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There are many different types of e-marketplaces based on a range of business models. They broadly fall into different categories based on how they operate.

Independent e-marketplace

An independent e-marketplace is usually a business-to-business online platform operated by a third party which is open to buyers or sellers in a particular industry. By registering on an independent e-marketplace, you can access classified ads or requests for quotations or bids in your industry sector. You may be required to pay to take part.

Buyer-oriented e-marketplace

A buyer-oriented e-marketplace is normally run by a consortium of buyers to establish an efficient purchasing environment. If you are looking to purchase, participating in this type of e-marketplace can help you lower your administrative costs and achieve the best price from suppliers. As a supplier you can use a buyer-oriented e-marketplace to advertise your catalogue to a pool of relevant customers who are looking to buy.

Supplier-oriented e-marketplace

Also known as a supplier directory, this marketplace is set up and operated by a number of suppliers. Each supplier is looking to establish an efficient sales channel through the internet to a large number of buyers. You can typically search these marketplaces by the product or service being offered.

Vertical e-marketplace

Vertical e-marketplaces provide online access to businesses vertically up and down every segment of a particular industry sector such as automotive, chemical, construction or textiles. Buying or selling using a vertical e-marketplace for your industry sector can increase your operating efficiency and help to decrease supply chain costs, inventories and procurement-cycle time.

Horizontal e-marketplace

A horizontal e-marketplace connects buyers and sellers across different industries or regions. You can use a horizontal e-marketplace to buy indirect products such as office equipment or stationery.

Online auctions are computerised versions of traditional auctions where buyers bid against each other. Online auctions are effective because there are typically no restrictions on the number of businesses or individuals that can bid. This allows sellers to get the best price for their products or services. Conversely, the speed, simplicity and variety of auctions mean that shrewd buyers can cut procurement time and cost.

The two main types of auctions are:

• forward auctions - where lots are sold to the highest bidder
• reverse auctions - where suppliers compete on price and the lowest bid for a tender wins

Forward auctions

Using a forward auction can be a cost-effective way of getting new customers, testing new products or establishing pricing points. You can dispose of excess sales costs because of the minimal amount spent on marketing. You can also price your goods according to demand and stock levels.

Forward auctions can also benefit those business purchases. You may be able to source non-critical or specialist equipment at a more competitive rate. You can also reduce procurement time by setting up automated searches and bids.

Reverse auctions

If you supply to larger companies, you may be asked to compete for their business in a reverse auction. This type of auction allow businesses to compete for business globally. Businesses can also make savings by gaining access to customers who are ready to buy, without having to launch a sales campaign. Reverse auctions are a good way to offload stock or build market share - however, they are normally by invitation only.

It is unusual for smaller businesses to make purchases using reverse auctions. However, using a reverse auction can save you time and administrative costs and you may attract a larger pool of suppliers. Reverse auctions can also help you manage complex procurement contracts and reduce your overall costs.

Best practice in auctions

Before entering an online auction, check:

• accreditation - some auctions have qualifying criteria
• fee structures - there may be a registration fee
• how payment is managed - between the parties or through the auction site itself
• supplier reputation - monitor feedback from previous bidders
• the bidding system - how to place or withdraw bids
• what's on offer - if the description is vague, contact the seller for more information
• costs - factor in all the costs including taxes, packing and shipping charges

Spend some time browsing what is on offer and what it costs. Narrow your search down by specifying a category or using advanced search criteria. When bidding, set yourself a maximum price you are willing to pay for an item and stick to it.

Catalogues and directories are used in many e-marketplaces, providing searchable databases of information about suppliers, products and services.

Catalogues

There are various types of catalogues including:

• lists of general product information
• detailed product information
• information sources
• promotional catalogues

Pricing information is sometimes only available to the registered user of the e-marketplace.

Some e-marketplaces provide a single catalogue of all suppliers and products, while others have links to individual supplier catalogues.

With e-marketplace catalogues, customers can research a wide range of products and suppliers from a central source. They can then buy in one transaction from a single website.

Directories

Some e-marketplaces offer a directory of suppliers listed by products or services provided, with links to supplier websites. If you are listed in a directory, make sure your company is in the right industry sector, and that you are in all relevant listings. This will help customers find you and improve your website's search engine rankings.

Online exchanges, also known as trading hubs, are websites where buyers and sellers trade goods and services online.

These trading hubs vary according to the size and number of companies using them and the type of commodity traded. There are already successful hubs in markets as diverse as energy, textiles and logistics.

