Ensuring the Best Returns from E-marketplaces

Last Updated May 2, 2007 7:15 PM EDT

An e-marketplace is an Internet-based environment where businesses can buy and sell from one another more efficiently. E-marketplaces can save your business time and money, but they are not just about getting the lowest price on what you need to buy. There are advantages as well as cautions to consider before you join an e-marketplace.

The main benefits of becoming involved in an e-marketplace are reduced sales costs, greater flexibility, saved time, better information, and better collaboration.

What You Need to KnowSo what are the drawbacks of e-marketplaces?

Inertia and resistance to change among key players, costs in changing procurement processes, the cost of applications and setup, the cost of integration with internal systems, and transaction or subscription fees.

What types of e-marketplaces are there?

While e-marketplaces take many forms, the most common are:

  • Independent. These are public e-marketplace environments that seek to attract buyers and sellers to trade together. Such marketplaces have found the most success in commodity-based industries, although many have folded for lack of buyers and sellers.
  • Consortium-based. These are set up on an industry-wide basis, typically by a group of key buyers in a particular industry. They often drive an industry-wide move to achieve common standards for the transfer of information.
  • Private. These are established by a particular organization to manage its purchasing alone. The organization retains full control, although the technology costs of going it alone can be significant.
What to DoBe Aware of the Full Potential of E-Marketplaces

There are more to e-marketplaces than simply buying and selling. The early e-marketplaces were little more than auction environments. As e-marketplaces have evolved, they have sought to help businesses trade more efficiently, by optimizing communication and collaboration, reducing time to market, and helping businesses improve inventory control and other operations.

Get Answers Before Joining

Ask these questions before you join an e-marketplace:

  • What is the procedure if you want to develop a one-to-one relationship with a trading partner you meet within the e-marketplace?
  • Will the e-marketplace have any role to play in shipping and logistics?
  • What is expected of you as a participant?
  • What will be involved in integrating the e-marketplace participation with your existing processes?
  • How are payments to be made?
  • How are requests for proposal (RFPs) and quotation processes handled? Does the e-marketplace offer software that makes these processes more efficient?
  • Is there a certification process to ensure that you are dealing with reputable entities?
Consider Joining an Independent E-Marketplace

The advantages of independent e-marketplaces are:

  • You can find new trading partners
  • You can find buyers when you need to reduce inventory
  • If you market commodity products, an e-marketplace can be especially effective
  • Independents generally use open infrastructure standards, making them easier to plug into than private e-marketplaces, which may use proprietary technology.

The disadvantages are:

  • Many independents fail, so the trading environment may be volatile
  • Independents are not a suitable environment for developing long-term trading relationships
  • Confidentiality and security can be problematic
  • Many suppliers see such marketplaces as a way to drive down prices and are wary about getting involved, which limits the buying options.
Consider Joining a Consortium-Based E-Marketplace

The advantages are:

  • This is a less expensive option than establishing a private e-marketplace, with charges usually being in the form of subscription fees and/or commission
  • A consortium usually has more choices among buyers or sellers than the private option
  • Consortiums usually, although not always, offer lower prices
  • Consortium members can work on industry-wide issues such as achieving common data standards.

The disadvantages are:

  • You are setting up a trading environment with your competitors
  • You have less control than with a private e-marketplace
  • A consortium generally poses more technology and process complications than a private e-marketplace
  • Consortiums are more open and generic, so if the buy-sell relationship is key to your competitive edge, the consortium may not be beneficial to your business
  • Governments may view consortiums as cartels or monopolies, depending on the members and their power within the overall marketplace.
Consider Joining More Than One Type of E-marketplace

Depending on the complexity of your needs, you may decide to use a number of e-marketplaces. For example, you might use a consortium for most of your needs and an independent when you have unusual demands. A trading partner you meet in an independent e-marketplace may end up migrating into your private e-marketplace.

Recognize That Confidentiality Is Key

One of the major worries for businesses considering e-marketplaces is confidentiality. Over time, a picture will build up of how a business trades, and that information could be very valuable to competitors. If you participate in an e-marketplace, make sure that proper security procedures are in place.

Evaluate Content Management

Before you join an e-marketplace, investigate the system for content management. The system should be fully capable of handling requests for proposals (RFPs), quotations, product diagrams and specifications, pricing and delivery information, and so on. It will need to be able to archive everything in an easily accessible way, and to manage version control so users can receive the most up-to-date information.

Train Your Staff

E-marketplaces invariably introduce new ways of doing things, and your staff may naturally feel some resistance to the changes. You should be prepared to educate them about the advantages of the e-marketplace and provide complete training for those who will be operating within the e-marketplace that you've chosen.

"Seller Beware!"

Sellers have been very cautious about getting involved in e-marketplaces because of their initial tendency to focus primarily on price. Some e-marketplaces have encouraged reverse auctions, in which sellers bid against each other to sell to a particular customer, driving prices lower. However, the right e-marketplace can have benefits for a seller, opening up new markets and providing a way of reducing excess stock.

What to AvoidYou Succumb to Inertia

Businesses won't suddenly change their buying and selling habits just because e-marketplace technology is made available. If you want an e-marketplace to succeed, you will need to put effort into changing long-standing practices.

You Focus on Price Only

Product quality, after-sale support, and personal relationships are still key in business-to-business situations. E-marketplaces that simply focused on pitting seller against seller found that approach simply didn't work.

You Allow Delays in Getting Things Up and Running

E-marketplaces are a lot more complex than was originally predicted. The more partners involved, the more difficult it becomes to synchronize communication and business processes. Delays in making some of the best-known e-marketplaces fully functional have hurt the image of the industry.

You Don't Provide a Robust Payment Process

Many e-marketplaces lack a process whereby the participants can immediately settle the whole transaction. When business has to be done both online and offline, some efficiencies of the e-marketplace are lost.

Where to Learn MoreBooks:

Neef, Dale. e-Procurement: From Strategy to Implementation. FT Press, 2001.

Lancastre, A. and L. F. Lages. The relationship between buyer and a B2B e-marketplace. Elsevier, 2006. [digital download]

Web Sites:

"e-Marketplaces 2.0," Supply & Demand Chain Executive, October/November 2006: www.sdcexec.com/publication/index.jsp?pubId=1

eMarket Services: www.emarketservices.com/start/Home/index.html