Chapter 3

E-Marketplaces:
Structures, Mechanisms,
Economics, and Impacts
E-Marketplaces

• Markets (electronic or traditional) have three

main functions:
1. Matching buyers and sellers;
2. Facilitating the exchange of information, goods,
services, and payments associated with market
transactions; and
3. Providing an infrastructure, such as a legal and
regulatory framework (such as monitoring), which
enables the efficient functioning of the market.

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E-Marketplaces
marketspace
A marketplace in which sellers and buyers electronically
exchange goods and services for money (or for other goods
and services).

• Electronic marketplaces (e-marketplaces or

marketspaces), changed several of the processes
used in trading
– Greater information richness
– Lower information search costs for buyers
– Information asymmetry between sellers and buyers
– Greater temporal proximity between time of purchase and
time of possession
– Ability of buyers and sellers to be in different locations

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E-Marketplaces
• Marketspace components
1. Customers (Kings & Queens)
2. Sellers
3. Products and services (physical or digital)
digital products
Goods or services that can be transformed into digital
format and delivered over the Internet (i.e. S/w, music,
video, e-books, etc.)
4. Infrastructure
5. Front end
6. Back end
7. Other business partners (such as shippers)
8. Support services (such as trust services to ensure security).

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 E-Marketplaces
• Marketspace components
Infrastructure
Includes H/W, S/W, networks.. Etc.

Back end
The activities that support online order-taking. It includes
order fulfillment, inventory management, purchasing from
suppliers, payment processing, packaging and delivery

Front end
Customers interact with a market space via a front end, the
infrastructure in the front end includes the seller’s portal,
electronic catalogs, a shopping cart, a search engine, and
a payment gateway
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 Electronic Catalogs and
Other Market Mechanisms
• To enable selling online, one usually needs
EC merchant server software.
• The basic functionality offered by such software includes
electronic catalogs, search engines, and shopping carts.
• Electronic catalogs
- The presentation of product information in an electronic
form; the backbone of most e-com sites.
- Electronic catalogs consist of a product DB, search
capabilities, and a presentation function.
- For the customer, the purpose of such catalogs is a source of
information on products and services.
- For the seller, the purpose of such catalogs is to advertise & promote
products and services.
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Electronic Catalogs and
Other Market Mechanisms
• Classification of electronic catalogs depends on
two dimensions:
1. The dynamics of the information presentation
static catalog information is presented in text and static pictures. In
dynamic catalog information is presented in dynamic text, voice,
and motion pictures.
2. The degree of customization
In standard catalogs, sellers offer the same catalog to any
customer. In customized catalogs, content, pricing, and display are
tailored to the characteristics of specific customers.

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Electronic Catalogs and
Other Market Mechanisms
• Customized Catalogs
a catalog assembled or tailored specifically for a customer

• Two approaches to creating customized catalogs

– Let the customers identify the parts of interest to them
from the total catalog. Customers then do not have to
deal with topics that are irrelevant to them.
– Let the system automatically identify customer
characteristics based on the customer’s transaction
records. To generalize the relationship between the
customer and items of interest, data mining technology
may be needed.
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Electronic Catalogs and
Other Market Mechanisms
• Online catalogs advantages
– Ease of updating
– Ability to be integrated with the purchasing process
– Coverage of a wide spectrum of products
– Interactivity
– Customization
– Strong search capabilities and comparison features
– Possibly of adding on voice and animated pictures
• One of the main disadvantages
– Difficult be developed relatively to paper catalogs.
– There is a need for customer skill to deal with Internet

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Electronic Catalogs and
Other Market Mechanisms
Search engine
A computer program that can access a database of
Internet resources, search for specific information or
keywords, and report the results.

Software (Intelligent agent)

1. Software that can perform routine tasks that require
intelligence (I.e. COMPARING, INTERPRETING, MONITORING).
2. Can do more than just “search and match”, Intelligent
Agents can be used to support tasks such as comparing
prices, interpreting information, monitoring activities and
working as an assistant. ( Monitor stock market for x
company and help me to take a buying decision)
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Traditional computing environment vs.
Intelligent Agents computing environment
• Traditional computing
Issue Commend Traditional
Display Result Computing

• Intelligent Agents computing

Issue Command & delegate task
(Monitor xx stock price)
Agent Monitor App
Share Result Computing Stock
(xx price dropped 1 point)

Request advises
(purchase stock??)

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Electronic Catalogs and
Other Market Mechanisms
• Electronic shopping cart
1. An order-processing technology that allows customers to
accumulate items they wish to buy while they continue to
shop.
2. The S/W of an e-shopping cart allows customers to select
items, review what has been selected, make changes, and
then finalize the list.
3. Clicking on “buy” will trigger the actual purchase.

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 Categories of E-Marketplaces:

• Categories of E-Marketplaces
Initially a marketspace is in which sellers and buyers
electronically exchange goods and services for money.

• There three categories of e-marketplaces which are;

Private,
Public, and
Consortia.

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Categories of E-Marketplaces:

Private e-marketplaces
Private marketspaces are opened only for selected members
and not for public.
Online markets owned by a single company; may be either
sell-side e-marketplace or buy-side e-marketplace.
sell-side e-marketplace
A private e-marketplace in which a company (such as Cisco
systems or MS or Oracle) sells either standard or
customized products to qualified companies (resellers).
buy-side e-marketplace
A private e-marketplace in which a company makes
purchases from invited suppliers (approved vendors such as
Enppi).
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Categories of E-Marketplaces:

Public e-marketplaces
Such as B2B marketplaces, Public e-marketplace
includes many sellers and many buyers;
also known as exchanges
Consortia (Consortium)
A group of major buyers may create an e-marketplace to
deal with suppliers, usually in their same industry.
Or
A group of sellers may create an e-marketplace to deal with
industry buyers, usually in their same industry.
May be private or public Consortia.

