Electronic marketplaces

Focus and operational characteristics

Philip O’Reilly
Department of Accounting, Finance and Information Systems, University College
Cork, Ireland
[email protected]

Patrick Finnegan
The Australian School of Business, University of New South Wales, Australia
[email protected]

Abstract. The literature on electronic marketplaces reveals much confusion around matters
of definition and description. In particular, there is a lack of consensus on what constituts
an electronic marketplace, as well as the inter-organisational processes which they sup-
port. Despite the disparate, and often contradictory, perceptions of electronic marketplac-
es in the literature, electronic marketplaces, operating as intermediaries in the market sys-
tem, are observable in practice. This paper explores the characteristics of eight electronic
marketplaces operating as market intermediaries in various business sectors. It builds on
existing research to develop and refine a characteristics framework by examining the value
proposition, product-market focus, market value activities, management value activities
and technology/information value activities, ownership, revenue model and market struc-
ture of the eight marketplaces. The paper concludes by outlining a refined characteristics
framework and argues that the key characteristics of marketplaces is their ability to ag-
gregate and disseminate knowledge to their participants; a task facilitated by their market,
management, and technology value activities.

Accepting editor: Bjørn Erik Munkvold

© Scandinavian Journal of Information Systems, 2009, 21(2), 91–110

1 Introduction
In recent years, the concept of an electronic marketplace as an intermediary emerged in the
literature (e.g., Dai and Kauffman 2000; Gengatharen and Standing 2005; O’Reilly and
Finnegan 2005; Soh et al. 2006; Verhagen et al. 2006). Researchers such as Kambil et al.
(1999) and Klueber et al. (2001) found that electronic marketplaces play a significant role
in co-ordinating inter-organisational activities. These intermediaries provide services to buy-
ers and/or sellers operating in a broad range of sectors, most famously the flower sector in
the Netherlands. However, the success of such intermediaries has been mixed. Dai and Kauff-
man (2002) reference a Deloitte research report showing 1,500 electronic marketplaces op-
erational in 2000. However, the failure rate for such ventures was high (cf., Lennstrand et
al. 2001). Evidence from emarketservices in August 2008 revealed the existence of 602 in-
dependent intermediaries operating electronic markets in various sectors. However, there are
numerous inconsistencies and disagreements among researchers in defining electronic mar-
ketplaces and the inter-organisational processes which they support (Bakos 1991; Bradley
and Peters 1997; Schmid and Lindemann 1998; Dai and Kauffman 2000; Wang et al. 2008).
This lack of agreement on the phenomenon makes meaningful cross-study comparisons of re-
search results impossible; making it difficult to build a cumulative research tradition that might
help address issues facing practice. Consequently Wang et al. (2008) call for more systematic
approaches to electronic marketplace research.
This paper examines the concept of electronic marketplaces as intermediaries in the market
system; aiming to provide a detailed characterisation of the phenomenon. It begins by outlining
the evolving nature of the electronic marketplace concept and typifies the electronic market-
place phenomenon using eight characteristics derived from existing research. This is followed
by a consideration of the research methodology used in the study. Then the data gathered from
eight electronic marketplaces operating in different business sectors is examined using the eight
characteristics derived in the early part of the paper. Finally, the paper concludes by presenting
a revised framework for characterising electronic marketplaces.

2 Conceptualising the phenomenon of electronic

marketplaces
Much of the existing research on electronic markets, hierarchies and intermediaries is based
on the economic theories of Coase (1937) and Williamson (1975; 1981; 1991; 1999); thus
market system governance is viewed as either hierarchies or markets. This is particularly evi-
dent in Malone et al.’s (1987) seminal work on electronic hierarchies and markets; referred to
as the electronic markets hypothesis (EMH). Researchers such as Clemons and Row (1992),
Bakos and Brynjolfsson (1993) and Hess and Kemerer (1994) have criticised the EMH, stating
that it ignores key aspects of inter-organisational relationships, including how organisations
manage risk and the fundamental nature of buyer/seller relationships. Furthermore, there has
been limited empirical evidence confirming this hypothesis. Indeed, researchers such as Bakos

