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Roger Clarke's 'Taxonomy of B2B'

Towards a Taxonomy of B2B e-Commerce Schemes

Roger Clarke

Principal, Xamax Consultancy Pty Ltd, Canberra

Visiting Fellow, Department of Computer Science, Australian National University

Version of 12 February 2001

© Xamax Consultancy Pty Ltd, 2001

This paper was published in Proc. 14th Int'l eCommerce Conf., Bled, Slovenia, 25-26 June 2001, pp. 591-615

This document is at


Many commentators on business-to-business (B2B) e-commerce implicitly assume that such systems are relatively homogeneous. Existing theories of information systems and markets, and the practice of procurement are used in order to explain the nature and dimensions of B2B schemes, and the dimensions across which they differ.

This provides a basis for more effective conception of systems to serve the needs of organisations and the industry sectors in which they operate, and, ultimately, consumers of their output. It is concluded that a principle of requisite variety needs to be applied, that organisations' varied needs demand multiple, diverse forms of marketspace, and that many flowers need to bloom before the surviving patterns will be determined.


1. Introduction

Since about the first quarter of 1993, the Internet has been perceived as a heaven-sent opportunity for business. New terms were invented to describe the phenomena, including 'e-commerce' for trading using telecommunications-based tools, 'business-to-consumer' e-commerce (B2C) for their application to marketing to Internet users, and more recently 'consumer-to-consumer' e-commerce (C2C) to signify the eBay and Napster phenomena. The term 'business-to-business' e-commerce (B2B) is sometimes used for all kinds of interactions among business enterprises, but more often the emphasis is on the selling and buying of goods and services.

B2C has experienced growth-rates far less than other Internet metrics. The reasons for this, and antidotes, were addressed in (Clarke 1997a, 1997b, 1999a and 1999b). The B2B segment has experienced many disappointments already, with low growth rates for business, start-ups suffering rapid cash-burn and early failure, and a serious dearth of viable business models. Investigations of impediments include Clarke (1997, 1998) and Wise & Morrison 2000.

This paper contends that a significant factor in the disappointments has been a failure to analyse what 'B2B' might mean, and to bring to bear on it the cumulative knowledge embodied in relevant theory and practice. Serious attempts to do so are difficult to find. Lindemann & Schmid (1999) propose a reference model for the design of electronic markets, comprising phases and views. Kambil et al. (1999) propose an 'all-in-one market' which would 'aggregate' multiple transaction methods into a single platform. Kaplan & Sawhney (2000) propose a 2x2 matrix of B2B marketspaces, differentiated according to the types of materials being purchased and whether they are sourced systematically or through spot-markets. These do not, however, reflect the full extent of the diversity that exists.

This paper's aims to lay the foundation for a taxonomy of B2B systems, and hence provide guidance for researchers and practitioners. It commences by re-examining aspects of inter-organisational, multi-organisational and extra-organisational systems. It then considers marketspaces, and places them in the context of long-established approaches to procurement. The dimensions along which B2B systems need to be differentiated are then assessed. Some conclusions are drawn about multiple forms of marketspace that need to be created, and implications are drawn for researchers and practitioners.

2. Supra-Organisational Systems

Computers were first applied to the needs of organisations in the early 1950s. During the next 30 years, the focus was on administrative and operational applications within individual organisations. This is usefully described as the 'intra-organisational systems' phase of IS.

By the early 1980s, both local and distance ('tele-') communications were being combined with computing. Increasingly, information systems were seen to have a strategic dimension (MacFarlan 1983, Parsons 1983, MacFarlan 1984, Ives & Learmonth 1984, EDP Analyzer 1984, Cash & Konsynski 1985, Henderson & Treacy 1986, Clemons 1986, Copeland & McKenney 1988, Hopper 1990, Reich & Huff 1991). For a consolidation of the theory of strategic information systems, see Clarke (1994).

