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 / Fourth Quarter 2001 / Issue 25(originally published by Booz & Company)


B2B Benchmark: The State of Electronic Exchanges

Dell’s e-Marketplace, a celebrated example of a typical buyer-sponsored private network, offers a lesson for all e-Marketplaces: Do not be afraid to change. In fact, Dell has transitioned its e-Marketplace strategy multiple times. Although it started by offering corporate customers a customized “electronic storefront” to accept orders over the Internet in September 2000, by November 2000, Dell had extended that functionality to allow corporate customers access to its full supplier community. Just four months later, Dell shut down the expanded service offering, citing changing market dynamics, lack of maturity in the e-commerce market, limited customer readiness, and competition from established players. Now that it has returned to its core e-Marketplace, Dell offers an archetypal example of a catalog-only operation — selling goods to its corporate customers.

• Auction Houses. E-Marketplaces focused primarily on online matching of buyers and sellers constitute one-fifth of the profiled population. These companies focus on auctions and do not offer digital catalogs, though a small percentage offer other services. Because online auction functionality, pioneered by FreeMarkets Inc., dates to the earliest days of B2B e-commerce, several Auction House e-Marketplaces have six years or more of experience — an eon in Internet time.

Like Dell, some Auction Houses have adapted their business model many times during their relatively long life spans in response to changing market dynamics. Altra Energy Technologies Inc., for instance, was founded in 1996 as the first electronic marketplace for energy. Although the Altra Market Place for real-time trading serves as the core of the company’s business, it now also offers Altra Market Solutions to help energy companies create customized portal applications, as well as Altra Market Tools to assist in front-, mid-, and back-office transaction management. The expansion into software means that Altra works with more than 7,000 energy professionals across 500 companies worldwide to trade and schedule transactions in electronic power, energy commodities, natural gas, and crude oil. The result? With software revenues up 15 percent in 2000, Altra is now less dependent on transaction fees from auctions.

Altra’s decision to concentrate on a single industry and its willingness to expand services offer two survival lessons for members of this segment. With the cost of auction software dropping, no company will survive by offering generic auction services. An Auction House will need to become an expert “market maker” in certain industries to survive. Furthermore, Auction Houses should expand into other service offerings, such as logistics and supply chain planning, because the narrowly focused Auction House segment will surely be the hardest hit in the coming consolidation.

• Collaboration Facilitators. Although Collaboration Facilitators occupy a much smaller slice of the surveyed population (3 percent), they represent an emerging trend. Most early e-Marketplaces focused on online auctions, and many of them found that service too one-sided to attract a sustainable community of buyers and sellers. Accordingly, they added other services likely to attract suppliers. The Collaboration Facilitators segment goes a step further, abandoning the tensions inherent in the procurement and price-negotiation processes and focusing exclusively on aiding collaboration between buyers and sellers. Both supply chain planning and collaborative design tools encourage cooperation between buyers and sellers. As a result, they attract participation from both sides of the commercial transaction. Concentrating on win–win options, these e-Marketplaces do not even offer auction services.

Two-year-old serves architecture, construction, and property-management companies as a strategic resource. Buzzsaw’s online collaboration and printing applications connect project teams to save time and increase profitability through better information sharing. Subscribers pay a monthly usage-based fee to produce, transmit, and store digital blueprints; to exchange plans, forms, change orders, loans, and other documents; and to bid out specific work to qualified subcontractors. As a result, this e-Marketplace acts as a virtual conference room and storehouse for property owners, general contractors, subcontractors, architects, and engineers to meet and view one another’s work without ever leaving their desks.

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  1. Simon Caulkin, “Europe’s B2B Benefit,” s+b, Third Quarter 2000; Click here
  2. Keith Krach, “B2B Myths — and the Truth Underneath,” s+b, Fourth Quarter 2000; Click here
  3. Tim Laseter and David Evans, “Beating the B2B Odds,” s+b, Second Quarter 2001; Click here
  4. Richard Brown, “Growth Trajectory: Executives Report B2B Adoption Is Well Under Way,” Line56, June 2001; Click here
  5. Richard Wise and David Morrison, “Beyond the Exchange: The Future of B2B,” Harvard Business Review, November–December 2000; Click here
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