1 Lecture 5: B2B Models and Services Lecture Outline Concepts and Characteristics of B2B B2B Models Sell-Side Marketplaces: One-to-Many Buy Side Marketplaces: One-from-Many Exchanges Managing exchanges Services Hypermediation CS5038 The Electronic Society

2 Concepts and Characteristics of B2B Companies attempt to automate trading to improve the process 2 types of marketplace Private e-marketplaceone-to-many mode Public e-marketplacemany-to-many mode (aka exchange) 2 types of transaction Spot buyingdetermined by dynamic supply and demand Supported by third party exchange Strategic sourcinglong term contracts Supported by efficient supply chain How is B2B conducted? Directly between buyer and seller (disintermediation) or via online intermediary Along the supply chain: Raw material, manufacturer, distributor, retailer Benefits of B2B models: Eliminate paper, Expedite cycle time, Reduce errors and costs Better partnership management Collaborative commerce – companies share information e.g. to predict orders

3 B2B Business Models 1.Company-centric models Sell-side marketplace (one-to-many) Buy-side marketplace (many-to-one) 2.Many-to-many marketplacesthe exchange (lecture 6) Buyers and sellers meet to trade 3.Other B2B models and services Helping to optimise the value chain Vertical vs. horizontal marketplaces Verticalone industry or industry section – steel, chemicals Horizontalservice or product used in several industries Virtual service industries in B2B Travel and tourism services Real estate Electronic payments Online stock trading Online financing Other online services

4 Sell-Side Marketplaces: One-to-Many Three main methods: 1.Direct sales from catalogs Like B2C - Configuration and customisation Successful cases: Dell, Intel, IBM, Cisco 2.Selling via intermediaries 3.Forward Auctions (highest bidder wins) Increases: revenue, page views and membership Can be done on sellers site or through intermediary Intermediary services: Search and report all auction activities Calculate billing and handle payment

5 Buy Side: One-from-Many, E-Procurement No equivalent in B2C Purchasing agents (buyers) Direct materials - Use material in manufacture Critical to keep production line running Usually involves long term relationship with vendor Indirect materials – Maintenance, repairs, operations (MRO) 20% of cost but 80% of purchased items receive less attention Inefficiencies in procurement management for MROs Procurement reengineering – automation; save money; reduce maverick buying - From non contract vendor Buy-Side marketplaces – let the sellers do the work Reverse auctions (lowest bidder wins) Web based auctions are faster and cheaper – lecture 6 Aggregate suppliers catalogs on organisations server Group purchasing Internal aggregation – quantity discounts + less overhead e.g. GE External aggregation – third party aggregates demand

6 Exchanges Classification: Direct MaterialIndirect MROs Systematic SourcingVertical DistributorsHorizontal DistributorsAggregation, fixed prices Spot SourcingVertical ExchangesHorizontal Exchanges Matching, Dynamic PricingMatching, Dynamic Pricing (Dynamic pricing = different prices to different customers) Ownership Industry Giant – IBMs patent exchange delphian.com Neutral Entrepreneur – third party intermediary – unbiased Liquidity = ability to recruit large numbers of buyers/sellers Consortia – several industry players – no one dominates Purchasing oriented consortia – group of buyers pressure sellers to lower prices Can also have selling oriented consortia Legal challenges – anti-trust scrutiny e.g. industry pricing policies Warning signs: price increases, reduced quality, denial of qualified parties Response: less information transparency to inhibit access to competitors information, participation broadly available, neutral autonomous management Also: Purchasing oriented or selling oriented

7 Managing Exchanges Revenue models Transaction fees – commission on each sale Service fees - i.e. level of service: consultancy on policy, phone calls etc. Membership fees – annual or monthly Advertisement fees – ads on the portal Critical Success factors Early liquidity – leads to low transaction fees, increases liquidity Liquidity refers to volume of business conducted Businesss chance of survival is best when liquidity is achieved early Openness – organisational and technological (open standards) Targeting right industries – high product search/comparison costs Brand building is critical – because switching costs are low Value added services – industry news, hosting, financial services Exchanges team up with banks, logistic services and IT companies to help Multiple revenue streams from services lower fees

8 Why Outsource B2B Services? Desire to concentrate on core business Need to have services up and running quickly Lack of expertise for support services Economy of scale not possible from inside In-house options do not meet changing demands Too many services for one company to handle

9 B2B Services I Consulting Services – for strategy + technology (IBM) Application building services Licensed and incorporated in client system or real-time via ASP Industry standardsXML, XSL (extensible style language) Web Hosting and Other Services Business hosting - popular for SMEs; Large businesses need a dedicated server – dellhost.com Free Web hosting – advertising revenue MSPs – like ASPs but manage IT infrastructure (not applications) Directory services – listings, search engines, matching services

10 B2B Services II Order Fulfillment, Logistics, and Supply Chain Services supply chain management and transportation services – e.g. UPS Marketing and advertising Ad server network provider – brokers banner ad sales Electronic wholesalers – intermediary who sells to businesses Infomediaries and Online Data Mining Services Collect consumer data analyse it repackage sell for marketing Clickstream data – monitor users clicks Providing content Syndication: knowledge creators use syndicators to distribute content For dynamic content E.g. news, sports, weather, stock quotes Cheaper than producing your own content Catalog content full service exchanges offer catalog services Content maximization and streaming services companies provide media rich content to reach target audience E.g. Video clips, Music, Flash media

11 B2B Services III Financial B2B services Payment Systems Purchasing cards – used by governments or universities – geographical limits Electronic letters of credit (LC) – can work internationally ( payment upon presentation of documents that comply with terms) TradeCard.com – cheaper than LCs; uses MasterCards trusted brand Venture capital to fund EC initiatives – VC firms and angel investors Internet incubators – develop EC initiatives then move on Credit reporting firms Credit intermediaries – guarantee against loss Reintermediation: redefining value added role of traditional intermediaries new electronic intermediaries Cybermediation Hypermediation: intermediaries flourishing Content providers Affiliate sites Search engines Portals ISPs Software makers Other entities in future

12 Summary Concepts and Characteristics of B2B types of transaction, marketplace, conduct, benefits B2B Models – company-centric, many-to-many Sell-Side Marketplaces: One-to-Many Buy Side: One-from-Many, E-Procurement Exchanges – types, ownership, models Managing exchanges – revenue, management, success factors Services – outsourcing, Web hosting, financial, logistics, marketing, providing content, directories, newsletters…. Hypermediation QUIZ 6