UNDERSTANDING MARKET MAKING SITES (MMSs)
New MMSs for business-to-business (B2B) channels are popping up on the web like Spring time flowers. They get action if they bring more and new buyers and sellers together faster at lower cost than traditional channel players do. Many are founded by third parties that take a percent of the total transactional savings.
Which MMS models will eventually take what share of existing channel product flow? The answers will vary with each channelís peculiarities. Traditional channel players could however, still use their industry relationships and fulfillment capabilities to either become the new market maker or partner the right new entrant.
As we start to study the 400+ MMSs that have already appeared in B2B channels for ideas on what might eventually work in our own channel, we could separate them into three piles- seller-centric, buyer-centric and neutral market makers.
Seller-centric sites have sub-species, but typically there is one company trying to sell their goods to, through and/or around traditional channel players. Sellers of time perishable goods Ė hotel rooms, airline seats, event tickets, and rental equipment Ė have, for example, especially promising auction applications. Most distributors could also add an auction feature to their "selling extranet" for unloading excess and closeout goods to their regular customers.
Buyer-centric sites also have multiple types. San Diego County has replaced traditional public bidding with an Internet based, bidding system. Contractors can use similar Request For Quotes systems for sub-contractors by subscribing to third party services delivered via the Internet. Priceline.com allows the consumer to engage suppliers of some perishable services in a reverse auction format. Freemarkets contracts with large end-users of commodity goods to run value-added reverse auctions amongst potential suppliers.
Internet-based, MRO procurement software for big buyers is a hot, buyer-centric area. Even small businesses can subscribe to this type of MRO purchasing through "hub portals" that are being set up. MRO distributors should study and adjust to this rapidly emerging trend.
Neutral MMSs come in different types too. Some are industry utility companies like QRS that makes continuous replenishment work between producers and retailers in the consumer goods channel. pcOrder.com is becoming the PC distribution channel's special order engine for the 500k+ items that PC distributors donít typically stock. Some MMS are open auction forums in which either buyers or sellers can initiate controlled auctions such as PaperExchange and E-steel. And yet others have initially been content providers for end-users in order to sell ads and generate leads for producers. Verticalnet.com has started out this way for 33+ B2B channels, but they may now want to either partner or buy their way into channels to do transactions and fulfillment.
Who will become or partner these sites, who will resist and why? It is time to dig deeper into the potential economics and forward looking assumptions of MMSs to see what angles might work in our own channel. If we donít participate in reinventing our channel economics, then someone else will do if for us. The information and transaction economics for Internet commerce are too superior to our traditional practices to ignore.
D. Bruce Merrifield, Jr., President of Merrifield Consulting Group, Inc. Article 8.6