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(1991), Hess and Keremer (1994) and Lee and Clark (1996) noted the increasing number of
third-party market makers which electronically co-ordinated inter-organisational activities. This
development may be partially explained by the work of Hayek (1945) on the emergence of in-
termediaries in the market system. Hayek believed that one of the key considerations for firms
was the process for obtaining and aggregating market knowledge (e.g., price, availability etc); a
process that could be facilitated by third party merchants (intermediaries). For the purpose of
this study, and in line with the work of Bakos and Bailey (1997) we classify such intermediaries
as marketplaces. This concept of electronic intermediaries is empirically supported by the work
of Kambil and Van Heck (1998) and Kaplan and Sawhney (2000).
However, it is notable in the IS literature that the terms ‘electronic market’ and ‘electronic
marketplace’ are used interchangeably. McCoy and Sarhan (1998) propose that an electronic
market “separates the negotiating function from the physical transfer of the product or com-
modity in which the market operates. It can manage buyers’ and sellers’ offers and bids, as well
as moving products directly from sellers to buyers” (p. 15). Bakos (1991) states that an electronic
marketplace is an interorganisational information system “that allows the participating buyers
and sellers to exchange information about products offerings” (p. 296). By noting that the mar-
ket concept of an electronic market includes the governance issue, he differentiates this systems
view from Malone et al.’s (1987) concept of an electronic market. In further illustrating the
diversity and inconsistencies inherent in defining electronic marketplaces, Bakos’ comprehen-
sion of an electronic marketplace’s traits evolved to incorporate support for the “all-in process
of business transactions from initial contacts and negotiation to settlement” (Bakos 1997, p.
1678). The concept of an electronic marketplace as an intermediary emerged in the work of
Bailey and Bakos (1997) and later in the work of Dai and Kauffman (2000). Soh et al. (2006)
emphasise the role which these intermediaries play in aggregating goods/services, matching buy-
ers and suppliers, providing price transparency, enabling trust, providing market information
and; customised, relationship-specific information flows between trading partners.
In order to derive a more internally consistent understanding of electronic marketplaces and
to derive a definition, we utilise and extend the work of Soh and Markus (2002) and Dai and
Kauffman (2002). Soh and Markus (2002) build on previous research to operationalise the at-
tributes of electronic marketplaces under five characteristics; value proposition, product-market
focus, value activities, ownership and market structure. Dai and Kauffman (2002) classify ‘e-
market’ roles as:

1. Basic market functions: aggregation, matching, and facilitation

2. Management needs: procurement expertise & knowledge, business relationships, and
business processes
3. Technology adaptation: system integrators, standards providers, and outsourcing ven-
dors

In table 1, Soh and Markus’s (2002) work is developed to expand the concept of electronic
marketplace value activities using Dai and Kauffman’s (2002) e-market roles. Soh and Markus
(2002) state that an electronic marketplace’s strategy should be aligned with its environment.
They argue that the key concepts in achieving this alignment relate to the 5 characteristics out-

Electronic marketplaces • 93
lined: value proposition, product market focus, ownership, market structure and value activities.
In exploring electronic marketplace value activities further, Dai and Kauffman (2002) argue that
an electronic marketplace’s value activities can be described in terms of its market, management
and technology value activities. Therefore, table 1 is derived through integrating the work of Dai
and Kauffman (2002) and Soh and Markus (2002) enabling a detailed electronic marketplace
characteristics framework to emerge.

