Lecture 5: B2B Models and Services Lecture Outline Concepts and Characteristics of B2B B2B Models

1. CS5038 The Electronic Society • 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

2. Concepts and Characteristics of B2B • Companies attempt to automate trading to improve the process • 2 types of marketplace • Private e-marketplace—one-to-many mode • Public e-marketplace—many-to-many mode (aka exchange) • 2 types of transaction • Spot buying—determined by dynamic supply and demand • Supported by third party exchange • Strategic sourcing—long 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 • Company-centric models • Sell-side marketplace (one-to-many) • Buy-side marketplace (many-to-one) • Many-to-many marketplaces—the exchange (lecture 6) • Buyers and sellers meet to trade • Other B2B models and services • Helping to optimise the value chain • Vertical vs. horizontal marketplaces • Vertical—one industry or industry section – steel, chemicals • Horizontal—service 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: • Direct sales from catalogs • Like B2C - Configuration and customisation • Successful cases: Dell, Intel, IBM, Cisco • Selling via intermediaries • Forward Auctions (highest bidder wins) • Increases: revenue, page views and membership • Can be done on seller’s 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 organisation’s server • Group purchasing • Internal aggregation – quantity discounts + less overhead e.g. GE • External aggregation – third party aggregates demand

6. Exchanges • Classification: Direct Material Indirect MROs • Systematic Sourcing Vertical Distributors Horizontal Distributors • Aggregation, fixed prices Aggregation, fixed prices • Spot Sourcing Vertical Exchanges Horizontal Exchanges • Matching, Dynamic Pricing Matching, Dynamic Pricing (Dynamic pricing = different prices to different customers) • Ownership • Industry Giant – IBM’s 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 • Business’s 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 standards—XML, 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 user’s 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 MasterCard’s 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