Initially, the preoccupation was with the enterprise's own internal value-chain, i.e. the primary activities that directly add value to the enterprise's factors of production, in particular procurement, production, sales, delivery, and servicing (Porter 1980). The maturation of this aspect of intra-organisational systems continues.

By the late 1980s, the focus had shifted towards inter-organisational systems (IOS), which involve two organisations between which a degree of trust and commitment exists, e.g. through an explicit business partnership or alliance (Kaufman 1966, Barrett & Konsynski 1982, Keen 1986, Johnston & Vitale 1988, Johnston & Lawrence 1988, Bowersox 1990, Venkatraman & Short 1990, Oesterle 1991, Clemons & Kleindorfer 1992). This involved an enhancement of basic strategic theory to cover alliances (Wiseman 1988).

Most industry sectors involve a succession of enterprise value-chains. Porter refers to this as the 'industry sector value system', but the term industry sector supply-chain better reflects the business perspective. An IOS involves a link between an organisation and one of its business partners, such as a supplier, a customer, or a distribution channel for the organisation's products. The emphasis in IOS is therefore on the business's connections with its industry sector supply-chain.

Terms currently in vogue for the components of the organisation's information systems that interface with business partners are 'Supply Chain Management' (for procurement, e.g. Christopher 1992), 'Enterprise Resource Planning' (for production management), and 'Customer Relationship Management' (for sales, delivery and servicing). In practice, the systems used by some organisations have limited external linkage capabilities, and the words are used merely as grandiose terms for intra-organisational systems.

Each organisation tended to develop IOS with more than one important partner, but each link was largely independent of the others. Over time, organisations developed substantial technical infrastructure to manage each of their many links with business partners, and rationalisation of their investments and supporting resources became important. In addition, third parties grasped the opportunity of making a business of offering services to multiple user-organisations. The natural result of this increase in sophistication was the emergence of multi-organisational systems designed to support multiple linkages with many organisations, and, in principle, with any other organisation with which there is a need to communicate.

Multi-organisational systems exhibit a variety of topologies, in particular:

Implicit in the notions of IOS and multi-organisational systems are the assumptions that each of the nodes of the network is professionally managed, and that the facilities are used in an organisational context, with all of the discipline and cultural constraints that entails. There is an increasingly large number of systems involving participants that do not satisfy those criteria These were dubbed extra-organisational systems in Clarke (1992b). B2C systems are expressly excluded from the scope of the current paper; but many extra-organisational systems such as EFT/POS involve small, single-site (and in many cases single-person) micro-enterprises, such as retail outlets and service agents.

The notion of supra-organisational systems has been used by this author since 1988, as a generic term for inter-, multi- and extra-organisational systems (e.g. Clarke 1994, Clarke 1995). There has been a tendency during the last two decades for some systems to migrate from intra-organisational to supra-organisational forms. This is explained by the relative advantages of 'hierarchies' and 'networks' (Malone et al. 1987):

A serious weakness with conventional analyses has been the presumption that competition is inherent. This overlooks the vital role of collaboration at a level higher than a competitively-motivated alliance (Malone et al. 1987, Main & Short 1989, Rockart & Short 1989, Konsynski & McFarlan 1990, Benjamin et al. 1990, Swatman & Clarke 1990, Clarke 1992). There are several different contexts in which competition is less critical:

A further aspect of supra-organisational systems is the role of intermediaries. So-called 'middle-men' such as distributors, brokers and agents, are often disparaged, as representing a barrier and an additional cost. Information technologies have been heralded as stimulating a wave of 'disintermediation', by enabling direct and therefore supposedly cheaper and more effective contact between seller and buyer.