Characteristic Operational Guises

An electronic marketplace’s value proposition is described in terms of one or
Value Proposition more of the following benefits; communication, brokerage, and integration
(Dai and Kauffman 2002; Soh and Markus 2002).
Products can be commodity/standardised, differentiated; manufacturing
Product-Market or operating input; high or low cost (Kaplan and Sawhney 2000; Wise and
Focus Morrison 2000; Howard et al. 2006 White et al. 2007).
Customers include both electronic marketplace buyers and suppliers.
Value activities offered by electronic marketplaces can be broadly classified as:
search, selection, execution (post-sale transaction automation and logistics),
and collaboration/facilitation (Bakos 1998; Choudhury et al. 1998; Lee and
Market Value Clark 1996; Christiaanse et al 2004; White et al 2007).
Activities Basic market functions include; aggregation (public and private e-cataloguing),
matching (public bidding and private negotiation), facilitation (financial
services, delivery and logistics) (Dai and Kaufmann 2002). Intermediaries can
offer trust and assurance services (Bailey and Bakos 1997; White et al 2007).
Procurement expertise and knowledge and business process support (workflow,
Management Value supply chain, and project management, provided to participants through
Activities various IT tools (Dai and Kauffman 2002). Expertise and knowledge of
marketplace personnel in areas in which the marketplace operates.
Technology / System integration, standards provider and outsourcing services (Dai and
Infrastructure Value Kauffman 2002).
Activities
Owned by buyers, suppliers or third party, operationalised in the following
Ownership structures; single company and consortium (Bakos 1997; Lennstrand et al.
2001; Howard et al. 2006; White et al 2007).
Lennstand et al (2001) state that sources of revenues for marketplaces may
Revenue Model include transaction fees, membership/licence fees, advertising, professional
service fees and value added service fees.
Market Structure Brokered and dealer (Lee and Clark 1996).

Table 1: Electronic marketplace characteristics framework

Table 1 illustrates that the value activities performed by electronic marketplaces focus on
buyer/supplier needs for management support (business process support, supply chain and
project management) and technology (standards, integration and outsourcing), in addition to
the basic market functions of aggregation, matching and facilitation. Consequently we define
an electronic marketplace as:

94 • O’Reilly & Finnegan

an organisational intermediary that electronically provides value added communication,
brokerage and integration services to buyers and sellers of direct and/or indirect prod-
ucts and/or services in specific horizontal or vertical markets by supporting basic market
functions, meeting management needs for information and process support, and/or op-
erating the required IS/IT infrastructure.

3 Research objective and method

The objective of this study is to explore the characteristics of electronic marketplaces. Marshall
and Rossman (1989) argue that there is a need for research to focus on ‘discovery’ and ‘theory
building’, and be ‘exploratory’ in nature, when the state of knowledge in a field is at an early
stage of investigation, as here. We thus adopt a post-positivist epistemology and seek to ‘approxi-
mate reality’ (Guba 1990) using methods that emphasise the verification of existing knowledge
and the discovery of new knowledge (Denzin and Lincoln 2000). We have chosen a case study
approach as it can provide a rich description of a phenomenon and serves to capture the reality
and richness of organisational behaviour in detail (cf., Galliers 1992; Darke et al. 1998). We use
multiple case studies to strengthen the research findings and help to allay many of the problems
documented in relation to individual case studies (cf., Benbasat et al. 1987). Multiple cases
permit replication and extension among individual cases, thus facilitating greater theoretical
insights arising from methodological rigour and multiple case comparative logic (Eisenhardt
1989). Our method is consistent with that of Benbasat et al. (1987) and Yin (1994) in that we
study the electronic marketplace phenomenon in its natural setting, employing multiple data
collection methods to gather information from a few entities, without employing experimental
control or manipulation.
Data was gathered on eight electronic marketplaces over a twenty month period from Sep-
tember 2002 to June 2004. Five of the marketplaces studied (BTTransact, IBX, Eutilia, Nor-
dpool and Proceedo) were rated by emarketservices (www.emarketservices.com) at the time
of this study as being among the leading B2B worldwide marketplaces. The other electronic
marketplaces studied, Globalcoal, Dealcotton and Comdaq, were selected to add diversity. We
thus adopt Pettigrew’s (1989) philosophy that such cases may provide insights which the other
electronic marketplaces may not, and are useful in building theory. Data was gathered through
semi-structured interviews and document analysis. In order to reduce the possibility of research-
er bias, considerable care was taken in designing, wording and sequencing the questions in the
semi-structured interview guide. A combination of focussed and open-ended questions were
included in the interview guide. In each marketplace, the researchers began by asking broad
questions about the electronic marketplace, before proceeding to ask specific questions around
the characteristics framework (table 1). This approach has been advocated by Bouchard (1976)
and provided the researchers with the flexibility to re-focus during the interview process as ad-
vocated by Trauth and O’Connor (1991). In follow up discussions with interviewees, specific
issues were clarified and explored further.
Interviews were held with senior management and other personnel responsible for policy
formulation. In total, over 100 hours of interviews with 36 people in 8 marketplaces took place

