Electronic marketplaces were one of the ‘big ideas’ of the dotcom boom. Many players sprang into the space, building businesses on the concept of creating a marketplace where sellers and buyers could meet virtually and do business. The marketplace provider would add value by connecting sellers and buyers who would otherwise not manage to find each other. And it would provide robust online processes for safely entering into contracts for those goods and services.
Revenue would flow to the marketplace provider by clipping the ticket on that business in various ways. Most typically, the marketplace provider would receive a fee for each transaction conducted, or even a percentage of all business transacted on the site.
A few years on, the rose tinted spectacles are in short supply. Big marketplace software providers Ariba and Commerce One have had to give up their plans for world domination, and even the New Zealand government’s attempt at a portal to centralise buying for government departments – called GoProcure – is now on ‘go slow’ and the target of some stinging criticism from would-be users. What’s going on?
Things didn’t work out as planned for the simple reason the average portal can’t do ‘the hard part’ of e-commerce, which is to combine live people, real expertise and low transaction cost to create a satisfactory buying experience.
Free availability of information means the market is already pretty efficient. There’s really little more ‘buying power’ for large buyers to amalgamate and leverage, so we’re left with some savings on transaction costs.
The reason procurement portals fail is procurement is still about people and the handling of information. Purchasing portals fail unless they can do one or all of the following:
Bring buyers to suppliers that the supplier could not reach cost effectively;
Bring suppliers to buyers that they could not reach easily to receive the same product, price or service;
Provide information – to either end of the chain – that could not be obtained as cost effectively.
Most marketplaces do none of those three, although some highly focused ‘buyer lead’ portals have had initial success in standardising purchasing and costs.
Many individual B2B and B2C sites are also weak. Almost all dramatically underestimate the extent of human intervention required, even in this electronic age, to manage the integrity of basic price, availability and product specification information on the web.
My experience is buyers, even if they have all the information, still prefer some human contact in the majority of purchases. We have developed one of the most efficient procurement processes in the country. It is successful and popular not because of the system running it, but because of the skill of the people managing the content and talking with the customers.
My recent efforts to book a cheap airfare online illustrate the basic dynamic. After a long period of visiting different sites, comparing various fares and times and conditions, and hampered by slow responses and confusing pages, I became frustrated and rang a travel agent. She had expert knowledge and online tools to compare fare prices, and in three minutes I was booked with a good deal.
A little expert help, provided in a timely way, saved a lot of legwork and enabled a quick buying decision. I refer to this as ‘voice activated’ purchasing and for most purchases it still works best.
I think it has something to do with understanding what your customers want out of each interaction with your company. Not much has changed really, has it?
Matt Kenealy is CEO of Axon