E-markets (short for electronic marketplaces) are the latest buzz in e-business. Utilities have a lot to gain by being early adopters of this powerful business-to business (B2B) Internet market development.
When thinking about the value of e-business to a utility enterprise, it’s easy to be distracted by the overwhelming attention focused to date on business-to-consumer innovators like eBay and Amazon.com. But tremendous advances in Internet infrastructure, business processes and software applications are enabling the B2B marketplace to make the long-anticipated leap online. The February announcement of the creation of an automotive e-market by General Motors, Ford, and Daimler-Chrysler presages similar developments in the U.S. utility industry.
Already energy companies and utilities are moving quickly to be first-movers in the development of e-markets, which will rapidly become the platform for B2B trade in the utility and energy markets. Early adopters are emerging in the global market including Endesa of Spain, Royal Dutch/ Shell and Texaco. The market potential for this business is staggering. U.S. businesses annually trade $17 trillion dollars in goods and services. Forrester Research projects that more than 70 percent of the online trade of utilities will take place in e-markets, representing a market potential of several hundred billion dollars worldwide.
E-markets create unprecedented opportunities for utilities to readily participate in, and even create, powerful online trading communities-reaping the benefits of cross-company optimization without incurring the costly configuration investment of current tools. E-markets enable the optimization of an entire network of businesses-in the same way that software advances like ERP enabled the optimization of individual businesses.
Metcalfe’s Law tells us that the value of a network increases exponentially with the number of participants. Unlike existing e-business solutions, e-markets permit all participants to share information and transact business all the time- and permit participants to customize their views of information.
E-markets create value for a community of buyers and suppliers in previously unattainable ways. They revolutionize trading relationships and B2B e-commerce by introducing new efficiencies to the supply chain and new ways of selling and purchasing products and services. By providing a central platform for transaction automation, demand and/or information aggregation, improved market liquidity and extended market reach, they reduce product, process, and sales costs. E-markets create benefits to both buyers and sellers: lowered costs of doing business, creation of markets on the network scale and improved service levels.
According to a recent Business Week report, e-markets are expected to reduce transaction costs by two-thirds. Forrester Research also reports that about 70 percent of online buyers and sellers interviewed plan to use e-markets in the next two years.
E-markets are being formed along two primary dimensions, addressing either industry-specific processes, such as fuel management (known as verticals) or cross-industry functional processes such as human resources (horizontals).
E-markets draw their strength from three key characteristics:
- buyers and suppliers can participate with relative ease;
- market liquidity is created with participation of numerous buyers and suppliers; and
- they are actively managed by independent, or trusted, third parties.
E-markets must be actively managed to sustain the community as well as the value created-e-market makers must combine a deep understanding of industry dynamics, market players and power balances with the ability to design and deliver a sustainable value proposition. In addition, they require sufficient resources and technology expertise to create a common platform for managing digital trade among multiple standards.
Ultimately, the following five levers, either separately or in combination, create the value proposition of a particular e-market:
E-market makers will augment the offering with other, related service differentiators that may include payment processing, risk management, escrow/financial settlement, back-end integration, and expediting of import/export, among others. The key differentiator, however, will remain the critical mass of buyers and sellers.
In the new economy, the network will be the business. At the speed that energy industry e-markets are taking shape, and the significant up-side they represent, this is a trend that cannot be ignored.
With more than 20 years of experience in the utility, natural gas, and telecommunications industries, Keenan currently leads the PricewaterhouseCoopers Global Energy and Mining Strategic Mergers and Acquisitions initiative, as well as the Energy Strategy Consulting practice in North America.