Exam 2: E-Commerce Business Models and Concepts

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An exchange is an independent digital marketplace where hundreds of suppliers meet a smaller number of very large commercial purchasers. Exchanges are owned by independent, usually entrepreneurial startup firms whose business is making a market, and they generate revenue by charging a commission or fee based on the size of the transactions conducted among trading parties. They usually serve a single vertical industry, and focus on the exchange of direct inputs to production and short-term contracts or spot purchasing. For buyers, B2B exchanges make it possible to gather information, check out suppliers, collect prices, and keep up to date on the latest happenings all in one place. Sellers, on the other hand, benefit from expanded access to buyers. The greater the number of sellers and buyers, the lower the sales cost and the higher the chances of making a sale. In theory, exchanges make it significantly less expensive and time-consuming to identify potential suppliers, customers, and partners, and to do business with each other. As a result, they can lower transaction costs-the cost of making a sale or purchase. Exchanges can also lower product costs and inventory-carrying costs-the cost of keeping a product on hand in a warehouse. In reality, however, B2B exchanges have had a difficult time convincing thousands of suppliers to move into singular digital markets where they face powerful price competition, and an equally difficult time convincing businesses to change their purchasing behavior away from trusted long-term trading partners. As a result, the number of exchanges has fallen significantly.