Electronic marketplaces • 95
(see table 2). At the time of the study, average revenues across the 8 marketplaces studied were
in excess of €3.5m per year with the number of participants using the various marketplaces
ranging from 15 to over 1200. Once an interviewee’s permission had been granted, conversa-
tions were recorded using a dictaphone in order to ensure accurate information gathering and to
facilitate improved data analysis. However, as noted by Walsham (1995), a key disadvantage of
tape recording interviews is that respondents may feel inhibited by the presence of the recording
machine. Cognisant of these limitations, the researchers followed the advice of Walsham (1995)
who advocated the combination of tape recording and note taking. On a number of occasions
interviewees requested that the machine be switched off in order to facilitate discussion of mat-
ters of a sensitive and confidential nature. When asked, the interviewer duly obliged, as this
enabled greater insights into the electronic marketplace’s characteristics.

Organisation
& Product/ Interviewees Documentation Analysed
sector
BTTransact (5 Senior Manager (2 interviews, email Business Plan
employees) correspondence): 5 hrs Internal Pricing Policy documents
Indirect goods Manager (2 interviews, email Various Technology Reports and Plans
in the Irish correspondence): 5 hrs & Assorted Press releases
and British
Markets.
Comdaq (4 Chairman (1 interview): 4 hrs Internal Financial Accounts
Employees) Director (1 interview): 2 hrs Assorted Press Releases
Commodities
( coffee, sugar,
cocoa etc) for
global markets
DealCotton President /CEO (1 interview): 2 hrs Business Plan
(7 Employees) Head of Business Development (5 Internal Financial Accounts
Cotton – interviews, phone conversations, email
Global markets correspondence): 12 hrs
Chief Financial Officer (2 interviews phone
conversations, email correspondence): 2 hrs
Director CIS (Eastern Europe) operations
(1 interview): 1 hr
Chief communications Officer (1
interview): 3 hrs
4 Marketplace Participants (4 interviews):
5 hrs

96 • O’Reilly & Finnegan

Organisation
& Product/ Interviewees Documentation Analysed
sector
Eutilia Chief Executive Officer (1 interview): 2 hrs Business Plan
(20 Employees) System Delivery Programme manager (2 Technology Papers
Indirect interviews, phone conversations and email Internal Presentations
goods for the correspondence): 4 hrs Financial Reports
European Chief commercial officer (1 interview): 2 Marketing Documentation
utility sector hrs Press Releases
Auction manager (2 interviews, phone
conversations, email correspondence): 2 hrs
Business analyst (2 interviews, email
correspondence): 2 hrs
Chief Financial Officer (1 interview): 1 hr
Globalcoal CEO (1 interview, email correspondence): Assortment of Presentations
(8 Employees) 3 hrs Third Party Commissioned Consultant
Coal – Chief Operations Officer (1 interview): 2 Report on Marketplace
European and hrs Technology Documentation
Asia/Pacific Technology Officer (1 interview): 1 hr Press releases
markets
IBX (80 Chief Communications Director (2 Assortment of Presentations
Employees) interviews, email correspondence): 5 hrs Assortment of Papers: Value
Indirect President/CEO (1 interview): 1 hr proposition, technology papers
goods for Assortment of reports
multinationals
in Nordic
region
Nordpool President/CEO (1 interview): 1.5 hrs Annual Reports (12 years)
(50 Employees) President of Nordpool Clearing (1 Assorted Press releases
Electricity – interview): 1 hr
Nordic markets Head of Financial Markets (1 interview):
1 hr
Senior Manager (Head of Research
and Analysis) (1 interview, email
correspondence): 7 hrs
Communications Officer (2 interviews,
email correspondence): 3 hrs
Markets Analyst (1 interview): 2 hrs
Proceedo Chief Executive Officer (1 interview): 2 hrs Business Plan
(20 Employees) Vice President (2 interviews, email Assortment of papers documenting
Indirect goods correspondance): 8 hrs value proposition and technology
for mid- Project Manager (2 interviews, email offering
sized Nordic correspondence): 3 hrs Various press release
companies