Like online auctions, online exchanges allow participants to trade straightforwardly with a wide variety of buyers and sellers. There are two main reasons why such exchanges are popular, including:

• large businesses can use them to reduce stock holdings 
• small businesses can bid collectively to earn volume discounts or to jointly deliver a large contract

Types of online exchange

There are different types of online exchange, each catering for a specific aspect of trading:

• request for quotation - an invitation to suppliers to provide a quote for a specific product or service
• request for bid - an invitation to buyers to bid for a specific product or service that you can provide
• commodity exchange - an ongoing process where the price of a standardised commodity such as energy or telecoms bandwidth continuously changes because of changes in supply and demand

Online exchange considerations

Before entering an online exchange, check:

• Choice - are all your major suppliers involved? Does the exchange have a comprehensive list of products and services so you can compare like with like?
• Business relationships - could using an exchange undermine your status as a favoured customer?
• Administration - do you have adequate systems in place for order fulfilment? Are your internal business processes suitable for active online trading?
• Disclosure - are you comfortable with publicising information on prices and stock levels where your competitors, as well as potential customers, can view it?
• Fees - how do these compare to any savings in sales and marketing costs?

The potential advantages of joining an e-marketplace will vary between industries and businesses, and between buyers and sellers. Some of the potential benefits are summarised below.

General business benefits

The general benefits to businesses using e-marketing include:

• greater opportunities for suppliers and buyers to establish new trading partnerships, either within their supply chain or across supply chains
• greater transparency in the purchasing process since availability, prices and stock levels are all accessible in an open environment
• trading can operate on a round-the-clock basis removing international time constraints

Benefits for the buyer

Benefits for the seller

• regular requests for quotations from both new and current customers
• having an extra sales channel to market and sell products
• the opportunity to sell overseas through international marketplaces
• reduced marketing costs compared to other sales channels

You should consider the following areas when assessing if it is right for your business to participate in an e-marketplace.

Industry fit

What is the purpose of the e-marketplace and is it compatible with your business strategy? Ensure that you understand who buys from the e-marketplace and that your business is likely to fit the profile of the sellers and/or buyers on there.

Management of the e-marketplace

It is important to establish ownership of the e-marketplace. Successful e-marketplaces require sound financial backing to ensure their success and longevity. So, you need to know who shares the profits and the risks. Equally, you do not want to be involved in a marketplace if your competitor is the major owner.

Costs

What does it cost to participate in the e-marketplace? Possible charges include commissions for completed transactions, membership fees and listing fees. You should also establish if there are any costs associated with changing to another e-marketplace should your original choice not live up to expectations.

Marketing

Does the e-marketplace have a strong brand or image that will assist your marketing activities? What are the marketing plans, how aggressively will the marketplace be promoted and is it likely to attract the attention of the right types of customers for your own business?

E-marketplace design

Does the overall design and functionality of the e-marketplace make it easy for would-be purchasers to find and buy products? Does it take into account good website design principles?

You should also establish how your presence will be displayed on the site. Will your logo and brand image be clearly displayed?

Technical issues

Is the e-marketplace adequately staffed to ensure that services are maintained on a round-the-clock basis since any downtime will impact directly upon your own business?

Also, establish if there are any costs associated with making your own IT systems compatible with the systems used by the e-marketplace.

Online auctions and exchanges have played an important role in the growth of e-purchasing within businesses of all sizes and types.

E-procurement

There are two parts to the e-purchasing cycle - the more established part is e-procurement. This has been developed in recent years to deal with the process element of electronic purchasing.

E-procurement uses the internet to operate the transactional aspects of requisitioning, authorising, ordering, receipting and payment processes for the required products or services.

Many e-marketplaces offer transaction services that automate many aspects of the procurement cycle for both the buyer and the seller.

E-procurement covers the following areas of the buying process:

• requisition against an order
• authorisation
• order
• receipt
• payment

E-sourcing

The other element of the e-purchasing cycle is e-sourcing.

E-sourcing uses the internet to make decisions and form strategies about how and where services or products are obtained. E-marketplaces can play an important role in this activity since the price and availability of products from multiple suppliers can be checked from a single point.

E-sourcing covers the elements of the buying process which are at the discretion of specialist buyers, including:

• knowledge specification
• request for quotation/e-tender/e-auction
• evaluation and negotiation
• agreeing on contractual terms

E-marketplaces are attractive product sourcing platforms as they provide detailed product information from existing suppliers. Finally, they also give you access to new potential partners and suppliers. Jointly using reverse auctions and online exchanges encourages competitive bidding between suppliers.