Trading in public B2B online marketplaces is a pretty down-and-dirty experience. For the most part, buyers and sellers who gather in these venues are either looking for a one-time deal on excess inventory, or are haggling within the framework of pre-established business relationships. Because of the current limitations of B2B technology, there's not a lot of relationship building, personalization or collaboration going on here, just a bare-bones numbers game of buying and selling.
This minimalist approach to B2B e-commerce, though sporadically successful, may soon give way to more sophisticated interactions that reflect the intricacies of many business relationships. According to a recent study by Jupiter Media Metrix titled Net Markets Infrastructure Spending, 2000-2005, more than half (53 percent) of the e-market executives interviewed last year for the study indicated they planned to add CRM/ERP infrastructure to their sites within 18 months. Roughly the same percentage of those interviewed said they also plan to include collaboration and decision support infrastructure as value-added services during this same time frame.
In the beleaguered e-marketplace industry, investment in value-added service infrastructure evidences a growing acknowledgment by industry execs that CRM is integral to the value proposition of B2B e-marketplaces. Jupiter's findings drive this point home. "Our forecast indicates that between now and 2005, [the e-marketplace industry] will spend roughly $80 billion on infrastructure-related investments," says Jupiter analyst David Daniels. "About $10 billion of that pie is on CRM."
For their part, the makers of B2B software recognize the need for value-added services, collaboration and personalization tools in their marketplace platforms. "In their simplest form, e-marketplaces are about supplying more information to buyers and suppliers on a more timely basis than they've ever had before," says Jim Zuffoletti, vice president of diversified manufacturing at marketplace software vendor Freemarkets. "The future of e-marketplaces is helping the buyer and the supplier know each other better through the kind of collaboration that CRM tools support. Successful marketplaces will acknowledge this fact and build functionality around that."
Work With Me!
Currently, e-marketplace functionality supports buying, selling and minimal communication, usually in the form of e-mail and basic contact information. While e-marketplaces come in many different varieties, they generally operate like this: Buyers and sellers, usually from a particular vertical industry, come together online in a "marketplace," which is actually a secured Web site featuring transactional software. In this marketplace, potential buyers post an RFQ (request for quote) on a commodity or service they wish to purchase. Vendors offering that commodity or service then bid for the buyer's business. In such a marketplace, the theory goes, everybody wins: Buyers have access to more sellers and to prices that are driven down by the increased competition of the bidding process; sellers restricted by geography or budget get access to a much larger customer base online.
From a CRM standpoint, such an infrastructure design has several very obvious shortcomings. Most notably, it supports the spot buy, not the sustainable, long-term business relationship. Basic transactional platforms were standard in the early days of e-marketplaces when the hype surrounding them was at a fever pitch and perceived market pressure to shift B2B activities online was high. "The first generation [of e-marketplaces] was about 'let's get this infrastructure up so we can execute transactions,'" says Elaine Therrien, director of e-power solutions at Canadian CRM vendor Pivotal. "The second generation wants to incorporate more CRM in the infrastructures."
Enhancements in this second generation revolve first and foremost around the ability for buyers and sellers to collaborate. While first generation B2B infrastructure was, by definition, a collaboration tool, the next generation will support more complex transactions requiring a greater degree of communication between trading partners. "Collaboration seems to be increasing as a trend," Zuffoletti says. "When an RFQ is posted, suppliers will have an opportunity to communicate back and forth with potential buyers. This communication becomes even more important when customers are making advanced purchasing that requires product design."
For their part, CRM vendors also see collaboration as an area of great potential for their products. "The exchanges that are around in 12 months will not just be transactional environments. They will be collaboration environments too," says Leonard Zapalowski, Pivotal's vice president of business development for e-Markets.
Anyone who has purchased a car through a B2C automotive Web site knows the value of the types of collaborative product design tools needed in B2B marketplaces. The ability to configure your purchase onscreen, ask questions and immediately know price and shipping information is integral to any transaction. To date, such functionality has been sorely lacking in B2B e-marketplaces, which makes support for transactions involving highly technical or custom-designed products impossible.
Consequently, marketplaces cannot attract buyers and sellers trading in complex, more expensive items. Jupiter's David Daniels sees this shortcoming as fertile ground for CRM collaborative tools, and not just product configurators. "E-marketplaces must have the ability to assist a client with a complicated RFQ, or with product design through some type of configurator," he says. "Collaboration makes a lot of sense here. Also, with voice and data collaboration tools, you can have service agents really driving the conversation and providing a lot of value to the customer."
This breed of tools will not, however, add value in all e-marketplaces, says Claudio Marcus, research director, CRM and business technology practice at Gartner. A general rule of thumb is the higher the ticket price of the item you are selling, the more customer touch points you must support. "There are a lot of different types of marketplaces," Marcus says. "In as much as they are dealing with more complex or expensive products--such as medical equipment or aircraft components, for instance--those kinds of marketplaces are becoming more solutions oriented, and are looking at CRM as a way to manage those relationships. Other marketplaces that are driven by efficiency and price, those are not moving into CRM." Marcus adds, "If you are offering spot products, customers don't really care who the seller is."
Meet Your Customers
For e-marketplaces focusing on solutions rather than price, traditional CRM tools, such as those facilitating marketing, sales and service, support a different--though no less valuable--level of collaboration between buyer and seller. Just as in offline transactions, if sellers hope to establish long-term relationships with their customers, they need the ability to capture and effectively utilize customer information. Unfortunately, basic e-marketplace infrastructure does not answer this need, a fact that directly impacts the industry's success.