Disintermediation has occurred in some contexts. But intermediaries perform a wide range of functions that are often difficult, inconvenient or expensive for the buyer and seller to undertake, including product logistics, support logistics, customer contact, transaction processing, local knowledge, and cheap labour. As a result, adaptation of intermediary roles, or 're-intermediation' (or even 'dis-inter-remediation' - Saffo 1998) has been more common than disintermediation (Sarkar et al. 1995, Bailey & Bakos 1997, Selz & Klein 1997, Giaglis et al. 1999, Chircu & Kauffman 1999, 2000).

This section has briefly reviewed aspects of information systems theory relevant to B2B e-commerce. The following section considers relevant aspects of the theory and practice of markets and marketspaces.

3. Marketspaces

A market is a place in which goods or services are traded (Thompson et al. 1991, Clarke at al. 2000). A market comprises tradable items, participants (sellers, buyers, intermediaries and services providers), processes that facilitate trading, and infrastructure that supports the participants and the processes. Key benefits that a market offers are that buyers and sellers can more readily discover one another, discover what items are on offer, develop sufficient confidence to be prepared to conduct the transaction, and negotiate an agreement. A market may also facilitate the delivery of the goods or performance of the services.

To distinguish electronic commerce from a conventional, physical marketplace, the concept of a 'marketspace' is used (Rayport & Sviokla 1994 and 1995, Fingar et al. 1999). A marketspace is a virtual context in which buyers and sellers discover one another, and transact business. It is a working environment that arises from the complex of increasingly rich and mature telecommunications-based services and tools, operating over an underlying information infrastructure.

A marketspace can be operated by a buyer, or a seller. The substantial tensions among competing interests can result in such marketspaces performing poorly for all parties (Ford et al. 1998), and hence there are advantages in an intermediary performing the function. A specialist intermediary of this nature is usefully described as a marketspace operator. Other forms of intermediary may also be involved, in particular the principals may operate in the marketspace through agents or brokers, and additional intermediaries may be used to perform services such as delivery and settlement.

Among the features of markets is market efficiency. An important aspect of this is the transaction costs incurred in the trading process. Marketspaces can be more efficient than marketplaces, because of reduced travel and transport costs, lower central infrastructure and overhead costs compared with physical marketplaces, and the use of multi-purpose infrastructure by participants resulting in the sharing of those costs with other applications.

A particularly significant feature is market depth, by which is meant the number of participants and/or the quantity of supply and demand. The use of electronic communications results in the market reach of a marketspace being far greater than that of an equivalent marketplace. Because the service is available to far more participants across a wider geographical area, a marketspace has the potential for significantly greater market depth.

Malone et al. (1989), Schmid (1993) and Benjamin & Wigand (1995) provide introductions to the concepts of electronic markets. Lee & Clark (1996) discuss taxonomies of electronic markets. Wrigley (1997) identifies design criteria for the design and implementation of electronic market servers. Schmid (1997) and Lindemann & Schmid (1999) discuss frameworks for the design of electronic markets. Kambil et al. (1999) assess multi-method markets. Guttman et al. (1998), Gluschko et al. (1999), Maes et al. (1999) and Mandry et al. (1999) discuss the design of software agents in electronic markets.

A range of risks arise in marketspaces, in such areas as seller default, buyer default, marketspace operator default, intermediary default, tradable item quality, and fulfilment quality. Intermediaries can provide relief from such risks, but of course this exacerbates the seriousness of marketspace operator default.

Auctions are a particular class of trading process applicable where price is the key factor to be negotiated and offers involve stating little more than price and quantity. There are multiple categories of auction. Introductions and taxonomies are in Reck (1994), Kambil & van Heck (1996) and Klein (1997). Reck (1997) and Segev et al. (1999) examine trading-process characteristics of electronic auctions, and Klein & O'Keefe (1999) examine the impact on auctions of the World Wide Web.

Auctions are particularly applicable to commodities (i.e. undifferentiated goods and services), but various design features enable auction processes to be used for products and even customised tradable items. An auction-type of particular significance is the so-called clearing-house auction or exchange. Both sellers and buyers submit offers, and matching is performed by a marketspace operator according to published rules designed with the interests of both parties in mind. This creates special challenges, including substantial trading volumes and the potential for volatile prices.

