Rayport and Sviokla (1995) introduced the term electronic marketspace and suggested the Internet created a new environment which had significant implications for the way in which business trade. The speed of development of computer, network and Internet technologies played a key role in the rapid expansion of the marketspace and subsequently the commercial practice of electronic trading. It should be remembered, however, that electronic trading per se is not a new phenomenon; commercial exchanges have been taken place using electronic data interchange (EDI) and dedicated data links between organisations for several decades. Nevertheless, what is new is Internet technologies. Communication standards and protocols create a virtual trading environment where any organisation with a computer and access to the internet has the potential to trade in global markets.
Many different types of e-marketplaces emerged as a result of being based on different business models. Perhaps the most straightforward way to classify e-marketplaces is by type of user for example:
An online platform operated by a third party which is open to buyers or sellers in a particular industry. By registering on an independent e-marketplace, members can access classified advertisements and request for quotations or buds in a particular industrial sector. For example: in Alibaba.com members will typically pay a fee or make some form of payment.
An example of a portal which is normally run by a consortium of buyers in order to establish an efficient purchasing environment. Joining as buyer, this type of marketplace can help lower, say, administrative coats or improve bargaining power with suppliers. As a supplier, an organisation can use a buyer-oriented e-marketplace to advertise and this can prove to be highly effective as the buyers will tend to be from a particular target segment.
Sometimes known as a supplier directory, this is established and operated by a group of suppliers who are seeking to establish an efficient sales channel via the Internet to a large number of buyers. They are usually searchable by product or service being offered. Supplier directories benefit buyers by providing information about suppliers for markets and regions they may not be familiar with. Sellers can use these types of marketplaces to find new leads.
Provide online access to businesses vertically up and down every segment of a particular industry sector such as automotive, chemical, construction or textiles. Buying and selling using a vertical e-marketplace can increase operating efficiency and help decrease supply chain costs, inventories and cycle time. A horizontal e-marketplace connects buyers and sellers across different industries or regions. You can use a horizontal e-marketplace to purchase indirect products such as office equipment or stationary.
In addition to e-marketplaces there are online exchanges or trading hubs, which are websites where buyers and sellers trade goods and services online and vary according to the size and number of companies using them and the type of commodity traded. There are already successful exchanges in markets as diverse as energy, textiles and logistics. Like online auctions, online exchanges allow trading between B2B organisations. Key growth factors for this type of trading environment are that large companies can bid collectively to earn volume discounts or to jointly deliver a large contract. The operational procedures can vary – for example, in some online exchanges, where the price of a standardised commodity such as energy or telecoms bandwidth continuously changes as a result of changes in supply and demand. There are some important considerations for managers thinking about entering online exchanges:
- Are all the required major suppliers already signed up to the exchange?
- Does the exchange operate a comprehensive list of products and services to facilitate price comparison?
- Could belonging to an exchange destabilise existing customer / supplier relationships?
- Does our organisation have adequate systems in place to support order fulfilment?
- What will be the effect of making information about prices and stock levels available to competitors, as well as potential customers?
- What are the cost of comparison between operating through an online exchange and existing sales and procurement systems?
Chaffey, D. and Ellis-Chadwick, F., 2012. Digital marketing: strategy, implementation and practice (Vol. 5). Harlow: Pearson.