Only business-to-business marketplaces that collect and offer information not available elsewhere can provide long-term purchasing benefits.
Among other things, the survey sought to answer these questions: How much and what kind of value do business-to-business e-marketplaces offer? Is it long-term value? If it doesn't come from sharing information, what is its source?
Our work shows that buyers, investors, and marketplace executives each define value differently. Certainly, for buyers to obtain real long-term value from a marketplace, it has to do more than merely cut suppliers' margins; to be successful, it must offer information and capabilities that its customers can use throughout the purchasing process.
About the research
From June to September 2000, a team from McKinsey and the Center for Advanced Purchasing Studies (CAPS), in Tempe, Ariz., interviewed one executive at each of more than 50 leading business-to-business e-marketplaces embodying a number of different business models. Executives at an additional 300 business-to-business e-marketplaces received surveys asking the same questions posed in the interviews; we received 70 responses. To validate the claims of these business-to-business leaders, the team also interviewed executives of 15 buying organizations--their customers.
The business-to-business executives who participated in the survey and the interviews worked in a number of industries chosen for their size, their characteristics, and their relevance for a wide range of buyers--including aviation, capital equipment, chemicals, construction, electronic components, health care, materials, repair, and operations (MRO) goods, metals, office products, perishable food, printing and transportation. These executives worked at marketplaces that were regarded as industry leaders and represented a number of various business models--criteria that, in most cases, led us to interview executives at neutral marketplaces, since consortia (exchanges) were just launching operations during our data collection phase. To provide a broader perspective on specific industries, we occasionally included incumbents that published electronic catalogs or could compete against e-marketplaces. The full text of the resulting study can be found online.
In general, marketplaces perform either of two functions: undertaking a particular purchasing activity for customers or giving them the information and the tools they need to perform a particular function more effectively. Our survey identified five distinct e-marketplace models (exhibit), which differ in the services they stress and the capabilities they enhance--and thus in the financial results they deliver. Two of the models focus on collecting and distributing information, three on bringing down purchase costs and improving transactional efficiencies. Over time, the models will probably lose some of their distinctiveness.
Cutting costs in all the right places
Marketplaces that exemplify the information-based model, for project/specification managers, help buyers and suppliers collaborate on design and other high-value decisions. Such marketplaces cut costs by helping to set appropriate specifications and by streamlining interactions among the parties lying along complex value chains. Marketplaces based on the second model, for supply consolidators, offer parametric search capabilities and price data that help customers trade off cost against quality. Both project/specification managers and supply consolidators develop and control information that would be very hard to duplicate; in addition, supply consolidators offer highly customized, difficult-to-replicate tools.
As for marketplaces based on the other three models--for liquidity creators, aggregators, and transaction facilitators--they focus on benefits such as reducing waste and supplier margins and increasing the efficiency of transactions. Unfortunately, these benefits aren't hard to replicate, nor do they encourage collaboration between buyers and suppliers or relieve bottlenecks or other pain points in the supply chain. As a result, even the commonly touted virtues of liquidity and scale won't necessarily help such marketplaces avoid commodification and thus the likelihood that buyers will gravitate to competitors whose Web enabling tools provide more valuable benefits.
Only business-to-business marketplaces that collect and exploit information not available elsewhere, our study shows conclusively, can provide anything more than short-term purchasing benefits. The sooner buyers act on this insight, the more chance they will have to shape and reshape their marketplaces without losing ground to competitors. As the marketplaces mature, buyers will want to preserve their flexibility in handling the four categories of purchases: services and direct, indirect, and capital goods.
And remember: however shrewdly buyers select their marketplaces, they must also have strong internal strategic-purchasing capabilities.
For more insight, go to the McKinsey Quarterly.
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