Business in Electronic Marketplaces
Undoubtedly, the birth of the internet has drastically changed the global business landscape and business operations. By providing cheaper technology to manage information systems, the internet opened up virtually the whole world as a marketplace and in turn impacted greatly on “organizational structures, methods of production, means of communication, working patterns, and ways of learning (Southern, 2000). ”
On the other hand, Information and Communication Technology (ICT) advancements do not necessarily mean smoother sailing for all businesses. Rather, these have increased the already competitive environments of some businesses by eliminating some competitive advantages. Likewise, the internet has widened the playing field for competitors, breaking down traditional barriers to trade such as geographic considerations.
Everyday, new businesses and goods crop up in cyberspace, making it difficult to establish and maintain one’s presence on the net. Like most technologically-driven mediums, businesses that depend on e-commerce must continually innovate in order to catch the internet user’s attention. There is even a growing contention that brand success is now determined in the virtual marketplace instead of the traditional mediums such as television and print, since the internet allows consumers to react to, and generate content in the virtual world.
In the process of enhancing customer interface and contact, the growth in popularity of internet search engines, which improve the speed of contact between internet users—who are alternately consumers of information and goods through the internet—and business organizations, has inevitably led to the proliferation of what is known as electronic marketplaces. Electronic marketplaces (EMPs) are defined as “independently-owned, IT-enabled intermediaries that connect many buying organizations with many selling organizations (Soh, et. Al. 2006). ”
EMPs therefore function as the middlemen of the virtual world; they are not involved in the actual production of goods but in matching potential customers and buyers with sellers of goods and services. EMPs are unique since they do not necessarily have to be the virtual storefront of any business; in fact, most of them are similar to web search engines which locates products and specification information that is tailor-made for the particular needs of the customer. Business Models in Electronic Marketplaces (EMPs)
The increased use of the internet by consumers to search for and compare products from different sellers is widely held to increase price transparency, in effect pulling down the profit margins of sellers (Soh, et. Al. , 2006). Price transparency is a boon to buyers but can present a bane to sellers, and as such, Soh, et. al. contends that the latter will avoid, if not prevent price transparency by instituting mechanisms (e. g. not posting prices) to avoid it, including avoiding EMPs that promote highly-price transparent strategies.
However, the conduit nature of EMPs entails that they have to attract both sellers and buyers to be successful. This conflict in interest between the buyer and the seller makes it necessary for EMPs to be able to “offer compensating value” to buyers (in the case of low-price transparent EMPs) and sellers (in the case of highly-price transparent EMPs) to patronize them.
Soh et. Al. (2006) identified two business models currently employed by EMPs as characterized by the nine-building blocks of business defined by Osterwalder, et. al. (2005): the price transparent and non-price transparent electronic business intermediaries. The degree to which EMPs practice price transparency, according to the authors, is significant since it influences the business strategies employed by EMPs and could also determine the success or failure of the particular EMP. In the case of business strategy, the authors found out those highly price-transparent EMPs usually employed low-cost business strategies while non-price transparent EMPs used differentiation as a leverage to attracting customers.