The B2B Exchange


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Independent of procurement is the marketplace known as the B2B exchange. The B2B exchange is a place where suppliers, buyers, and intermediaries congregate and offer products to each other within an agreed framework of business rules. Despite many cries of disintermediation in the B2C market, it seems the calls were made too early.
In the B2C market, it took some time for Intermediaries to enter the market, but when they did, they provided valuable services for Web consumers. Comparison shopping and relevant review sites that point consumers to the right location have become very popular. Services such as Consumer Reports (consumerreports.org) provide consumers with unbiased advice to assist in the shopping process. Operations such as edmunds.com provide detailed information that assist potential car buyers before they make the decision to purchase a particular vehicle, including pricing, margins for dealers, test comparison, and  recommendations for purchasing.

In the business space, we have routinely witnessed margins being affected as market conditions change. Take the role of large suppliers of computer hardware and software through huge distributors such as TechData. with sales in excess of $20bn annually. These suppliers continue to provide a valuable service to the marketplace, but at the same time have caused the margins of many products to fall from the previous companies in the distribution channels. The result of this was a change in business strategy of the vendors in this channel. Many were disintermediated and with good reason - they were not adding enough value in the chain.

B2B distribution channels are having the same impact. The difference with B2B is that many new companies will not have the desire to protect an existing channel or business practice, in fact, they may want to deliberately eliminate them, so that the new business model benefits from slower moving players in the market, which cannot take advantage of a digital market for whatever reason.

Each digital marketplace can have many vendors and business models. Some will be closed and only available by invitation only. others will be open to a wider range of players. Many products and services are finally becoming suited to this model. Adoption is taking more time in some industries than in others. This model benefits not only the owner of the digital marketplace, but can also improve margins for participants (at different membership levels). In its ultimate form, the digital marketplace model provides a fully automated business exchange for partners looking for products, places, and partners to sell them.

Some digital markets operate based on rules that are defined by the owner or by the participants (if this option is given by the host). The marketplace host often builds an exchange based on the requirements for a particular market sector, and then determines the services that will offer value to its members. Creation of exchanges requires money and patience. Many of the early players without a solid business model are clean out of business. Others have modified their strategy, such as VerticalNet.com. providing the software systems rather than the exchange to support an industry operation.

Most exchanges are predicated on big changes or optimization of the way that supply networks operate. Some companies have started out with a strategy to build business partnerships in volume, at attractive fees to their clients, then. as the market starts to evolve, the business model changes. Suddenly, participants are expected to pay large commissions and the lucrative contracts arc funneled to exchange members willing to pay the fees.

The B2B exchange model is likely to result in several different
models, each with its own revenue stream. These include:

1. Membership or subscription: fixed annual fee. or usage subscription base.
2. Percentage of transaction: share of transaction based on pre-agreed business model.
3. Referral fee: percentage based on agreed fee basis.
4. Auction: based on auction rules for buyers and sellers of products in the exchange.
5. Purchase of products/service: based on transaction rules determined before entering and participating in the exchange.

 

 
 
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