Evolution of Digital Marketplaces

March 20th, 2008 at 06:04am Dave Cravens - Iasta

Back in the go-go days at the turn of the millenium, digital marketplaces were taking the world by storm. Everywhere you looked, industry groups were creating business-to-business marketplaces. Sales at Commerce One and similar software companies were exploding by selling to digital marketplaces and exchanges. Millions of dollars in revenue were anticipated by charging transaction fees to suppliers. Large amounts of venture capital poured in for just about any market segment imaginable.

Unfortunately, “the music stopped” when the suppliers rebelled and the revenue did not materialize. The VC’s closed the money spigots and it all came crashing down. After the dust settled, a few of these marketplaces actually survived. How? By evolving their business models to one that adds value for their members, not creating friction between buyers & suppliers. The survivors use their domain knowledge and category-specific expertise to help aggregate spend across multiple companies and source group contracts based on greater volumes and economies of scale. The buyers save money, the suppliers increase revenue and the marketplaces earn consulting revenue. Everyone wins in this scenario. This is one of the many ways that these organizations have adapted for survival in the current supply management landscape.

In this new business model, eSourcing tools play a major role in driving value, as opposed to the eProcurement tools used in the old paradigm. By tying the wisdom of their industry veterans with the productivity of an SRM platform, these companies provide their clients the benefits of authentic supplier consolidation and cost take-out.

What’s next? Advanced Sourcing Optimization will enable them to extend their reach beyond the “low hanging fruit” captured in reverse auctions or comprehensive RFx’s. By targeting complex categories that historically take weeks, or months, of analyst time, marketplaces will increase their applicability to more strategic categories and continue to drive value to their members. Ultimately, vertical marketplaces are not only responsible for delivering ROI to their members but also acting as a trusted advisor on new opportunities and best practices. We see this first hand and the survivors have learned the lessons of the past well.

Entry Filed under: General, Technology, e-Sourcing Marketplace

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