Question

What are the primary differences between private trading exchanges and public trading exchanges in B2B e-commerce? What are the advantages of each type of exchange?

Answer 1

A single entity owns and manages the private exchanges. The owner exclusively makes use of the exchange to trade data with existing suppliers and customers. Those exchanges allow buyers to centralize and manage purchases from favorite suppliers. Companies also use these to trade proprietary data, such as product designs and demand forecasting, to improve planning and reduce inventory costs. The investment required for participating in a private exchange depends on how much trading partners need to integrate their data-sharing systems. The owner of the exchange usually selects the exchange technology, and sets policies for its service.

Public exchanges are owned by consortia of industry or independent investors and have a board of directors. Although each exchange sets its own rules, they are generally open to any company wishing to use them for a fee. One selling point for public exchanges is that they provide services and a shared forum for technology. The services that many public exchanges provide include sales, spot buying, and ordering from catalogs of participants. They can also provide payment services, and demand forecasts for goods or supplies in the industry.

Typically consortia are formed by a group of leading suppliers in a particular industry, such as the Global Food Exchange. Public exchanges like Commerce One are run by a third party, and are open to all companies that meet the exchange-defined standards. A single company and its key suppliers run private marketplaces, such as those sponsored by Walmart and Dell. Another way of classifying exchanges is as either vertical specializing in serving a single industry or horizontal serving a wide variety of industries, such as PurchasePro.

Most of the first generation of B2B exchanges were open, public marketplaces based on a small percentage fee on all transactions carried out. Wall Street did the maths, noting that the total B2B marketplace is possibly 10 times larger than the consumer marketplace due to all the intermediate transactions involved in marketing products. The result was that money flowed freely from venture capital and even initial public offerings resulting in a large number of start-ups.