E-Commerce can be broadly defined as the process of buying or selling of goods or services using an electronic medium such as the Internet. E-commerce refers to the paperless exchange of business information.
E-commerce can be of four types:
• Business to Consumer
• Business to Business
• Consumer to Business
• Consumer to Consumer
Business to Business E-Commerce model:
Business-to-business (B2B) refers to a situation where one business makes a commercial transaction with another. This typically occurs when:
• A business is sourcing materials for their production process, e.g. a food manufacturer purchasing salt.
• A business needs the services of another for operational reasons, e.g. a food manufacturer employing an accountancy firm to audit their finances.
• A business re-sells goods and services produced by others, e.g. a retailer buying the end product from the food manufacturer.
The overall volume of B2B (business-to-business) transactions is much higher than the volume of B2C transactions. The primary reason for this is that in a typical supply chain there will be many B2B transactions involving subcomponents or raw materials, and only one B2C transaction, specifically sale of the finished product to the end customer. B2B e-commerce reduces cycle time, inventory, and prices and enables business partners to share relevant, accurate, and timely information. The end result is improved supply-chain management among business partners.
Models of B-to-B E-Commerce
The three major B2B e-commerce models are determined by seller, buyer, or intermediary (third party) who controls the marketplace. Each model has specific characteristics and is suitable for a specific business.
Supplier-Oriented Marketplaces offer a group of customers a wide spectrum of products and services and also support them in their own business. Furthermore, there are large potentials through customer communities, individualized products and direct customer-relationships. By using Supplier-Oriented Marketplaces, suppliers are offered new types of market channels in marketing and distribution. Products can be sold directly to the customer without using intermediaries. Successful examples of this business model are e.g. Dell and Cisco.
This is the most popular type of B2B model for both consumers and businesses. In this type of model, a common marketplace provided by supplier is used by both individual customers as well as business users. A supplier offers e-stores for sales promotion. One popular application of this model is e-procurement, which significantly streamlines the traditional procurement process by using the Internet and web technologies.
By using Supplier-Oriented Marketplaces, buyers would have to search electronic stores and electronic malls to find and compare suppliers and products. This would be very costly and time consuming for big buyers, who purchase thousands of items on the Internet. As a result, such big buyers prefer to open their own marketplace, which is called a Buyer-Oriented Marketplace. This model is used by large companies with significant buying power or a consortium of several large companies. In this model a buyer or a group of buyers opens an electronic marketplace and invites sellers to bid on the announced products.
Companies are making investments in a buyer-controlled marketplace with the goal of establishing new sales channels that increase market presence and lower the cost of each sale. By participating in a buyer-controlled marketplace a seller could perform the following:
• Get better understanding of buying behaviors
• Carry out pre-sales marketing
• Carry out sales transactions
• Carry out post-sales analysis
• Reduce order placement and delivery cycle time
• Offer an alternative sales channel
• Automate the order management process
• Automate the fulfillment process
Intermediary-Oriented Marketplace: (or Third-Party Driven marketplace)
A third-party-controlled marketplace model is controlled by a third party not by sellers or buyers. This business model is established by an intermediary company which runs a marketplace where business buyers and sellers can meet. The marketplace makes revenue from the fees generated by matching buyers and sellers.
There are two types of Intermediary-Oriented Marketplaces:
a) Vertical marketplaces: A vertical market focuses on a specific industry or market. For e.g. PaperExchange.com (supplies for publishers)
b) Horizontal marketplaces: They offer services to all industrial sectors.