| E-marketplace — Facts and Fictions |
By Nowshade Kabir, Rusbiz.com
Not long ago, industry pundits were touting B2B marketplaces or
exchanges as Internet era panacea for productivity and cost-
cutting problems of corporate world. Buoyed by excessive investor
interest and driven by a desire to cash in on the enormous dot-com
valuations of late 90s, marketplaces were sprouting like autumn
mushrooms. With the collapse of stock market, it did not take much
time for burgeoning B2B marketplaces to come to a screeching halt!
When in 2001 high profile marketplaces like Chemdex, a life
science marketplace started to tumble down, and most of the
marketplaces started to show sign of disappointing growth rate,
it became clear that something is wrong with the prevailing
business model of b2b e-marketplaces.
Optimists claim nothing is wrong with B2B e-marketplaces, as a
new technology, it is merely going through the normal evolutionary
stages. Others feel that business processes are way too complex an
issue, substantially based on human behavior and intricate
relationships; and this complexity will prevent wide spread
implementation of online supply chain mechanisms through B2B
exchanges.
But, the truth is probably somewhere in between! There is no
doubt that any business, irrelevant to its size, is able to create
some sorts of value if they use B2B marketplace effectively. As
far as B2B E-commerce is concerned, most agree, that eventually
businesses have to do significant part of their transactions online.
The only thing is - it might take a bit more time for widespread
adoption, than initially expected.
Slow implementation of B2B e-marketplaces is a natural consequence
of some inadvertent stumbling blocks.
1.
The investment in B2B sector started to dry up at the end of 2001
as unrealistic expectations of many investors and funds did not
materialize. As a result of this, many exchanges were forced to
close down; and much needed transformation in the technology
process slowed down in existing ones due to liquidity challenges.
2.
Many early marketplaces were built in a hurry to exploit prevailing
at that time budding stock market. For these marketplaces, value
creation for the participants was not a priority. By the time they
realized that members need something more than comparison shopping
and product display ability, it was a bit too late for quite a
few of them.
3.
Contrary to popular believe, buyers did not start flocking on to
the e-marketplaces as expected. As it became clear, buyers require
real incentives in order to go through the complex process of
online dealing. In most cases, in order to get integrated to an
e-marketplace, buyers are ready to learn, hire professionals,
and invest on technology if they know that most of their offline
suppliers are available on a particular exchange. But, until
then, they prefer to refrain from changing their way of doing
business.
4.
There are number of reasons why suppliers don't expedite the
process either. They are mainly scared of comparison shopping
and brand dilution. Complexity of back end office integration
and product catalog conversion also creates major impediment
in mass adoption of e-marketplaces within the supplier community.
Suppliers with websites, who previously had disappointing
e-commerce experience, are also quite skeptical about the
benefits that they might achieve from exchanges.
5.
Many exchanges' revenue depends on the percentage-based
transaction fee, imposed upon the participants. Some companies
consider that these fees will reduce their net profit margin,
especially, in a down market. This is another cause, why many
are not very keen to participate in e-marketplaces.
All these conditions are maybe right and, probably mass scale
adoption of e-marketplaces won't take place another several
years. However, don't think that companies should relax. As
some industries are more advanced in their adoption of B2B
technology, companies should constantly check where they stand.
If their competitors are already practicing e-business actively;
or many of their suppliers are by now on some sorts of exchanges,
this is the right time for these companies to consider their
online business approach seriously.
The sooner companies understand the benefits that they can reap
from B2B exchanges the better it would be for them. For suppliers
e-marketplaces offer benefits like liquidity improvement, cost
savings, better inventory management, demand forecasting, dynamic
pricing etc. Buyers benefits include: cost reduction, real-time
purchase, best available price and many others. Research indicates
that companies, thanks to B2B exchanges, can gain remarkable cost
reductions: 20 to 40 percent of overhead expenses, 5 to 15 percent
of buying cost, Purchase Order processing cost from US$ 75 to just
US$ 6-8; and decrease of document errors from 20 percent to less
than one percent.
Apart from these benefits, early adoption of B2B marketplaces
also has great implications for companies. Early birds get
considerable information advantage over their competitors; have
enough time to learn from trial and error and participate in
setting the rules for the exchanges as opposed to - forced to
abide by the rules as it would be the case for late-comers.
Whatever approach the companies decide to take in their quest
of B2B technology, one thing is for sure that the e-marketplaces
are here to stay. Over time, they will definitely evolve and
their business models will also change, however, there is no
doubt that a major portion of e-business will transact through
e-marketplaces in near future.
About the author
Nowshade Kabir is the founder, primary developer and present CEO
of Rusbiz.com. He has Ph. D. degree in Information Technology.
Dr. Kabir has over 12 years of experience in International Trade
and has worked as an advisor to several government projects.
You can contact him at mailto:nowshade@rusbiz.com,
http://www.rusbiz.com
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