Within some marketspaces, and especially exchanges, a specialised role of market-maker or jobber exists. This is a participant that trades on their own account, and is provided with privileges in return for ensuring that a market always exists for each tradable item. (Unfortunately, the term 'market-maker' has also been used by some authors to refer to what is called in this paper by the more descriptive and less ambiguous term 'marketspace operator').

A spot-market is a facility that supports the trading of goods or services that are available for immediate or very short term delivery or performance (i.e. 'on the spot'). Many of the traders want to offload excess stock, even if at a low price, and others are seeking urgently-needed materials, even if at a high price. Sport-markets tend to attract 'traders', whose interest is to 'take a turn in the rate', by acquiring tradable items while there is little demand for them, and selling them when demand materialises. Spot markets are particularly amenable to electronic market and online auction techniques. Their impact is further discussed in section 5.7 below.

The previous section examined I.S. theory as it relates to B2B e-commerce. This section has provided complementary information, by examining B2B from the relatively detached viewpoint of an observer of marketspaces. The following section shifts the perspective to that of the organisation acquiring the goods or services.

4. Procurement

The term 'procurement' is used to refer to the acquisition of goods and services by organisations (Hough 1992). It is conventional to adopt quite different approaches to the procurement of the following categories of goods and services:

A fundamental consideration is the distinction between deliberative and spontaneous purchasing models (Clarke 1993). Deliberative purchasing is rational and careful, and comprises a succession of phases, whereas spontaneous purchasing is appropriate where small amounts of money and limited risk are involved, and the effort and cost of deliberation is unlikely to be warranted. Many purchasing decisions on behalf of corporations are spontaneous, including those for which a corporate credit card is used, such as accommodation and sustenance and the casual purchase of petrol and office supplies.

The process of deliberative purchasing commences with discovery. Third party intermediaries have long fulfilled a role in the provision of directories, which enable purchasers to readily identify the suppliers of particular goods and services. Procurement processes are supported by both generic services, such as the ubiquitous 'yellow pages' directories, and industry-specific services.

Deliberative purchasing of productised goods and services is performed reasonably efficiently through the despatch of a Request for Quotation (RFQ), followed by assessment of simple Quotations that state the price and delivery date, possibly supplemented by a few further terms. Such transactions depend on structured documents that are well-supported by EDI.

Customisable and customised goods and services are often the subject of a Request For Tender (RFT), which is a much wordier document, and requires a much wordier Tender in response. EDI does not support this as effectively as it does structured transactions, and FTP, or email with attached documents, may be more appropriate.

With many categories of tradable item, considerable interaction is needed between the purchaser and the tenderers, including iterative communications to refine the requirements definition. In these circumstances, a Request for Proposal (RFP) or Request for Offer (RFO) may be more appropriate, using, for example, emailed attached documents or FTP, supplemented by tele-conferencing, email messages and video-conferencing.

Where there is a large field of potential suppliers, a purchaser may commence the process by sending out a preliminary document called a Request for Information (RFI), and selecting a short-list based on the responses. In the contrary case, where no directory exists, and particularly in emergent fields where suppliers' capabilities are in the process of being developed, a purchaser may make a preliminary document available, commonly called an Expression of Interest (EOI), in order to identify and select a short-list of contenders based on the responses.

Procurement of indirect or MRO goods and services is commonly enabled by supplier catalogues. These began as internal printed lists, supplemented by sub-sets published for use by customers. They migrated into intra-organisational information systems, which are being progressively opened up to remote electronic access by customers. Some large organisations grasp the opportunity to reduce their transaction costs, and gain volume discounts, by establishing period contracts with a small selection of approved suppliers.

