Despite the instability of Internet stocks, business to business (B2B) commerce will be of paramount interest to leading companies in 2001. The private trading exchange (PTX) will steal the spotlight from the public and consortium exchanges that received most of the attention in 2000, becoming the corporate command center for B2B commerce. The PTX is best described as a company's trading interface to the outside world via the Internet. A number of software vendors have begun to offer application platforms for the PTX. Although these commerce platforms are still in the early-release phase, it's clear it will be a hot software market in 2001. More importantly, every company will need to develop a PTX strategy if one is not already in place.
AMR Research has published a great deal on the phenomena of B2B marketplaces or trading exchanges and has identified four business models that will emerge:
- Independent Vertical Exchanges. Exchanges that facilitate trade in order to make a market more efficient which have formed without significant investment from existing industry players. Examples include eeParts, Partminer and USBid. These exchanges struggle with liquidity and will ultimately merge with physical intermediaries or become vertically specific application service providers (ASPs).
- Independent Horizontal Exchanges. Exchanges that facilitate economies for a specific business process that transcends vertical industries. Examples include National Transportation Exchange, e-Credit and Branders.com. These exchanges struggle with domain expertise across verticals and ultimately may become business-process outsourcers to increase revenue.
- Consortium Trading Exchanges. Trade participants within an industry that join forces to make the vertical market more efficient. Examples include Converge and e2open. These exchanges struggle with consensus among members and scope.
- Private Trading Exchanges. Single companies that implement marketplace technology to enhance their own processes. These exchanges struggle with trust and multiple points of integration. When considering the corporate structures of Fortune 2000 companies with multiple divisions and broad geographic scope, don't be fooled into thinking that the private trading exchange is a one-to-many model. As the model matures, these companies will be as complex as those based on the many-to-many model of the independent trading exchange (ITX). In addition, the PTX should benefit all members of the exchange, not just the deploying company.
The PTX Serves as a Common Access Point
Like public exchanges, the PTX may start with some form of simple, integration-free functionality, such as auction capability or an information portal. From there, it may progress to rudimentary transactions with suppliers. Ultimately, the PTX's goal is to move to highly collaborative interaction with suppliers and customers. The real power of the PTX is to streamline and improve efficiency in existing trading relationships. To accomplish this, the entire trading community must share information, business processes and functionality. The key functional elements of the PTX include participant enablement, content management, integration services, process workflow and business analytics.
AMR Research expects the PTX software market to generate over $40 billion in revenue over the next four years. In 2000, seven- and eight-figure deals to develop rudimentary PTXs foretold the emergence of what could be the largest application software market yet. Enterprise resource planning (ERP), supply chain management (SCM) and procurement vendors as well as independent exchange builders and a new category of venture-funded PTX developers have rushed into this market. Of course, each vendor believes that its legacy, current products and future vision are best for you.
On one hand are the ERP players whose strength in the ERP market tightly integrated functional modules has been their bane in the e-business world. The vendors have been promising, with varying degrees of success, to disentangle the monolithic code into standalone functional components. This brings us to the second subcategory, the best-of- breed strategic extension vendors. These organizations have expanded their product portfolios from one specialized piece of functionality to more than one hundred components loosely connected through a common infrastructure. However, questions remain as to what components are actually available, how process and data integrity is maintained and how well the infrastructures scale when tested. The final major category consists of those vendors that exist solely to support exchange operation and the associated commerce mechanisms. These have the advantage of being architected, not retrofitted, for these specific purposes. While not definitive by any means, this should serve companies well in determining the appropriate starting point for a private exchange initiative.
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