Recent stock market declines highlight the need
for a radical rethinking of online business-to-business marketplaces.
Even as new players continue to jump in, most exchanges and auctions lack
the trading volume and liquidity they need to survive.
In "Beyond the Exchange: The Future of B2B," published
in the November-December 2000 issue of the Harvard Business Review, senior
Mercer Management Consulting partners Richard Wise and David Morrison
demonstrate that the current B2B model is fatally flawed. Many exchanges,
they point out, operate counter to the most advances approaches to buyer-seller
relations, which feature tighter and more strategic relationships with
suppliers rather than searching for lowest-possible-price alternatives.
Morrison and Wise predict that a new generation of
B2B businesses, built around several distinct and interdependent business
models, will replace the current exchange model. The next wave includes:
mega-exchanges, a relatively small set of which will occupy the center
of the B2B universe; specialist companies, to handle the origination and
aggregation of complex transactions before sending them on to mega-exchanges
for execution; e-speculators, which will seek to capitalize on an abundance
of market information and pricing volatility in order to trade on such
information; and sell-side asset exchanges, which will create the networks
and provide the tools to allow suppliers to trade orders among themselves.
"The information that shapes a transaction --
price, availability, quality -- can now be separated and exchanged electronically,
and this information is often more important than the underlying goods,"
Wise and Morrison state. Similar changes, they say, reshaped the financial
markets over the past two decades; in the process, power and profit migrated
away from centuries-old business models and toward a variety of innovative
new models.
Wise and Morrison believe the trends that combined
to reshape the financial markets will guide the evolution of B2B commerce
as well. These include:
Fragmentation: Much the way a traditional bank’s
generalist role has been split into many specialist functions, a similar
breakup will occur in the B2B world as markets are restructured to accommodate
the complex goods and services that account for the bulk of most companies'
spending.
E-speculation: As financial markets became more
competitive, transaction fees steadily eroded. As B2B exchange profit
margins are eroded by competition, some exchanges will start to take their
own speculative positions, buying and selling large quantities of the
goods traded in their markets.
Solution Provisional: As transactions income
has fallen, financial firms have promoted comprehensive money-management
services to strengthen profit margins and customer relationships. By using
the Internet to bundle products with related information and services,
creative B2B companies can improve the effectiveness and efficiency of
their clients' businesses.
"The current B2B model, propped up by cheap investment
capital, is not sustainable," Wise and Morrison conclude. "As the markets
mature, they will have to evolve in ways that fix the problems of the
existing system."
Mercer Management Consulting is part of Mercer Consulting Group, one
of the worldõs largest consulting organizations. For 30 years, Mercer
has worked with leaders of major companies in a wide variety of industries
and also offers specialized services in the areas of Internet strategy
and private equity investing. For more information, please visit the website
at Mercer Management
Consulting, Inc.
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