The rise of the Internet in the late 1990s provided businesses with an easier means of providing for the electronic exchange of information pertaining to the procurement of goods or services between companies within their supply chains. By then, many organizations had already made substantial investments in ERP systems, and found that they are not using these systems to their full potential simply because ERP systems did not support external integration. By then, a substantial amount of business operations involved interacting with members of the supply chain outside of oneís own organization, particularly with suppliers. After establishing integration of their internal systems, organizations started exploring alternatives for inter-organizational integrations, and hence e-marketplaces came into existence. An e-marketplace is an Internet-based digital marketplace that provides a centralized point of access for many different buyers and sellers.
Many businesses already had an experience with digital marketplaces in the past through their EDI systems. The difference however is in accessibility. Internet-based technologies have made it possible for anyone, anywhere, and at anytime to communicate. In contrast, the older EDI technologies were proprietary, difficult to implement, and not accessible to those outside of the closed network. The lowered adoption cost and reduced system complexity provided by these Internet-based technologies are quite attractive, particularly to small-and-medium size businesses. Since the value of these inter-organizational networks increases when more participants are added, many businesses started capitalizing on the idea of these linkages through the creation of e-marketplaces.
E-marketplaces can be classified according to ownership (private, shared, or public), industry (vertical vs. horizontal), trading mechanism (catalogue, auction, or exchange) or service type (transactional vs. collaborative) [10]. Transaction services support procurement activities where: (a) product specifications are explicit, (b) purchases are high-volume, (c) demand can be easily consolidated, and (d) common quality standards can easily be defined [11]. Many e-marketplaces, especially these that use catalogues, fall into these categories. Collaborative services support procurement activities on the other side of the continuum; that is where (a) product specifications are tacit, (b) purchases are low-volume, (c) demand is fragmented, and (d) there are sensitive quality requirements.
According to ownership, e-marketplaces can be classified as:
- Private -- To establish own marketplace. This option is similar to the EDI model and is dually the most expensive and the highest risk. An example is SeaPort (http://www.seaport.navy.mil), which supports the contracting for professional support services for the US navy. Most often this type of marketplace is also classified as both vertical industry and relationship-oriented.
- Shared -- To establish a trading consortium often with organizations in the same line of business (i.e., vertical industry). This latter option involves collaboration with others. Surprisingly, because it involves creating a network of organizations with similar interests, many members are existing competitors. An example of the trading consortium marketplace is Covisint (http://www.covisint.com) which is an automotive marketplace that was established in 2000. Covisint has since diversified into the healthcare industry. A shared marketplace serving organizations in different industries is called a horizontal marketplace. Often the marketplace supports the spot buying and selling of indirect goods or service (e.g., office supplies) and is transaction-oriented. An example of which is Tejari (http://www.tejari.com).
- Public (managed by an intermediary) -- To join an independent marketplace. This is the low risk, least capital intensive option, particularly in the short term. The main difficulty however is to balance the needs of the diverse population of trading partners. An example of this is Ariba (http://www.ariba.com), which offers procurement solutions to different vertical industries.
Many of the advantages of EDI systems also apply to e-marketplaces. However, one key differentiator is that there is more than one way for an e-marketplace to be put together. The options discussed above provide several avenues for companies considering using Internet technologies for inter-organizational integration. As with the earlier EDI technologies, having a substantial number of participants is frequently the key to the sustainability of an emarketplace. So, big businesses are still often the initiators for such B2B participation as they can be more easily successful in securing the necessary numbers of participants. As a result, e-marketplace setups still seem to favor value creation for the big over small-and-medium size businesses. For this reason, value creation is likely to be biased to the powerful side of the relationship (i.e., the big buyer or the big supplier). One new development in Web technologies, Web services, is empowering small-and-medium size businesses to take the lead in initiating B2B relationships and hence creating more value for the networks they form. Refer Ray and Ray [12] for an insight into the value of using Web services to conduct B2B ecommerce by small-and-medium size businesses .
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