Table 2: Marketplaces and personnel interviewed

Electronic marketplaces • 97
The data was analysed using open and axial coding (Strauss and Corbin 1990). The goal of
open coding is to reveal the essential ideas found in the data. The first task is the labelling of
phenomena. This task involves decomposing a fact into a number of ideas or incidents. Each
idea receives a label or a code that represents the phenomena (cf., Strauss and Corbin 1990).
The next task involved in open coding is to take these codes and group them together. For this
study, this task was informed by constructs outlined in table 1. This process enabled categories
and sub-categories/properties to emerge. Allan (2003) notes that by investigating the connec-
tions between concepts theory emerges. Developing a better understanding of the relationship
between a category and its subcategories (condition, context, actions taken, outcomes) is the
purpose of axial coding. The validity of these hypothesised relationships was examined through
relational and variational sampling (Strauss and Corbin 1990; Mataviren and Brown 2008).
This process was conducted in a recursive manner resulting in the modification of categories
and relationships.

4 Analysis
The value proposition (“the set of benefits a marketplace offers its customers”, Soh and Markus
2002) of the marketplaces studied are documented in table 3. Table 3 also shows the aspect of
the value proposition that differentiates each marketplace from others that operate in the same
sector. Extant research (Dai and Kauffman 2002; Soh and Markus 2002) has described the
value proposition of an electronic marketplace in terms of whether it provided communication,
brokerage and integration benefits to participants, with such services being used to distinguish
different types of electronic marketplaces. All of the marketplaces studied here offered com-
munication and brokerage services, except Proceedo, which offered communication but not
brokerage. In addition, all marketplaces offered integration except Globalcoal and Nordpool.
Thus, our analysis shows the usefulness of these functions for distinguishing between electronic
marketplaces as market system intermediaries is limited. Indeed, the description of such func-
tions provide, at best, a high level view of electronic marketplaces. Instead our analysis revealed
that market, management, and technology value activities provided greater insight into an elec-
tronic marketplace’s value offering, as discussed below.
Product descriptions (see table 1) have traditionally been used to describe an electronic
marketplace’s product-market focus. Table 4 aggregates the various descriptors used to illustrate
the product-market focus of electronic marketplaces in the extant literature. These descriptors
are utilised in table 4 to characterise the marketplaces. Using this table, each marketplace was
analysed in terms of its product and market focus. This analysis extends the existing view of
product-market focus by revealing that, in addition to physical characteristics, contractual char-
acteristics may be usefully included to reflect an electronic marketplace’s product-market focus.
This is illustrated by the fact that some electronic marketplaces (Globalcoal and Nordpool)
design physical and financial contracts, for trading on their marketplace. These marketplaces
offer financial products (swaps, futures, forwards) on the back of physical contracts in order to
enable traders to better manage their price and volume risk. Consequently, while previous re-
search (Bakos 1997; Kaplan and Sawhney 2000) categorised electronic marketplace participants

98 • O’Reilly & Finnegan

Marketplace Value Proposition Differentiator
Centrally hosted service. Request for quote Provides solutions in the UK market
and once off on-line auctions. Catalogue to large buyers and sellers of goods
BTTransact creation and content management solution. facilitating improved access to new
markets together with improved
economies of scale.
Key value proposition is supplying software. Develops bespoke software for parties
Operates a number of electronic markets in involved in commodity trading.
Comdaq
various commodity sectors. Personnel also have in-depth knowledge
of the appropriate commodity sectors.
Automation of the cotton trading process. The only neutral marketplace operating
DealCotton
Unbiased ‘neutral’ entity in cotton trading. in the cotton industry.
Facilitates the introduction of increased Facilitates improved efficiency for large
levels of competition and transparency to the European utility organisation through
Eutilia
European utilities market. specialising in the procurement needs of
such organisations.
Seeks to add value to the coal industry The only B2B marketplace operating in
Globalcoal by facilitating trade in standardised the coal sector.
(commoditised) coal products.
To automate and simplify procurement for The leading Nordic marketplace in
IBX buying organisations. indirect goods facilitating buyers in
accessing thousands of suppliers.
Operates a physical and financial market for The largest B2B marketplace facilitating
Nordpool trading electricity in the Nordic region. It electricity trading in the Nordic region.
also offers clearing services.
Facilitates organisations in procuring indirect Nordic based electronic marketplace
goods. Proceedo supports the following which enables organisations to
Proceedo elements of the supply chain: product search, streamline their procurement processes
requisition, approval, ordering and electronic and facilitates improved economies of
invoicing. scale

