Success may depend choice of e-marketplace

Recently I wrote about factors companies should consider when deciding whether or not to join an e-marketplace. But that is really only half the picture.

Recently I wrote about factors companies should consider when deciding whether or not to join an e-marketplace. But that is really only half the picture.

When a company decides that it wants to become part of an e-marketplace, it must then assess the viability of the available e-marketplaces in its industry.

A company's success -- and in many cases its survival -- will depend on its ability to pick well.

When doing this piece of due diligence, remember that the issue is not what can happen in theory, but what will happen in practice.

We've seen some high-profile e-marketplaces flounder due to systems integration challenges, lack of cooperation between staunch competitors, or failure to rally key players in the market.

Most e-marketplaces sound viable when you hear the pitch. But will suppliers trust an e-marketplace channel enough to reduce their direct sales force? Are cost savings required in order to offer price cuts? Will there be collaboration between buyers and sellers, and will it lead to cost savings?

Check out the buyers

When you check into the health and viability of an e-marketplace, look at whether the major players in the e-marketplace or critical mass of buyers support one or more e-marketplaces.

You want to join an e-marketplace in which buyers share "value-added" information such as forecasts for the demand for the products they sell -- and they are not likely to do that with multiple e-marketplaces.

When sizing up buyers, remember that these companies are likely to be competitors, yet they will have to work together to create aggregated orders. Will they be willing to do that? Do buyers expect price savings from day one, or are they willing to enter risk/reward models that result in shared cost savings?

Also take into consideration where the buyers in the industry are when it comes to e-procurement. Their level of sophistication in this area will have a big impact on their ability to successfully participate in the e-marketplace.

Consider, too, how committed the buyers are to using this channel. You want an e-marketplace that will become the de facto standard, not one that will sit alongside existing channels.

Brand awareness is key, too. Before a business signs onto an e-marketplace, it should consider how the e-marketplace is going to establish its brand.

This will be especially challenging now that the economy has softened, and e-marketplaces will be less inclined to spend big money on advertising.

Sizing up suppliers

A company that is getting ready to join an e-marketplace also must check out the suppliers and determine how committed they are. It is important to determine whether suppliers will be willing to move forward with the initiative before the benefits of cost savings and larger markets materialise.

As with buyers, prospective partners must also look at whether suppliers share collaborative data (such as supply forecasts) and if they are willing to give price savings from day one.

Another factor in determining the long-term viability of an e-marketplace is the competitive nature of the industry. Sometimes competitive pressure forces companies to join early. If there are dominant players in the industry, they should be part of the e-marketplace.

Tech-savvy industries have the best chance of making an e-marketplace a hit because they are more likely to have the e-procurement, ERP (enterprise resource planning), and logistics systems in place; these systems are what will allow them to benefit from information such as demand forecasts.

E-marketplaces make sense and hold a lot of promise for business-to-business. However, it is wise for potential partners to take a skeptical view of these initiatives, and do their homework before signing up.

Gomolski is a research director at Gartner, a Stamford, Connecticut-based research firm that helps clients achieve their business objectives through intelligent and efficient use of technology. Send email to Barb Gomolski.

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