Six Trillion Reasons for Leveraging Net Markets

It is usually the numbers that bother me the most, to be frank. It wasn’t so bad when we were taking in the hundreds of millions or even in the billions of dollars (though it did start to get a little annoying to hear the term “billions” thrown around so liberally).

But then, a few months ago, at a B2B conference in San Francisco, a Jupiter analyst uttered the “T” word. My eyes rolled for a moment, knowing that it was only a matter of time before someone used the “T” word in public. And it was not “almost a trillion” or “about a trillion,” but rather “$6 trillion in online trade expected by 2005.”

Now, I’ll admit to being quite less tolerant of the hype in 2000 than I was in 1995, but at some point, using numbers of this magnitude is ineffectual in telling the complete story. The prediction that Net markets will account for $6 trillion in commerce is not news. What’s news is the potential value of those markets to companies that choose to conduct business within them.

Three Better Reasons for Leveraging Net Markets

Six trillion dollars in transactions alone is not a strong enough rationale for leveraging Net markets in your B2B strategy because that number simply indicates a shift in critical mass. That number will continue to climb only as companies, in increasing droves, seek to leverage the Internet to manage the entire value chain (from consumers to raw-material suppliers).

While these six trillion reasons are validation that the markets are accepting B2B solutions, there are three other reasons, arguably more important, for organizations to build or join Net markets in their industry. Rather than being caught in the press-release-driven momentum behind Net markets as a B2B panacea, organizations should evaluate whether involvement in a particular market is warranted. The three reasons below, while certainly not a definitive guide to determining B2B strategy, can be used as anchor criteria for initial planning.

Does the Market Have Critical Mass?

The markets that prove successful are those that demonstrate an ability to move quickly from being a press release to being a secondary market to finally being the primary market for a given vertical industry or a market function (such as shipping or credit authentication). One of the key elements in moving quickly is developing critical mass of both buyers and sellers in the market to facilitate commerce.

An easy chicken-and-egg argument can be made as sellers are often unwilling to commit to a particular market without already-present buyers, and buyers have little reason to enter into a market where no sellers are present. Unfortunately for sellers, though, they are the ones who are often needed to assume the initial risk in establishing or joining a market – a daunting proposition when multiple marketplaces are competing for the same customers and certainly a risk that comes with significant upside if the sellers are able to become the primary market or an anchor tenant in the primary market. The market will reward companies that are able to develop this critical mass.

What Operational Efficiencies Does the Market Provide?

Providing the opportunity for recognizing efficiencies by streamlining operations and business processes is one of the core drivers for involvement in Net markets. Not only should the cost of sales and marketing decrease, as buyer’s aggregate around a given Net market, but efficiencies across each function, such as procurement, logistics, and billing, should also become apparent.

Efficient markets can minimize the costs associated with everything from error-prone manual business processes and intensive searching to the ongoing cost of supporting electronic-data-interchange infrastructure and the cost of goods themselves. While $6 trillion of commerce may flow through Net markets, the real interest is in determining how much money can be saved by leveraging Net markets or how much additional revenue can be garnered through their use.

These efficiencies, though, will not simply manifest themselves in the market, particularly when associated with entrenched business processes for procurement. Rather, buyers, sellers, and the market maker each need to modify their own operations to take advantage of the market’s facilitation of more efficient ad-shared operations.

Will the Net Market Help Provide a Competitive Advantage?

Net markets need to build a competitive advantage for both buyers and sellers so the market itself can develop critical mass and be competitive. Providing market services, such as secure transactional support, digital certificate validation, and catalog support, are simply the necessary frameworks through which a Net market can be transactional centers.

Net markets also need to provide a level of service that will differentiate them from competing markets and that will translate into a competitive advantage for the market participants. Markets can develop this by providing differentiating services, such as proprietary content, escrow, data and web integration, user tracking and profiling, credit, and a variety of commerce models (e.g., auctions, reverse auctions, dynamic pricing, etc.).

What’s to Come

While press releases abound, there are few Net markets that are actually having a significant tangible impact on any industry. And, more important, the B2B game is still in its infancy. While there seem to be early dominant players and models, I suspect that the landscape, opportunities, and technologies to enable it all will change dramatically in the next 12 to 24 months.

In future columns, I will take the opportunity to explore more fully Net markets and their evolution as powerful channels for sales, marketing, service, and competitive advantage. I invite your input, commentary, challenges, and thoughts.

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