Table 3: Electronic marketplaces’ value proposition

as buyers and sellers, we reveal a sub-category; speculators who buy and sell financial contracts
in the hope of financial gain.
Market value activities have traditionally been represented as aggregation, matching, and
facilitation. Our analysis revealed that all those studied offered aggregation and matching, with
only one marketplace, Nordpool, providing facilitation services. For example, in terms of its
market value activities, BTTransact aggregates onto a single platform all supplier catalogues,
thus migrating the existing buyer/supplier relationship onto the BTTransact platform. Negotia-
tion typically has already taken place in a non-electronic setting between buyers and suppliers;
therefore BTTransact does not become involved in this aspect of buyer-supplier relationships.
BTTransact can also organise single or multiple attribute reverse auctions for buyers. Buyers may
also request a quote using BTTransact’s source module.

Electronic marketplaces • 99
Differentiated
Standardised
Commodity

Customer

Customer
Buyer as

Seller as
Indirect
Direct
Marketplace

BT-Transact No Yes No No Yes Yes Yes

Comdaq Yes. Yes No Yes No Participants Participants

Yes: Cotton Yes No Yes No Participants Participants

Deal-cotton
Eutilia No Yes Yes Yes Yes Yes Yes
Global-coal Yes. Designs coal Yes No Yes Yes Yes. Buyer of coal Yes
contracts that (coal may for use and buyers /
are traded on its either be sellers of contracts
physical and financial a direct or (speculation)
electronic markets indirect
product)

IBX No Yes Yes No Yes Yes Yes

Yes. Designs Yes No Yes Yes Yes. Buyer of Yes
electricity contracts electricity for
Nordpool that are traded on its use and buyers/
financial and physical sellers of contracts
markets (speculation)
Proceedo No Yes No No Yes Yes Yes

Table 4: Analysis of electronic marketplace’s product-market focus (Note the issue of low and
high cost is excluded as such characteristics did not apply to any of the marketplaces studied)

Nordpool clears both contracts that are traded on the marketplace and bilaterally traded
OTC contracts. Clearing means that Nordpool acts as an intermediary in clearing contracts;
making Nordpool the legal counterparty for all parties to a contract. Nordpool requires security
from the parties utilising this service and guarantees settlement of contracts. Clearing reduces
the risk of credit and settlement problems, for example, the risk that the seller will not be able to
pay on the settlement day or may go bankrupt before settling. In terms of matching, the most
common mechanisms used were single and multi-variable auctions, and private negotiation
using business process solutions. There was no evidence of electronic marketplaces providing
delivery and logistics services. Based upon the data gathered on the eight marketplaces studied,
aggregation and matching are the dominant market value activities provided by the electronic
marketplaces.
Research on management value activities predominately focused on the information pro-
vided to managers through the reporting capabilities of the technology solutions (cf., Dai and
Kauffman 2002). Our study revealed that an electronic marketplace must have personnel who