According to Rod Johnson, service director at AMR Research in Boston, the e-marketplace industry's emphasis on driving prices down, rather than on attracting buyers and increasing sales, has negatively affected its ability to attract sellers. "Companies operating in these marketplaces really have to start marketing themselves. Otherwise it will really all be about auctions and getting the best price," he says. "Currently, sellers haven't been able to use marketing tools to generate campaigns, which makes them reluctant to enter a market."
The Jupiter report corroborates Johnson's claims about the need for more marketing functionality in e-marketplaces. When asked to identify the five new key features or value-added services they will provide customers in the next 18 months, 76 percent of e-marketplace executives surveyed included a marketing system on their wish lists.
Expect these much-desired marketing systems to feature campaign management and e-mail marketing support functionality. Furthermore, expect them to interface with other CRM components--specifically customer service, another area that is, many agree, sorely under-supported in e-marketplaces. For the most part, sellers handle customer service outside of the marketplace. However, some marketplace hosts do offer very basic value-added customer services. For instance, Chris Benyo, senior vice president at B2B marketplace enabler PurchasePro, describes his company's system for making sure customers get what they need to carry out transactions. "Our customer service folks constantly comb through data on who is doing what in a given marketplace: Who's received a bid, but not responded? Who is having trouble filling out a purchase request? Once they identify these problems, they proactively call the customers and offer help."
For collaboration to truly enhance the buyer-seller relationship within an e-marketplace, there will have to be a higher level of customer service than this. There should be multi-channel customer service options readily available during a transaction to address specific questions on the transaction. "I think self-service is becoming hotter and hotter as a trend," says Joanie Rufo, research director at AMR. "But you always have to have other options. If I get stuck, or my system crashes in the middle of an order, I have to have the ability to get help."
Rufo also explains that because of the newness of B2B trading technology, and the dollar amounts often involved, some buyers may need access to a comforting human voice in a contact center. "Part of it is a confidence issue," she says. "People wonder, 'Did I do this right? Did I place the information correctly?' Sometimes self-service is enough. Sometimes it isn't."
The generational shift from a bare-bones platform to a more collaborative infrastructure design comes in the wake of severe growing pains in the e-marketplace industry. Like so many unproven, yet theoretically promising Internet ideas born in the mid to late '90s, online marketplaces were hyped as the next "gold rush," marrying the efficiencies and reach of the Web to B2B commerce and the supply chain. The reality was something of a mixed bag, with many genuine successes, and many more total disasters.
The successes often came in the form of private trading exchanges (PTXs), in which single companies moved much of their supply chain processes or existing customer relationships online. AMR Research projects that PTXs alone will become a $35 billion industry by 2005. And yes, there were also successes in the public, or competitive exchanges, as well, particularly in vertical industries where established relationships between supplier, vendor and customer are strong.
Recently AMR highlighted leading successes in vertical industry exchanges that included, among others, Exostar for the aerospace and defense industries; the heavily hyped Covisint from automotive and heavy equipment industries; and the well-respected esteel, which serves the metals industry.
During the past year, however, one didn't have to look too far to see numerous e-marketplace failures across many industry verticals. Why? The great leveling effect e-marketplaces had on competition, for one thing. As AMR's Johnson explains, those venues that focused on lowered prices--the public marketplaces--destroyed brand value and erased profit margins by exposing vendors to overwhelming competition in which only the low bidder wins. Any advantage vendors had through location, product quality or, more importantly, through customer relationships built on high levels of service and brand loyalty, were erased.
So why, with this in mind, would vendors shift their B2B operations online? The answer is many of them wouldn't. Sellers stayed away in droves. Without sellers--and the fees they pay online hosts--the competitive-auction business model simply didn't work for many markets. Which brings us back to the findings from the Jupiter study. E-marketplace executives realize that their customers--sellers--will not play in an arena that does not support and enhance business relationships. In fact, Johnson says, some companies are using CRM tools to keep their customers offline. "Many organizations are going to be more apt to implement CRM to circumvent exchanges," he says. "Manufacturers are the main focus of these exchanges and most of their relationships are based on trust. Those are the relationships that are the substance of many business activities today. This is one of the main reasons these e-marketplaces have struggled."
Is the CRM industry ready to meet the unique infrastructure needs of e-marketplaces? Yes and no. There are e-marketplace platforms that are beginning to incorporate more relationship-oriented functionality.
For instance, CRM vendor Broadvision offers a private marketplace B2B platform called MarketMaker, which provides, among other things, a basic structure for sellers to manage sales in a more personal way. MarketMaker features a content management tool that supports collaborative content creation and management for marketing campaigns, as well as for technical product design.
Pivotal offers a B2B solution called PartnerHub, which Therrien says, delivers "the ability to manage and build a more robust buyer profile through analysis of buyer behavior." PartnerHub also gives service and sales staff operating in e-marketplaces greater use of catalogs and customer information.
According to Benya, PurchasePro is moving toward a more relationship-centric model. "Our plan is to integrate a CRM solution into our marketplaces, particularly analytics," he says.
But most agree, CRM solutions designed specifically to meet the needs of e-marketplaces are rare, if they exist at all. "This whole thing is at a very early stage," Gartner's Marcus says. "The tools that are out there have not really been developed for marketplaces; they were developed for the enterprise level."
"We are in the early phases of adopting CRM strategies," Johnson says. "I haven't seen a great example of anyone really trying to use CRM in a marketplace yet."
The Jupiter study was undertaken before the economy went sour, and undoubtedly the infrastructural wish lists of the e-marketplace executives interviewed are shorter than they were this time last year. Yet those observing the evolution of e-marketplaces remain confident of CRM's potential in online B2B venues.
"After a certain point, there's only so much you can abstract using digitized techniques," Therrien says. "At some point you have to have people talking to people. In spite of all this software, everyone has to talk to each other and have relationships. The more we look, the more reasons we find for CRM to thrive in these environments."