For raw materials critical to the organisation's production function, many large organisations, and some medium and small organisations, maintain internal buyers' catalogues of goods and services that match their needs. Many enter into longer-term business partnerships or strategic relationships with key suppliers (Lewis 1995, Roberts 1996). For especially problematical materials, or where the purchaser is significantly larger than the suppliers, there may be multiple such relationships for a single good or service, an arrangement commonly referred to as multi-sourcing.

It is important that integration be achieved from procurement forward into the production function, and in some organisations directly into sales and order fulfilment. As was noted above, there has been a long-ongoing endeavour to achieve this. Some organisations have progressed beyond the narrow, intra-organisational perspective, and are achieving integration along the industry sector supply-chain. It is also important that procurement systems articulate into the payment and settlement systems whereby the financial obligations arising from purchasing are fulfilled.

A particular aspect of integration in the context of procurement is the Just-In-Time concept (Womack et al 1990). This is often designed by powerful downstream organisations to force weaker upstream suppliers to hold stock until precisely when the downstream organisation needs it, and therefore increase the efficiency of their own value-adding operations, in part by forcing the supplier to bear the costs of holding buffer stocks. It can, however, be structured so as to afford benefits to upstream organisations as well.

The application of telecommunications-based tools to procurement has a long history, initially by means of EDI (Gebauer et al. 1998). With the advent of the Internet, the fashionable term e-procurement has been adopted. This offers opportunities for both disintermediation and re-intermediation. Of particular importance are designs whose intent is to apply technology to the establishment and maintenance of supplier directories and multi-supplier catalogues (Jiang & Conrath 1995, Ginsburg et al. 1999).

Innovations in e-procurement have variously sought to automate, rationalise and revolutionise the processes outlined above (Clarke 1992a). Those processes reflect well-established and highly varied needs, and although some are wasteful or capable of being improved, many are well-honed. B2B marketspaces need to exhibit sufficient diversity to match organisations' needs, and will have limited success if they ignore established mechanisms.

5. Dimensions of Differentiation

The previous three sections have considered B2B e-commerce from the perspectives of the I.S. literature, markets and procurement. This section identifies and discusses important differences among participants' needs under various circumstances.

5.1 Categories of Tradable Items

In section 4 above, attention was drawn to conventional distinctions among the procurement processes for direct and indirect goods and services, capital acquisitions, staff and contractors, and outsourced services. This sub-section considers other aspects of tradable items which influence the nature of B2B marketspaces.

The tradable items may be goods (by which is meant items that need to be delivered) or services (items that need to be performed). Many tradable items are, however, compounds of goods and services. For example, an order for a computer might include a processor, add-on memory and a screen. Many procurement contracts relate to combinations of goods that are of the nature of assets, together with goods of the nature of consumables, and services such as installation and support.

Another distinction of importance in the context of electronic commerce is physical versus digital goods and services. Digital goods and services are those that can be delivered using the information infrastructure. For tradable items of that nature, the marketspace provides a context sufficient for the entire procurement process, whereas for physical goods and services the delivery phase requires a logistical process.

Tradable items are valuably distinguished according to their degree of productisation (Clarke 1993). The industrial revolution involved the automation of repetitive processes, and the standardisation of goods and services in a limited number of forms, with pre-determined features. Such standard products are available in quantity from a particular supplier, and with an identity, such that they can be ordered from the supplier's catalogue.

Commodities are a particular class of standard product that exist in considerable quantity, and in essentially identical, fully substitutable form. Common examples are stocks, shares and derivative financial instruments such as futures and options, foreign currency, and primary produce such as particular classifications of coffee and crude oil. Buyers regard commodities as undifferentiated, and are therefore unconcerned as to which particular instances of the tradable item they receive.

At the other extreme are customised goods and services, which are not products in the commonly-used sense of the word, because each tradable item is a `once-off', designed to meet the specific needs of a specific client for a specific purpose. Between the two extremes are customisable goods and services, which are designed to be able to be modified to suit a particular customer's requirements through such means as product options, optional extras, parameterisation, custom extensions, custom modifications and supplementary services.

