A monopsony is a marketplace dominated by a single buyer. It is a place where only the most efficient vendors survive; where margins are slashed and often the little player is eliminated. It benefits the buyer but rarely the seller and while the end consumer usually benefits from lower prices, the economy suffers through the collapse of vendors and the loss of jobs.
It was a word used often at the annual Com Tech conference on Queensland's Sunshine Coast where the IT industry, several leading analysts and IT media gathered to discuss, among other things, e-marketplaces.
The critics and some of those who may eventually participate, voiced concerns that e-marketplaces were no more than monopsonies - markets where several large companies group together as a single buyer to force down prices. They are concerned that such will be the power of the buyers that vendors will have no choice but to join the marketplaces, even though it may be corporately suicidal to do so.
The same danger could face businesses that do not join the buying group, because they will not enjoy the same cost savings and therefore will not be able to compete.
The supporters deny the monopsony claims, arguing that major savings will not come from forcing prices down, but from efficiencies in marketplaces where information will be the key resource.
They say that, by opening lines of communication to suppliers, they can reduce inventory, in some cases to just an hour's worth, while securing a supply chain by opening the market to new suppliers and providing them with up-to-the-minute information on what their supply requirements will be.
By doing this they can shave significant amounts from their costs, improve their bottom line and pass on some savings to the end consumer.
Major Australian companies are rushing to join e-marketplaces. Coles Myer has joined an international retailer market that includes major global players such as Sears. At least 15 major companies have created CorProcure and 11 are involved in MySap.com. The Commonwealth Bank has also created its own e-marketplace to streamline its purchasing which currently involves more than 12,000 suppliers.
Marketplaces like CorProcure are being used to aggregate goods and services ranging from the purchase of stationery to the provision of corporate travel.
Other industry-specific or even company-specific marketplaces are particularly suited to large manufacturers which source raw materials and components from a large number of suppliers.
According to Mark Reading, who heads PricewaterhouseCoopers' Asia Pacific e-Business Financial Advisory Service, apart from the obvious value of aggregating demand in buying consortiums, there are other benefits in sourcing suppliers and customers, and streamlining purchasing, billing and processing payments. Further efficiencies are gained through reduced lead times and inventories, and improved logistics management, he said.
"Networks, such as those created by e-marketplaces, create value that an individual business cannot. That's where the major benefit of e-marketplaces are."
But, according to Jayne Hrdlicka, Bain International vice president, some companies will find markets tough. Vendors will be forced to become more efficient and those that are not will not survive, she said.
Both she and Reading agreed that antitrust regulators will have to keep a close watch on them to ensure that marketplaces remain open.
But John McCarthy of Forrester Research said he does not believe there will be any problem keeping them open. McCarthy, group director of politics & government online research, has been keeping a close eye on marketplaces as they evolve.
"We analysed 75 companies looking at joining these things and the number one factor they were concerned about was that they had to be open. The antitrust guys are already all over these markets. If people start doing stupid things and the markets are not open and fair, people will vote with their feet. They will move elsewhere and people will use the communications aspect of the Internet to flood it with information about it."
However, McCarthy says the marketplaces are a monopsony, but "the end user doesn't care".
"It is not like they are using the marketplace - that is something between the suppliers. These are cartels of buyers. It's a monopsony, which is buyer-driven pricing - that is a hard one for people to swallow as being problematic and it is very hard to prove. If consumers see prices drop as a result, it is not going to worry them. I think the net effect of these things is going to be an extended period of deflation as we take lots of inefficiencies out. I think e-marketplaces will become one of the core vehicles by which companies start to do e-commerce."
Companies throughout the US, Europe and Australia have readily embraced the e-marketplace concept. Even governments are participating and recently the Queensland Government called for a tender for the creation of a marketplace for all of its departmental procurement.
In the US alone, Forrester is tracking 550 e-markets, but while the concept is booming, McCarthy says there will be a shakeout within the next two to three years that will see only about a third of them survive.
"We do not expect that within two or three years there will be more than 180 of the 550 still surviving," he said.
While the shakeout will not be as severe as the recent dot-com collapse, it will result in some sharp write-downs for many of the companies involved in the creation of the marketplaces.
Any of these marketplaces that think they are going to survive by taking half a per cent of the transaction will have difficulties.
"We don't think that is a longer-term strategy for success. They are going to have to bring more value to the buyers and sellers - things like collaborative services.
"Over time they are going to have to evolve in terms of what they provide, and how those types of services allow companies to do new things. It is the same thing we have seen with the consumer. What the Net is really good at is not just allowing us to communicate with each other, but providing one place where lots of buyers and sellers can come together," McCarthy added.
B2B marketplaces slowly making it
By Kathleen Ohlson
Business-to-business electronic marketplaces started out with a bang, but will stumble over such issues as overly ambitious plans and the lack of venture capital and suppliers over the next few years. However, marketplaces will grow dramatically by 2005 as enterprises see a chance to improve their bottom line and streamline operations, as well as bring in higher revenue, according to research released last week at Gartner Group's B2B eMarketplace conference in Boston.
North American marketplace sales skyrocketed from $US153 million in 1998 to $492 million in 1999. The number of marketplaces rose from 30 in January 1999 to more than 300 by the end of 1999. "It's the big bang that happened 18 months ago," said Lauren Shu, a Gartner analyst.
Sales will double next year to $1 billion, jumping to $5.7 billion by 2004. Approximately 1500 marketplaces will exist by the end of 2000, doubling to 3000 by 2005.
The research firm defines an e-marketplace as a marketplace that brings together buyers and sellers within a certain industry, geographic region, or affinity group, providing content and commerce transaction capabilities. Marketplaces will evolve into three types: commodity, business service and integration service. Commodity marketplaces will support high-volume exchanges of goods, similar to the way Nasdaq handles stocks. Business service will focus on specific processes, such as those related to financial services and maintenance, repair and operations procurement. Integration service's focus will be on process definitions and workflow standards between trading partners.
The financial boom that marketplaces will bring has yet to truly boost participation from companies. According to Gartner Group research, 66 per cent of 421 sellers surveyed aren't involved in marketplaces, while 17 per cent are considering participating and 17 per cent are participating. Seventy per cent out of 500 buyers surveyed aren't participating in marketplaces, while 15 per cent are considering their involvement and another 15 per cent are involved.
Transportation; chemicals, plastics, rubber; and paper, pulp and lumber products are a sample of what the companies that participated in the study are buying. "The majority [of enterprises] aren't ready for these partnerships because they're offering limited capability now," said Leah Knight, a former analyst at Gartner Group. More than 500,000 companies will join marketplaces as buyers and/or sellers by 2005.
"There's significant opportunity in these new markets, but there's a lot of trepidation in participating," said Gartner analyst Carl Lenz. Part of the problem stems from security and privacy issues. "It's a tremendous inhibitor as these marketplaces evolve. Companies will have to figure out how much [data] they push out into the market and networks," he said.
Other issues inhibiting business-to-business marketplaces include:p Lack of venture capitalp Questions over who manages the marketplace.p Lack of suppliersp Technology vendors struggling with functionality needed to build trade, causing buying enterprises to stop their investmentsp Suppliers figuring out how to access the data from a business and technical perspective"These issues will take some time [to iron out]. We'll get there, but these are issues businesses will need to watch out for," Lenz said.www.gartnergroup.com