100 • O’Reilly & Finnegan

have knowledge of information systems, yet more importantly have knowledge of, and contacts
in, the sector in which the electronic marketplace is operating. We thus conclude that the ex-
pertise, knowledge and contacts of an electronic marketplace’s personnel represent the critical
element of an electronic marketplace’s management value activities. For example, the replace-
ment of Dealcotton’s management team in 2001 meant that cotton industry experts rather than
venture capitalists ran the marketplace. With the change in ownership, the management team
also changed, as did their expertise. As a result of this change, Dealcotton’s management team
not only consists of personnel who are experts in the fields of business, information systems,
and finance but have vast experience of the cotton industry and possess numerous contacts in
the area. Our analysis revealed that this expertise and knowledge has been critical to Dealcot-
ton’s growth. Similarly, IBX’s current management team are experts in the areas of technology,
change management, and eprocurement. All the senior management team were formally Erics-
son employees and were involved in the development and implementation of Ericsson’s propri-
etary e-procurement solution in the mid 1990s. The importance of the industry contacts which
marketplace personnel possess is further reflected in the comments of Proceedo’s Vice President
in relation to Proceedo’s board of directors when he revealed that “the work of the board for
a company like Proceedo apart from financing the company is assistance with selling … you
always need assistance with selling.”
In terms of technology value activities, many marketplaces studied act as application service
providers and provide systems integration and software development services. None of the mar-
ketplaces develop technology standards. However, developing information systems applications
is not a strategy pursued by all electronic marketplaces; many pursue a strategy of partnering
with technology organisations and utilising their applications to provide value to marketplace
participants. For example, Eutilia offers their technology solutions in conjunction with Com-
merceOne and Poet. CommerceOne delivers electronic marketplace and procurement technol-
ogy for Eutilia’s transaction services. Poet is a software company that provides solutions for creat-
ing, managing and distributing electronic catalogue data. This technology enables the creation,
maintenance, and distribution of customised catalogues on a supplier self-service basis. Likewise,
Nordpool have partnered with a number of software vendors in relation to providing technology
services. For example their electronic trading infrastructure is provided by OM Gruppen.
It is evident that the issue of ownership has been used in the electronic marketplace litera-
ture to categorise electronic marketplaces based on ownership structure and bias, and has been
shown to impact upon access to marketplaces (cf., Bakos 1997; Lennstrand et al. 2001; Howard
et al. 2006; White et al 2007). Our analysis (see table 5) revealed that electronic marketplaces
may be owned by buyers or suppliers with the following structures; single company, consortium,
and third party. Furthermore, it revealed that all marketplaces studied have investors who oper-
ate in the electronic marketplace’s business sector, and investors in some marketplaces have a
background in technology.
The importance of investor characteristics is reflected in the comments of Globalcoal’s and
IBX’s staff. IBX’s President stated that “over 80% of revenues in the initial year were contracted
volume from our owners, which was a very safe way of developing the company.” However, this
scenario is not replicated in Globalcoal. Globalcoal’s Chief Operating Officer stated that “the
biggest single fault with the way that Globalcoal was set up was that there was no contractual
market making obligation on the shareholders. None of them had any obligation to do anything

Electronic marketplaces • 101

Marketplace Buyer/Supplier or Third (3rd) party owned Single Company or Consortium
BTTransact 3 party
rd
Entity within the BT group
Comdaq Entrepreneur. Buyer and seller of commodities. Single
Owned by a company who have investors who Single
Dealcotton
are market participants
Eutilia Owned by 6 utilities (buyers) Consortium
Owned by a consortium of 4 coal producers Consortium
Globalcoal
and 4 coal consumers
Owned by 5 large buyers and 1 investor Consortium
IBX
organization
Owned by Nordic electricity transmission and Consortium
Nordpool
grid operators
Proceedo 3rd party (also happens to be a buyer) Single

Table 5: Analysis of electronic marketplaces’ ownership characteristics

other than the moral one. To many of them this didn’t mean anything”. Therefore, our analysis
suggests ownership may be a very significant way of characterising electronic marketplaces as it
appears to have a significant impact on the success of individual marketplaces.
Lennstrand et al. (2001) note that there are several possibilities in relation to how an elec-
tronic marketplace can earn revenue. They identify transaction fees, membership/licence fees,
advertising, and value-added service fees as being the major sources of revenue for marketplaces
and state that a marketplace’s income model is built using a combination of these. The impor-
tance of a marketplace’s revenue model is reflected in the comments of BTTransact’s Senior
Manager who states that “it’s the bottom line which is crucial … that’s why we keep a close eye
on our revenue model”.
Our analysis (table 6) illustrated that, amongst those marketplaces studied, the dominant
revenue model is a subscription-based model which combines membership and transaction fees.
Furthermore, advertising is not a major source of revenue. Professional fees are utilised in the
case of once-off auctions, systems development, and systems integration projects, with the tariff
paid associated with the service being used. Many electronic marketplaces have also imple-
mented various membership categories for buyers and suppliers, with the cost to marketplace
participants differing based on the chosen tariff.
By their very nature, electronic marketplaces fulfil the role of a broker in the market in which
they operate. A dealer structure demands that a marketplace permanently stands ready to buy
and sell, for its own account, the product traded. While theoretically possible for an electronic
marketplace to fulfil such a role, no empirical evidence exists in the literature of an electronic
marketplace providing bid and ask commitments. Our analysis revealed that a brokered struc-
ture is the dominant market structure implemented by the electronic marketplaces studied. All
operate a broker structure, with two (Comdaq and Dealcotton) also operating a dealer struc-
ture. This means that commodity trading is undertaken by marketplace personnel for profit; an
activity that also improves market liquidity. This indicates that a dealer structure is possible for
electronic marketplaces; a fact not illustrated by research to date.

