Organizations typically participate in more than one exchange in order to derive network advantages from complementary goods and services. Participating in an existing web-enabled B2B exchange allows organizations to reduce their own online start-up costs and to benefit from lower customer acquisition costs. (Kabir, 2004).
"Today, supply chain management is far more important than manufacturing as a core competence; so much so that it's possible, as Nike and Cisco Systems have amply demonstrated, to dominate the market for a product without owning so much as a single factory" (Taylor, 2003).
Online business-to-business (or B2B) exchanges are widely used in commercial and industrial sectors be it automotive or retailing. The Wall Street Journal (2003) reported that US businesses spent $482 billion in B2B transactions, up 242% from 2001. It was predicted that by 2006 $5.4 trillion in goods and services would be transacted B2B. Bandyopadhyay et all (2006, 512).
B2B exchanges lower the cost to buyers through the automated nature of the procurement process. Further transaction cost falls occur with the use of reverse auctions. Value is added because of the interoperability of the application platform amongst users. Users are able to plan in concert.
Ordanini et al (2004) investigated the factors which determined success for B2B electronic market places or exchanges in Italy.They looked at the content, structure and governance of a variety of business models, using a cluster analysis of the three dimensions.
They found that in a period of 3 years (2000-2003) B2B e-commerce operators had fallen from 120 to 40, with less than 50% of the survivors operating above break-even. Research shows that similar patterns have occurred in the US and Europe. Ordanini et al found that private, large exchanges were generally more successful, due to their "superior capability to generate turnover compared to vertical niche operators" (Ordanini et al, 2004, p281).
Electronic marketplaces were supposed to be a panacea to all the ills of electronic data interchange with its proprietary systems and 1:1 networking. An internet based platform promised disintermediation and new sources of competitive advantage, since the Internet was based on generic public standards and considerably cheaper to make use of.
Figure 2: Alternative Business Models: Output of the Cluster Analysis. Source-Ordanini et al (20