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Chris Gentle - KPMG Consulting
The
concise Oxford dictionary defines "marketplace" as anspace in a town used for the trading of goods.
Today, thatspace is provided by the internet -
and the town has become the whole world.
And,
increasingly, it's not just about individual companies
offering their services and products to other businesses
and consumers - it's also about groups of companies
joining together to set up virtual trading hubs.
These
digital marketplaces - or exchanges - allow organisations
work together to decrease operating costs, expand markets
and increase profitability. Often, former rivals are
building new economy partnerships, having recognised
that there are business advantages in their combined
market strength and coverage.
Through
the aggregation of buyers and sellers, the electronic
marketplace is transforming the traditional supply chain.
They are driving the rapid adoption of business-to-business
electronic commerce worldwide and creating a trading
environment with improved information flow on supply
and demand, dynamic pricing, faster transactions and
more cost-effective e-commerce solutions.
The
concept is evolving quickly, and exchanges are developing
rapidly across Europe. Analysts suggest there are now
more than 600 electronic marketplace offerings, with
new ones being launched daily
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Companies
are increasingly looking at every link along their
value chain to see where they can squeeze out
more value from their activites.
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Figures about the growth of e-commerce are exceeded with
each new survey, but the Gartner Group predicts that transactions
will be worth more than 7 trillion dollars worldwide in
2004 - and 37% of that massive figure will be attributed
to digital exchanges. KPMG Consulting has a wide understanding
of the digital marketplace phenomena and, in its Electronic
Marketplace report, sets out the huge potential for commercial
advantage. It's quite clear that exchanges can help organisations
unlock corporate value. Companies are increasingly looking
at every link along their value chain to see where they
can squeeze out more value from their activities. Exchanges
can provide the answer by reducing costs through enhanced
procurements systems. There are many examples today of
trading hubs that have managed to reduce transaction and
purchasing costs, while allowing for more dynamic pricing.
An expanded supplier list enhances market liquidity, and
a static trading environment is transformed to a dynamic
one. KPMG Consulting has found that by investing in these
digital marketplaces, companies can unlock value in three
ways; process enhancement, market differentiation and
channel re-invention. For instance, if Europe's leading
insurers formed an exchange, they could save $20 billion
across the non-life sector.
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When considering how best to set up a digital
exchange, bear in mind the three Cs: collaboration,
commerce and content.
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Setting up an e-marketplace would not only improve business
performance in the short term, in the longer term there
is the potential for spinning off the exchange, into a
separate entity. An independent insurance exchange could
have a potential market value of $1.2 billion within three
years. When considering how best to set up a digital exchange,
bear in mind the three Cs: collaboration, commerce and
content. Collabortion is key, because, as with any joint
venture, choosing the right partner with common objectives
is essential. This could mean that former foes, fighting
for market share in the same territory, will come to realise
that working together has benefits for all. When an exchange
starts up, expectations will be influenced to a large
extent by the main players. Its initial reputation will
be built on the brand values and image of the companies
involved. It therefore makes sense to link together with
organisations which share similar values and business
goals - even though this could mean market leaders will
be collaborating in the virtual world while still competing
in the physical one. An example of this could be the airline
consortium, myaircraft.com, which has linked together
to handle all their procurement online, while still competing
for passengers in the real world.
Commerce
is at the heart of any exchange. It means building a
virtual market place around web technology, linking
a variety of suppliers of all sizes to participate.
A critical part of the whole process is therefore creating
a community of both buyers and suppliers, creating a
new and separate culture within the exchange.
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Content is vital, as it is with any business
proposition.
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Exchanges
need to have an attractive price proposition to generate
initial interest and must be able to facilitate trade
easily. They must also have a number of product features
that appeal to both buyers and sellers. Currently, transactions
and software fees are the most common exchange pricing
model, but innovative pricing mechanisms will soon replace
these. Business models will expand to provide specialised
industry focus services, like parts offerings and cross-industry
services, such as online payment, settlement and fulfilment
services. Various sources of revenue will include subscription
fees, charged on a periodic basis, to buyers for participating
in the marketplace or sellers for listing their inventory;
for professional services such as consultancy, content
management, application hosting, development and IT
services, as well as for advertising, business intelligence
and lead generation.
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A secure trading environment is critical, and
there are a number of protocols being introduced
to help, such as a payment identification and
verification system and a company that facilitates
trade beween virtual parties.
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The
rewards for cost reductions and enhanced profitability
are considered huge, but exchanges are not without risk.
Collaboration of market leaders can attract the interest
of anti-trust investigators. Witness the Microsoft case
and the current investigation into the Visa-Mastercard
payments system. However, several industries - such as
cars, steel and retail - have created exchanges without
upsetting the competition authorities, and a key factor
here is that multi-player exchanges should be established
as independent entities, with no one company taking a
majority stake. This is illustrated by the European Commission's
go-ahead last August for myaircraft.com, the first B2B
e-commerce marketplace. A secure trading environment is
critical, and there are a number of protocols being introduced
to help, such as a payment identification and verification
system and a company that facilitates trade beween virtual
parties. An exchange must offer fairness to all players
- from the small local dealer to the largest multinational
- and if the community of buyers and suppliers is off-balance,
the exchange could be at risk. Success cannot be taken
for granted, but one thing is beyond question and that
is the continued growth in digital marketplaces. Exchanges
can potentially offer a much better return on investment
than just tinkering with the existing business processes,
so they must be a consideration for a forward-thinking
organisation.
More
information about digital agility is available from:
Chris Gentle
Tel: or
e-mail: Chris. chris.gentle
Contributor:
Chris Gentle
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