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B2B Issues in Web-Based Marketplaces Myopic View of B2B Competition Companies compete with each other for corporate clients Zero-sum game with competing companies Only a partial view of the complete picture Supplier A Supplier B Corporate Client Supply Chain View of Competition

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myopic view of b2b competition
Myopic View of B2B Competition
  • Companies compete with each other for corporate clients
  • Zero-sum game with competing companies
  • Only a partial view of the complete picture

Supplier A

Supplier B

Corporate Client

supply chain view of competition
Supply Chain View of Competition

Supplier A

Supplier B

  • Entire chains compete with each other for final customer
  • Zero-sum game with competing chains

Corporate Clients

Corporate Clients

Final Customers

ways to manage a supply chain
Ways to manage a supply chain
  • Bend the rest of the supply chain to your will (e.g., Wal*Mart)
  • Make the final customer want items that contain your product (e.g., Intel)
  • Make your supply chain more efficient
supply chain efficiency an mis objective
Supply Chain Efficiency – an MIS objective
  • Real-time forecasts
  • Accurate planning
  • Build to order / Just-in-time
  • Reduce inventories
  • Increase in-stock sales
  • Respond to fast-changing consumer preferences
cisco systems ordering
Cisco Systems Ordering
  • Customer orders through Cisco Connect Online
  • Every 15 Seconds, Cisco’s Oracle order management system retrieves those orders and books them
  • Cisco’s system automatically checks for availability and time slots.
  • Customers can review their order within 90 Minutes.

Source: Electronic Business Today, August 1997, p. 32

slide7

3Com saves over $100 million per year by automating supply chain purchases and support. Pre-net, each large sale initially required a 3Com vendor to visit a site.

hubs are important in supply chain management
Hubs are Important in Supply Chain Management

Source: Kaplan, S. and Sawhney, M., “E-Hubs: The New B2B Marketplaces,” Harvard Business Review, May-June 2000, p. 306

how b2b and b2c work together
How B2B and B2C Work Together

Collins, P., “E-logistics 2000: Re-thinking the supply chain,” Management Services, Jun 2000; 44 (6) pg. 6-10.

industry illustrations and issues
Industry Illustrations and Issues:
  • Computers and PComputers & Peripherals
  • Procurement Auctions
  • Innovations in Travel Distribution
  • Leading Edge Financial Services
slide12

Buying at cost, or buying by

auction … gives potential

buyers two ways to work

with ONSALE.Com

slide13

ONSALE.Com emphasizes auctions for goods that are commodities. Their inherent transactability is very high in this medium.

  • In fact, one expects the electronic brokerage effect to impact this kind of item -- a pure commodity, with undifferentiated features for each instance.
  • This matches the early prediction of Malone, Yates and Benjamin (1987).
slide14

48-hour and 1/2 hour call

markets distinguish First

Auction from some of the

other players in the market.

Its “instant auctions” are

aimed at introducing

transactional immediacy

for both buyers and sellers.

slide18

The State of Kentucky

takes RFPs and bids

for procurement via its

purchasing website.

It utilizes the First Price

Sealed Bid mechanism

for its auctions.

This kind of approach is increasingly common when the goal is to

achieve the benefits of a very large marketplace, with many participants.

slide19

In addition to using the web as for electronic procurement, the State of

Kentucky is also applying a similar approach to “fire sales” of surplus

property. This levers efficiency by increasing the potential for liquidity.

slide21

A first price sealed

bid auction

mechanism is

used by GE TPN.

ge tpn microstructure
GE TPN Microstructure
  • Buyer uses the TPN Post Integrated Application Suite to send RFQ
  • States specs of supplies and participating factories for the RFQ
  • Bid packages sent to authorized suppliers by email, fax or EDI
  • Suppliers have 7 days to prepare bid
  • Winning bid awarded by Internet same day
similar developments are happening all over
Similar Developments Are Happening All Over
  • GE is not alone in its efforts to transform its “marketspace” via the Internet
  • Other entrepreneurs are similarly active
  • They recognize that electronic markets on the Internet can provide:
    • market immediacy, broad-based liquidity
    • mechanism to move inventory, exploit commodity product characteristics
    • innovative microstructure design
search costs play a role too
Search Costs Play a Role, Too

In B2C commerce, search costs are somewhat reduced. In B2B commerce, this effect is increased. No longer do you need to coerce quotes or find the right supplier at the right time.

does the theory match reality
Does the Theory Match Reality?
  • Malone, Yates and Benjamin (1987) predicted that much of this would happen prior to the emergence of the Internet
  • Their focus: identifying and predicting when it is economic to organize to deliver goods via a market vs. a corporate hierarchy
  • Key insights: “asset specificity,” “electronic brokerage effect” in presence of IT
ethical use of a bid site
Ethical Use of a Bid Site
  • “Shop then drop” has become common practice:
    • Find a better price using a reverse auction site
    • Use this price to reduce the costs of your own supplies from previous suppliers
  • Just what is ethical? Do we even belong asking that question?
wittrade spring street brewery
WitTrade, Spring Street Brewery

A savvy entrepreneur

made use of the

web to disintermediate

investment bankers -- by

running an electronic

initial public offering

(EIPO) market.

market microstructure matters
Market Microstructure Matters
  • Recognized appropriateness of electronic market microstructures for E-IPOs
  • Possible to do this via the web in “call market” form
  • Limit the time when the effort to raise capital will conclude
slide32

This is Wit Capital today, the

highly successful follow up

company portrayed in the

book, WallStreet.Com.

optimark
Optimark
  • Optimark is promoting “3D-Trading”:
    • Price
    • Quantity
    • Utility
the optimark insight
The OPTIMARK Insight

Allows traders to list P/Q combinations in terms of their “willingness to trade”, a new utility dimension

the u s patent
The U.S. Patent
  • OPTIMARK Technologies holds a U.S. patent, #5,689,652 (11/18/97), for the electronic market microstructure it has created
  • Dr. Terry Rickard, a computer scientist, supplied the computational expertise to architect a computing solution
where other markets fail
Where Other Markets Fail
  • Most markets only permit an interested buyer or seller to present prices to the market for single /discrete price/ quantity (P/Q) combinations
  • But institutional traders have a “utility curve” that relates different P/Q
enter 3d trading
Enter “3D” Trading
  • Price, quantity and utility -- P/Q/U listing -- attracts traders who would not otherwise come into the marketplace
  • They would be unable to express their preferences
optimark s broader application in e markets
OPTIMARK’s Broader Application in E-Markets
  • Not just equities, but many kinds of traded securities
  • Not just financial instruments:
  • -- diamonds
  • -- golf tee times
  • -- airline seats, computers
  • -- hotel rooms
  • -- electricity
key insights
Key Insights
  • Internet-based markets illustrate:
    • tremendous new opportunities for innovation
    • disintermediation of traditional players
    • a more “friction-free” transaction mechanism
  • Internet market design should be based on theory that has supported the design of effective financial markets over the years
  • Market microstructure choices are crucial
the future a battleground for electronic market standards
The Future: A Battleground for Electronic Market Standards
  • How will e-markets be architected?
  • Who will oversee them?
  • To what extent will they balance the concerns of buyers and sellers?
  • How will the marketplace deal with the inevitable fraud and malfeasance?
  • How will market standards be achieved?