Welcome Guest. | Log In| Register | Membership Benefits

June 28, 1999

IT Impact:
Where Buyers, Sellers Meet

Electronic marketplaces are changing the way businesses trade with one another

By Jeetu Patel

ven with all the attention on business-to-consumer electronic commerce, most experts agree the real opportunity is in the business-to-business sector. Plenty of companies have rolled out sell-side E-commerce sites for business-to-business trading, in which the seller offers goods or services to its business customers directly over the Web. We're also seeing an increase in buy-side applications, in which buying companies build internal procurement applications that consolidate company procurement from multiple vendors.

But by far, the most intriguing business-to-business E-commerce opportunity is in the electronic marketplace. Marketplaces bring multiple buyers and sellers together in a single application. Like a traditional open-air bazaar, buyers and sellers can interact, negotiate prices and quantities, and generally allow free-market economics to rule the community of trade.

Marketplace E-commerce will dramatically change the way businesses trade. It will make it easier for buyers to find the best price or the best terms for a product or service and will help sellers reach more potential customers than they could in the past.

Marketplaces also appeal to sellers from an IT cost-savings perspective: Rather than build their own E-commerce sites for suppliers and partners, sellers can go through the existing infrastructure of a marketplace.

Most of the successful business-to-business electronic marketplaces cater to a specific industry or vertical market. Examples include Chemdex, a site for chemical and scientific products, and MetalSite, which allows the trade of metals and other raw materials. Such sites serve as industry portals, providing industry news, articles, discussion groups, and other content.

Electronic marketplaces are also great channels for distributors. For example, industrial-supply distributor W.W. Grainger recently launched a marketplace site to sell products from dozens of manufacturers. Egghead Inc. offers the SurplusDirect online outlet store, an auction site for excess software and computer products. Business-software reseller Intraware Inc. uses its Web site both for sales and as a subscription-based portal for content, comparative product data, and free downloads of trial software.

Such companies know there's money to be made in marketplaces. And unlike traditional distributors, electronic-marketplace providers may not even need to ship products or maintain inventories; the original seller may do it for them.

Expect more companies to get into the marketplace game. For example, application service providers already provide rentable applications and reliable infrastructures that let companies outsource systems for functions such as human resources, content publishing, or sell-side E-commerce. For ASPs, an electronic marketplace represents just another application to host. For a company with vertical expertise that wants to "own" an electronic marketplace without making a big IT investment, hiring an ASP makes sense.

Watch how Wall Street is reacting. In recent history, the largest market-capitalization opportunity was with software makers, whose business model includes an attractive multiplier as sales grow: Build a product once, and keep selling more licenses. But now, the marketplace model offers an equally attractive revenue prospect: Build the infrastructure once, and keep charging for the activity it supports.

A marketplace's success depends on customer buy-in, increased traffic, sales growth, and sustainability. With the market so competitive, marketplace owners make their biggest investments in branding, advertising, and building value.

Marketplaces may soon represent a significant channel for your company's sales and customer interactions. Companies that don't take advantage of them may miss out on new customer opportunities that their competitors are already embracing.

Jeetu Patel is VP of research with Doculabs, an independent advisory firm specializing in Internet, knowledge-management, and document-management technologies. He can be reached at info@doculabs.com.