Consolidation of E-Market Verticals

As we have seen, consolidation within the third-party electronic trading community verticals has already begun. Many buying companies will want to outsource large pieces of their procurement work, and suppliers, often from other nations and with limited IT abilities outside of a capacity to log onto the Internet, will be anxious to use these online markets to sell their goods. But in order to be effective and to differentiate themselves in an extraordinarily competitive marketplace, these electronic trading communities themselves will face increasing demands to provide buyers and sellers with a full set of procurement services that essentially underwrite, or guarantee, the success of the transaction.

But, as we have also seen, this is no easy task. The value of these trading hubs comes from their ability to engage, in some cases, thousands of suppliers and buyers from around the world. Yet, each of these trading partners will have a requirement for integrating transaction information into their respective ERP systems. At its most basic, that means that the ASP or exchange host will need to ensure that the transaction between buyer and seller actually takes place, and that means that order fulfillment, tracking, payment, and delivery services will need to be provided electronically. If these third parties are to ever move successfully into a direct materials market, they will also need to provide a much more complex group of services associated with automated inventory replenishment and logistics services, or at least be able to communicate digitally and act as an interface between the supply chain and ERP systems of the sellers and the buyers. In order to support international sales, this also means supporting different systems for tax, export, language, and currency.

Although many exchange sites abrogate these responsibilities, claiming that they serve only as an open portal for negotiation and sales, these more limited auction-type portals will almost certainly remain limited to sales of non-mission-critical indirect materials. Moreover, in each vertical market, the unceasing drive among the many auction sites to differentiate themselves will mean that only those that provide the most full-function and reliable service will survive. The inevitable evolution of these sites is toward fuller functionality or extinction.

In short, those that survive will need to offer supply chain management expertise as opposed to simple purchasing leverage. These e-markets are increasingly likely—through a combination of partnerships, mergers, acquisitions, and XML interoperability standards—to take on much of the responsibility for leading practices, insurance, legal, tie-in to payment systems, and even logistics and CRM (see Figure 9.1). If any of these areas are overlooked, it breaks down the continuity of the supply chain. As mentioned earlier, most estimates these days set the probable number of survivors for each vertical market at no more than three or four.

Moreover, the influential and financially powerful market creators that are driving many of these new trading communities are certainly not going to be content with providing e-procurement services alone. Although their initial focus was to provide an attractive forum where large companies could contact sellers in order to save money and sellers could expand their markets by contacting multiple buyers, the strategic aim of these market creators has to be to dominate and diversify—to create new revenue streams through the deeper relationships that this type of commerce community will afford to them. Much like the Sabre Reservation system for American Airlines, which still provides the company more revenue than their air services, these giant-sponsored trading communities will not be content to provide online auctions alone, in the future.