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


B2B Benchmark: The State of Electronic Exchanges

A savvy mid-sized company should be able to extract favorable terms from competitors seeking to expand. At the same time, committing to a particular e-Marketplace requires a fair amount of due diligence. Joining any e-Marketplace implies significant investment in changing internal practices to extract the real value. Reengineering a business to work with an e-Marketplace that goes under in six months will prove to be a worthless investment.

Similarly, many mid-sized companies have gotten the short stick as a seller in an e-Marketplace. Though most have suffered through margin pressures from online auctions and consortium buying programs — without the promised revenue increases from their customer base — the tide is turning. The large corporate buyers now recognize that online auctions will yield decreasing returns over time and may even become disadvantaged once weaker players exit and eliminate excess capacity. Accordingly, e-Marketplaces have shifted their focus from aggressive procurement tactics to the collaborative tools supporting supply chain management and joint product design. These provide opportunities for mutual gain through waste elimination rather than simple margin shifting. Sellers should embrace these opportunities to differentiate themselves with services and not just price.

The sellers of catalogable products should also see increasing opportunities. Many buyer-led efforts at building digital catalogs have been white elephants. Although touted for their transactional efficiency, most digital catalogs lack clean links to back-room payment processing systems; they may offer convenience to the corporate user, but not the desired transactional cost savings. Seller-sponsored digital catalogs available to any corporate consumer with a Web browser offer the same convenience, with no multimillion-dollar investment by the buying company. You can expect greater adoption of independent seller-driven solutions in the future, particularly by mid-sized companies that avoided the hype of e-procurement but now see the potential benefit.

Next Steps
In the end, companies large and small need to step back and rethink their e-business strategies and the role of e-Marketplaces.

The early participants made major investments in a market lottery that appeared to produce only winners. Now that the too-good-to-be-true returns of the dot-com era have proved to be just that, companies need to return to the more pedestrian task of implementing the powerful technology of the Internet.

Consortium founders must break their emotional attachment to past investment decisions and reconsider the role for the consortium versus independent e-Marketplaces versus a private network.

Armed with clear strategies, independents can pick their spots or exit gracefully, as appropriate. Mid-sized companies must accept that e-Marketplaces represent more than a passing fancy and develop clear strategies to win as both buyer and seller in this new world.

In all cases, the answer lies in the economics and industry dynamics as uncovered in a thoughtful and well-executed business strategy — not in the media or the market, both prone to overreact to the momentum of the times.

Also contributing to this article were Booz Allen Hamilton Principal Bob Lukefahr ([email protected]) and Senior Associate Jim Kaboski ([email protected]).

Reprint No. 01404

Tim Laseter, [email protected], serves on the operations faculty at the Darden Graduate School of Business at the University of Virginia. Previously he was a a vice president with Booz Allen Hamilton in McLean, Va. Mr/ Laseter has 15 years of experience in building organizational capabilities in sourcing, supply chain management, and operations strategy in a variety of industries.
Brian Long, [email protected]
Brian Long is a principal with Booz Allen Hamilton in Chicago. He focuses on operations and sourcing strategy.

Chris Capers, [email protected]
Chris Capers is a senior associate with Booz Allen Hamilton in Chicago. He specializes in operations and e-business strategy.
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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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