Torlina et al. (1999) identified further attributes that are needed if a reliable taxonomy of tradable items is to be established, including information content, the storage medium and network infrastructure.

A marketspace designed to support the needs of any one of the categories identified in this sub-section is likely to present difficulties for participants if it is applied to any of the other categories.

5.2 The Nature of the Exchange

There are various bases on which parties conduct exchange (Bambury 1998). These include:

There is a strong tendency for presumptions to be made that all B2B exchanges are on the basis of immediate and direct exchange, and often exchange of goods or service against cash is assumed. Such assumptions are correct in respect of a significant proportion of transactions and value; but they are not universally correct.

5.3 The Importance of Risk Management and Trust

The term 'trust' is interpreted in many different ways (Fukuyama 1995, Kramer & Tyler 1996, Reagle 1996, Saunders & Hart 1997, Clarke 1997, Khare & Rifkin 1997, 1998 and Ganzaroli & Kumar 1999). The usage within the computer science fraternity (and hence the standards-forming bodies IETF and W3C) is very narrow and mechanistic. It is used in this paper in the business sense of confident reliance by one party on the behaviour of another party or parties. A trader is dependent not only on the other party to the trade, but also on the marketspace operator, and any intermediaries and service providers.

The argument is commonly advanced that marketspaces face serious challenges in establishing trust among the parties, because evidence is less tangible than was the case in a marketplace, experience is virtual, and the proxies are as yet immature and unproven. Various approaches have been proposed to encourage confidence in B2B e-commerce. Some are based on electronic identification and authentication technologies, while others depend less on sophisticated technologies and more on fit to the particular market.

Important among the factors that inculcate trust in B2B e-commerce are the following:

The importance of risk management and trust varies depending on the nature of the marketspace. For example, where the exposure is limited, and the elapsed time during which the exposure exists quite short, participants may quickly come to accept the degree of risk involved.

5.4 The Extent and Nature of Regulation

Marketspaces vary in the extent and nature of the regulatory measures to which they are subject. Many markets have a prudential regulator, whose task is to ensure ongoing solvency of some or all participants, particularly the marketspace operator. In addition, regulation generally exists to provide some forms of protection for participants, in relation to such matters as the transparency and fairness of processes and of contract conditions.

Some markets are further regulated because of the nature of the tradable items in which participants deal (e.g. chemicals, explosives, weapons, cryptography, erotica/pornography, gambling services and Nazi memorabilia).

The regulator may be a government agency with legal authority. In addition, some of the functions may be performed by an industry association and/or by the marketspace operator. Such organisations, however, usually depend on powers established by contract alone. The regulatory measures commonly include reporting, and submission to independent audit and investigations of both transactions and systems. They may extend to occasional inspections at times and for reasons decided by the regulator, and may even involve on-line/real-time access by the regulator to the marketspace operations, databases and transactions.

A B2B scheme that fails to satisfy regulatory requirements is likely to encounter difficulties. The trans-border nature of e-commerce creates challenges, however, because of the tendency for each jurisdiction in which the service is accessible to assert sovereignty.

5.5 The Number of Parties Involved

Supra-organisational systems challenge the conventional approaches used by information systems professionals and managers, because the system's objectives, conception, design and implementation are not entirely within one organisation's control.

IOS require bilateral negotiation between the two parties; and multi-organisational systems require multi-lateral negotiation. Hub-and-spoke schemes can be driven from the centre; but projects that involve collaboration, partnership, and a win-win-win approach are more complex. Extra-organisational systems have the added complexity of large numbers of micro-enterprises. Although the market power of micro-enterprises is seldom of much consequence, attracting their participation in the system may be crucial. A variety of much-heralded information economy schemes (such as stored-value systems using smartcards, and SET-secured electronic credit-card payments) have failed because they did not attract that participation.

