eMarketplaces and Online Contracting

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eMarketplaces and Online Contracting

• Anne Reutenauer
• Ernst Young
• May 2, 2001

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eMarketplaces

• DefinitionHistoryThe Current ShakeoutFuture
  Trends

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eMarketplace Definition
Online entity that builds and supports the
commerce infrastructure for multiple buyers and
sellers (many-to-may trading relationship)
Buyer receives goods/ services and pays supplier
Buyer
Buyer searches electronic catalog for items
Order launched to supplier
Suppliers
Virtual Marketplace
Revenue Generation Mechanisms Hosting,
Subscriptions, Transactions, and Advertising
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Benefits of eMarketplaces
Buyers
Sellers
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eMarketplace History The Three Waves

• 1. The ascent of Independent eMarketplaces
• Late 90s to March 2000
• 2. The rise of incumbent (industry-consortium)
  eMarketplaces
• March to October 2000
• 3. Shakeout, consolidation and loss of market
  capitalization
• November 2000 to ?

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eMarketplace Growth Forecast
eMarketplaces were expected to grow to 1.4
Trillion by 2004
Latest update
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Why is there such volatility in these markets?
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Main Issues faced by eMarketplaces

• 1. Business Model
• Many B2B business models look suspect and most
  probably will fail exchanges have low
  (middleman-like) gross margins. Most exchanges
  planning to survive off trading volume are in for
  a rude awakening as transaction prices get
  squeezed for simple order matching.
• The missing piece is that eMarketplaces are
  finding that they have to create value not only
  for the eMarketplace itself, but for its sector,
  if not its industry.
• Participants, not eMarketplaces themselves, will
  capture the lions share of value created.
• 2. Technology and organizational issues
• 3. Lack of trust

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Cost savings, no matter how significant, are not
enough to warrant premium valuations and external
financing
New Business Models

• Industry transformation
• Redefine supply chain
• Diversify revenue streams
• Create entirely new cash flows

• Industry consortium
• Disintermediation
• Platform for growth
• Provide value added services

Shareholder Value
Reduce cost of strategic purchasing

• Enhanced inventory management
• Greater price transparency
• Dynamic pricing

Current Opportunities
Reduce cost of spot purchasing

• Enterprise-wide aggregation
• Reduce manual tasks
• Lower cost of discovery

Future Growth Options
Internal Financing
External Financing
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Successful eMarketplaces will help participants
achieve competitive advantage along each of the
following dimensions

• 1. Unique Value Proposition
• What is the value provided by the eMarketplaces
  products and services, from the customers
  perspective?
• 2. Deliver Chain Management
• How does the order-to-cash process improve in the
  industry?
• Is dis-intermediation / re-intermediation a
  factor?
• 3. Functionality
• How does the eMarketplace deliver on its unique
  value proposition?
• What process areas are covered?
• 4. Profit Mechanism
• How does the eMarketplace expect to make money?

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B2B eValue Journey
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Ernst Young offers a wide range of services to
eMarketplaces at different stages of their
development

• Talent
• Assess skills and human resource issues needed to
  be addressed through hiring, training and
  retention strategies
• Evaluate compensation structure (options,
  employee contracts)

• Assurance
• Authorization, authentication, and verification
  of participants and their activities
• Accuracy and impartiality of processing and
  information generated

eMarketplaces

• Tax Structuring
• Determine optimal location (U.S. vs. Non U.S.)
• Minimize taxes on future operating profits
• Optimize capital gains structuring
• Weigh pros and cons of all tax structuring
  implications
• Assess regulatory compliance
• Conduct corporate governance review

• Infrastructure
• Select and implement the software applications
  required to support the offering
• Assess site privacy (cyber-certification)
• Assess and integrate existing legacy systems and
  ensure that they are flexible, secure and
  scalable to support growth

• Business Development
• Identify and develop a set of modularized
  services which offer compelling reasons to
  participate
• Research and quantify the value each player
  brings to the exchange
• Identify and assess the key variables driving
  profitability
• Validate and stress test the business model and
  growth strategy
• Evaluate and assess incremental revenues and
  cost-savings

• PMO (Program Management Office)
• Develop and assess infrastructure needed to
  execute business strategy
• Identify appropriate project management,
  monitoring and quality assurance controls to be
  implemented across all projects
• Coordinate activities of the various exchange
  constituents

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Ernst Young and eMarketplacesWho do we Serve?
eMarketplace Buyers/Sellers
eMarketplaces
eMarketplace Founders
Over 125 clients who have announced being a
founder in an industry consortium eMarketplace
Hundreds of existing clients participate in
eMarketplaces, thousands more are expected

• Over 30 operating independent eMarketplaces
• Over 15 consortium backed eMarketplaces

Observation EY provides a wide range of
services to all Stakeholders
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eMarketplaces and Online Contracting
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Online Contracting Services
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Contracting Services Map
CONTRACT MEASUREMENT ANALYSIS
Evaluate transactions to forecast pricing,
volumes, and performance.
Develop Product
Forecast Demand
QUALITY ASSURANCE
Execute multiple agreements at the same time the
contract is executed.
INSURANCE
BUYER SELLER RATING
E-HEDGING
TERM NEGOTIATION
CONTRACT EXECUTION
Quote
RFQ
Negotiate
Execute Contract
Produce Good
Ship
Invoice
Purchase Order
Report
Accept Quality Assurance
Payment/ Settle
CONTRACT COMPLIANCE MONITORING
Dispute
DISPUTE RESOLUTION
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Demo of Ernst Youngs Online Contracting Tools