Business in the Asia-Pacific region is based on relationships, and electronic marketplaces that focus solely on transaction or subscription-based revenue models are doomed to failure, according to Bruce Friedman, senior vice president of PartMiner Inc.
Speaking at E Strategy Asia 2001, a conference organized by Worldwide Business Research recently, Friedman said: "I don't know of any such exchanges that are making money because their revenue models are flawed."
Many marketplaces fail because they do not understand what their value proposition is, he added. "Although we live in a virtual economy, business, especially in Asia-Pacific, is based on relationships. Thus, exchanges need to establish regional offices that can support customers on a local basis."
Organizations must bring their own value into the relationship. Once they have found a niche within an industry, they should provide domain expertise and stay within that niche, he said.
Other characteristics of successful exchanges include having a large number of buyers, a highly fragmented group of suppliers, high volume of information exchange for each sale and strategic partners.
"The key to being successful as a global exchange is to provide a value proposition. This could take the form of tools and content that makes the selection, sourcing, negotiation, purchase and management of supplier relationships easier and more cost efficient." said Friedman.
In the case of PartMiner, which provides content, online software sourcing applications and procurement services to the electronics industry, buyers and suppliers are able to get into the exchange and to look for information that is important to them to help them make the purchase. "This means that we are not just providing a place for buyers and sellers to transact, we are also providing valuable information to manage their business better. This is the value add," said Friedman.
Research company Gartner predicts that by 2005, more than 500,000 companies will be participating in e-marketplaces as buyers, sellers, or both.
In fact, there are many marketplaces in every industry that are offering limited services and have low transaction volumes, says Grant Keats, Asia-Pacific e-marketplaces leader, Cap Gemini Ernst & Young.
But to be viable, exchanges must not merely perform the function of middlemen, said Friedman. "Being a go-between means that there is nothing to stop the buyer from going to the seller directly the next time around."
Many online market places have been set up without understanding their own value proposition. They are "sucked" in by the hype and the rosy predictions. The numbers are staggering.
For instance, Jupiter Research foresees a much larger boom in business to business trading online, projecting a total of US$6.3 trillion in revenues for all sectors by 2005, a twenty fold increase from the $336 billion estimated for this year.
In the electronics sector, Giga Information projects business to business sales to be worth more than $5.2 trillion in 2004, accounting for fully 38 percent of all business to business sales.