The greater the number of organisations involved in a supra-organisational system, the greater the potential conflicts and the more political the steering committee is likely to become, the more interests that the director of a joint team has to serve and balance, and the less practical it is to have multiple mirrored teams. Hence it is not unusual for the parties to agree to the selection of an independent third-party to develop a system of this kind, and possibly also to deliver the operational service.

5.6 The Sizes of the Parties Involved

The absolute and relative sizes of the parties involved is an important factor in determining the path of development of B2B relationships. Larger organisations have greater economies of scale and scope. Smaller organisations are capable of more rapid change, but bring to bear on new challenges and opportunities both less funding and more limited executive and management time. A further consideration is that the technologies employed by large organisations may be incompatible with those used by small organisations, and vice versa.

A form of stratification that is frequently used in statistical analysis and research distinguishes between, on the one hand, 'small and medium-sized enterprises' (SMEs), and, on the other, large organisations. It appears very likely that research based on such broad categories is failing to tease out the effects of confounding variables. A more plausible basis for stratification of private sector participants is as follows:

B2B systems frequently involve organisations of widely varying size, product diversification, and technological sophistication. This diversity among enterprises results in significant practical challenges. Based on empirical studies, Cameron & Clarke (1996) proposed guidelines for collaborative multi-organisational systems that involve small and medium enterprises, as follows:

A B2B e-commerce service needs to reflect the realities of sectors it serves, including the sizes, and associated technical capabilities of the participants.

5.7 Power Relationships Among the Participants

A further vital respect in which marketspaces differ is in the nature of the power relationships among the parties. This is related to the size factor discussed in the immediately preceding sub-section, but has additional facets.

Power relationships are commonly analysed using the competitive strategy framework put forward by Porter (1980, 1985). Competitive strategy is an enterprise's approach to achieving competitive advantage over, or at least reducing the advantages enjoyed by, its adversaries. In Porter's view, the performance of individual corporations is determined by the extent to which they cope with, and manipulate, 'the five key forces' inherent in industry structure:

Enterprises, through their strategies, can influence the five forces and the industry structure, using four generic strategies:

An important tension exists between the interests of buyers and sellers. A seller has an advantage if its offering is differentiated from those of its competitors by features that are attractive to buyers. Buyers' interests are best-served by migrating their demand towards products offered by multiple suppliers, and hence taking advantage of competition to keep the price down. This is referred to as a process of commoditisation.

In such a strongly buyer-dominated market, a large number of small organisations sell to large organisations products that are differentiated primarily by price. The buyer's or buyers' power can be applied to the extent of forcing the suppliers to sell in spot-markets, in head-to-head price-competition with every possible supplier of the commodity. This adds time-pressure and squeezes prices down to (or more likely below) the level of survival. As Wise & Morrison (2000) argue, this can be risky with supplies, and is distinctly inadvisable in relation to raw materials.

Porter's analysis overlooks the regulatory factors outlined in section 5.4 above, both general-purpose controls such as anti-monopoly / anti-trust / trade practices legislation, but also laws specific to particular sectors and segments.

It is also inadequate in low-competitive contexts. By this is meant organisations that are subject to market forces to a markedly lesser extent than corporations in competitive marketplaces. A wide range of organisations can be argued to fit into the category. Common examples include government agencies and the large non-profit / not-for-profit sector including charities and voluntary service organisations, and professional, industry and consumer associations. Such organisations may experience a lower intensity in their relationships with their business partners; or they may be fully subject to competition in respect of some aspects of their operations (e.g. charities actively compete for the support of scarce donors), but to only a very limited extent in relation to other aspects (e.g. charities seldom compete for people who need their help, because there are usually insufficient charity resources to help all of the people in need).