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Types of E-Marketplaces:
From Storefronts to Portals
• Electronic Storefronts
The e-Storefront is a single company’s Web site where
products or services are sold.

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Types of E-Marketplaces:
From Storefronts to Portals

e-mall (online mall)

An online shopping center where many online stores
are located.
Usually owned by a third party.
It contains a directory of product categories and the
stores in each category.
When a consumer indicates the category he is
interested in, he is transferred to the appropriate
Independent storefront to conduct his shopping.

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Types of E-Marketplaces:
From Storefronts to Portals
• Types of Stores and Malls
– General stores/malls
Large marketspaces that sell all types of products
“Amazon.com”.
– Specialized stores/malls
Sell only one or few types of products “Amazon.com
started as specialized store in e-books and today is a
generalized store”.
– Regional “Serve customers that live nearby”.
– Global stores serve everywhere.
– Pure online organizations “no physical stores such as
Amazon” versus click-and-mortar stores “has
physical stores and sell on line such as
Electronic Mark&spencer”
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 Types of E-Marketplaces:
From Storefronts to Portals
Information Portal
• Information is scattered across numerous documents, DB,
and systems at different locations and sites.
• Finding the required information is often time-consuming and
requires access to multiple systems.
• As a consequence, organizations lose a lot of productive
employee time.
• One solution to this problem is to use Portals which is
A single point of access through a Web browser to
business information located inside and/or outside
an organization and the information is
personalized.
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 Types of E-Marketplaces:
From Storefronts to Portals
• Look at the content of the portal which can vary
from narrow to broad and to their audience,
then we can distinguish;
• Six major types of portals:
– Commercial (public) portals
– Corporate portals
– Publishing portals
– Personal portals
– Mobile portals
– Voice portals

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Six major types of portals
– Commercial (public) portals
The most popular portals on the Internet. They are intended for
broad audiences and offer routine contents
(e.g. news about a few pre-selected items) e.g. “that one for cars”.
– Corporate portal
Is a gateway to a corporate Web site that enables communication,
collaboration, and access to company information. Facilitates
communication with suppliers, customers, employees, and others.
– Publishing portals
Are intended for communities with specific interests (sports articles and
publishing).
These portals involve relatively little customization of content.
– Personal portals
These target specific filtered information for individuals. They
offer narrow content but are typically much more personalized.

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Types of E-Marketplaces:
From Storefronts to Portals
Mobile portal
A portal accessible via a mobile device.
(e.g. wireless hand held devices) (Apple store)

Voice portal
• A portal with audio interface that can be accessed by
telephone or cell phone.
• It uses both speech recognition, speech-to-text and
text-to-speech technologies and IVR.
• Example of services that allow users to retrieve e-mail,
news, Account balance, and other content.
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 Auctions as EC Market Mechanisms
Auction
• A market mechanism by which a seller places an offer to
sell a product and buyers make bids sequentially and
competitively until a final price is reached.
• Prices are determined dynamically by the bids.
Limitations of Traditional Off-line Auctions
– The rapid process may give potential buyers little time to make a
decision so they may decide not to bid. Therefore, sellers may not
get the highest price.
– Bidders must usually be physically present at auctions
– Difficult for sellers to move goods to an auction site
– Commissions are fairly high as a place must be rented, the auction
needs to be advertised, an auctioneer and other employees need to
be paid.
– E-auctions remove these deficiencies.

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Auctions As EC
Market Mechanisms
Electronic Auction
• Auctions conducted online.
Dynamic Pricing
• Auctions are based on dynamic pricing.
• Prices that change based on supply and demand
relationships at any given time.
• Dynamic pricing fall into four major categories, depending on
how many buyers & sellers are involved;
– One Buyer, One Seller
– One Seller, Many Potential Buyers
– One Buyer, Many Potential Sellers
– Many Sellers, Many Buyers
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Auctions As EC
Market Mechanisms
• Types of auctions
– One Buyer, One Seller (at a time)
In this configuration, one can use negotiation, bargaining.
The resulting price will be determined by each party’s
bargaining power, supply and demand in the item’s
market.
– One Seller, Many Potential Buyers
In this configuration the seller uses a;
forward auction
An auction in which a seller gets bids from buyers.
The prices increase as the auction progresses.

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 Auctions As EC
Market Mechanisms
• Types of auctions
– One Buyer, Many Potential Sellers
There are two models here;
Reverse and “Name-your-own-price”
Reverse auction (bidding or online tendering system)
Auction in which the buyer places an item for bid (tender)
on a request for quote (RFQ) system, potential suppliers
bid on the job, with the price reducing sequentially, and
the lowest bid wins; primarily a B2B or G2B mechanism.

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Exhibit 2.5 The Reverse Auction
Process

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Auctions As EC
Market Mechanisms
• Types of auctions
– One Buyer, Many Potential Sellers
The “name-your-own-price” model
Auction model in which a would-be buyer specifies the
price (and other terms) he or she is willing to pay to any
willing and able seller.
It is a C2B model that was pioneered by Priceline.com

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Auctions As EC
Market Mechanisms
• Types of auctions
– Many Sellers, Many Buyers
is also called
“Double Auction”
Auctions in which multiple buyers and their bidding
prices are matched with multiple sellers and their
asking prices, considering the quantities on both sides.
Stocks are typical example for this model.

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Auctions As EC
Market Mechanisms
• Limitations of E-Auctions
– Minimal security
Because they are done in an unencrypted environment
and credit cards could be stolen.
– Possibility of fraud
The buyer may get defective products and sellers may
not get paid.
– Limited participation
Limited participation is a disadvantage to sellers, who
benefit from as large a pool of potential buyers as
possible.

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