show overall sustainability, the transaction must reach the backend systems.

Commerce Servers
The basic commerce server is the natural starting point to an e-commerce infrastructure. However, because of the proliferation of products labeled “commerce servers,” there is much confusion as to which does what. We can categorize commerce platforms into three main segments:

Buy-Side Commerce — Workflow engine for procurement rules for a single buying organization; reports on procurement history; aggregation of multiple
supplier catalogs inside the firewall.

Sell-Side Commerce — Creating purchase orders, payment processing, catalog hosting, and merchandizing for a single seller to host on its Web site.

Market-Making Platforms — Order matching across multiple buyers and sellers; catalogs from multiple suppliers.

Market-making software has to maintain multiple catalogs from multiple suppliers and match orders across all participants in a marketplace. The commerce servers may be used as the order processing engine inside of a market place (BroadVision has pursued this angle).

Some specialist software vendors focused on market-making software (Moai Technologies, Tradex, Trading Dynamics, Open Site Technologies, and Connect Inc.). Many of these vendors have been acquired — mainly by the buy-side commerce vendors because these vendors were viewing things from the buyer’s perspective. The buyers already saw the attraction of aggregating their suppliers in a central marketplace.