A further important 'low-competitive' context is where infrastructure is established on the basis of collaboration, e.g. through the shared development or common adoption of technical standards and process norms, and the joint funding through industry associations of infrastructural elements and intermediary services. Another market power consideration is whether some third party, such as an intermediary, a regulator, or a sponsor, has such dominance over the participants that they can significantly influence the form and/or the function of the system.

Power relationships may be an important determinant of the particular category of B2B system appropriate at a particular point in time within a particular industry sector (Saunders & Hart 1997). Three forms need to be differentiated. Where one or a few buyers have very high market-share, a buyer-dominated marketspace can be achieved. Sellers can be forced to compete hard against one another on price, and to accept imposed terms that ensure that inventory carrying and logistics costs are borne by the seller. Sealed-bid auctions, time-limited and with concealed bids, help buyers keep the price down, and disadvantage sellers.

The inverse situation is a seller-dominated marketspace, where one or a few organisations have control over the majority of the supply of a desirable good or service for which few substitutes are available. Buyers can be forced to enter into bidding wars against one another, and to bear inventory and logistics costs. Examples of market processes that are commonly used in these circumstances are the English Auction (where the price runs up, and the last bid wins, frequently stimulating bidders to go further than they intended), and the Dutch Auction (where the price runs down, and the first bid wins, forcing a motivated buyer to bid early and high). Features of these forms of market process disadvantage buyers and favour the seller.

The third form is a balanced marketspace. These tend to arise where neither side of the market has dominance, and usually feature intermediary-provided facilities. A market form whose characteristics fit this context well is the Clearinghouse Auction or Exchange.

To be effective, the design of a marketspace needs to reflect the market power that exists in the sector or segment served.

6. Implications

This paper has reviewed several sources of knowledge about B2B e-commerce, and has identified an array of factors that together determine whether any particular B2B service would be appropriate to any particular context.

For all observers of B2B, this paper can assist in ensuring an adequate appreciation of the domain of study, because it consolidates and re-focusses existing bodies of theory such that their application to the current B2B phenomenon can be assessed.

For researchers, it also offers a checklist of factors that need to be subjected to study and/or to be controlled for. It can also be used to infer a set of hypotheses for empirical testing through observation of marketspace features, surveys and case studies.

Building on this foundation, it should be feasible to develop a taxonomy of B2B e-commerce forms more comprehensive than those offered in the limited literature available to date such as Lindemann & Schmid (1999), Kambil et al. (1999) and Kaplan & Sawhney (2000). Contingency theories then become feasible, to associate marketplace features with particular market forms, and hence provide theoretical predictions of success and failure, and guide the design of new offerings.

For practitioners in organisations that perform procurement, the paper provides a checklist of factors that can be used in the preparation of requirements statements, and in the evaluation of the fit of alternative marketspace designs to the organisation's needs. For providers of B2B product and service providers, it offers a checklist of factors that can be used in the design of products and services. Finally, for investors in, and bodies considering grants to, B2B product and service providers, the paper provides a checklist of factors that can be used to evaluate the credibility of the organisation seeking funding.

7. Conclusions

Organisational needs in relation to B2B e-commerce evidence enormous diversity. Topologies for supra-organisational systems vary. If a marketspace is used whose design is in conflict with the nature of the participants and the industry sector in which they operate, a high risk exists of misfit, poor service, and consequential failure.

Marketspaces appear likely to remain at least as differentiated as the marketplaces that they are supplementing and replacing. The Principle of Selective Variety (Ashby 1956, Heylighen F. 1992) needs to be applied. Innovations need to be encouraged and mutations need to multiply for some time yet, in order to ensure that sufficient experimentation and learning occurs. Only as e-commerce gradually matures will the explosion in creativity, and in errors and losses, subside, and be followed by contraction to a sufficient set of differentiated forms.


The assistance of colleagues in the development of this paper is appreciated, particularly those within the Bled community, and in the leading e-commerce consultancy, ETC, and Chris Akeroyd, a longstanding officer of Purchasing Australia.


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