102 • O’Reilly & Finnegan

Transaction Professional service
Marketplace Membership/licence fees Advertising
fees fees
Yes Combination of transaction No Yes (integration/
and membership fees. Buyer consulting/software
BTTransact
pays. Staggered based on size of development fees)
contract
Yes Flat membership fee plus tariffs No Yes (Software
Comdaq
based on volumes (tons) traded development)
No Fees negotiated on a case by case No Yes (software
Dealcotton
basis development)
Yes Yes. A number of membership Yes - part Yes (consultancy
Eutilia categories for buyers and of suppliers or other requested
suppliers membership services)
Yes Combination of membership No No
Globalcoal
and transaction fees
Yes Combination of membership No Yes (consultancy
and transaction fees. Negotiated or other requested
IBX
on a case by case basis. Charging services)
buyers and sellers.
Yes Combination of set up and No No
Nordpool volume fees. Various tariffs.
Clearing fees
Yes Combination of membership No Yes (integration/
Proceedo and transaction fees. Only consulting/software
buyers pay. development fees)

Table 6: Analysis of electronic marketplaces’ revenue model

5 Conclusion
According to our evidence, it is apparent that electronic marketplaces play a significant role in
co-ordinating inter-organisational activities. However, the research literature on electronic mar-
ketplaces is constrained by disparate and often contradictory perceptions of electronic market-
places. In particular, there are numerous inconsistencies and disagreements among researchers
in defining electronic marketplaces and the inter-organisational processes which they support.
For example, studies of electronic marketplaces have focused on inter-organisational informa-
tion systems (e.g., Bakos 1991), mediums (Schmid and Lindemann 1998), listings (Bradley
and Peters 1997), and intermediaries (e.g., Soh et al. 2006). Therefore, despite much research
on electronic markets and marketplaces, the lack of agreement on the electronic marketplace
phenomenon has made it impossible to build the cumulative research tradition that might help
address the practical issues facing electronic marketplaces.

Electronic marketplaces • 103

Characteristic Operational Guise
Value Communication, brokerage, and integration benefits are only useful for provid-
Proposition ing a high level overview of an electronic marketplaces value offering.
Product and/or contract characteristics are used to reflect a marketplaces’ product offering.
Product characteristics: standardised, differentiated, manufacturing and indirect.
Contract characteristics: Commodity (standardised) contracts, referred to as physical
and financial contracts, may be designed by electronic marketplaces and traded by
Product- electronic marketplace participants on the electronic markets operated by electronic
Market Focus marketplaces.
Electronic marketplace participants consist of buyers/sellers of the product being
traded and a sub-category, speculators who trade financial products on the electronic
marketplaces financial market.
Electronic marketplaces operate in a specified geographical area.
Key market value activities are aggregation and matching.
Aggregation: Operationalised through public and private electronic catalogues.
Matching: Public bidding (Predetermined, limited timeframe)
Single and Multivariable auctions
Market Value
Public bidding (Continuous, during marketplace opening
Activities hours)
Financial and physical electronic markets
Private Negotiation (Via workflow management solution)
Facilitation: Limited empirical evidence. No evidence of delivery or logistics services.
Management Having personnel who are experts and have contacts in the sector in which the
Value electronic marketplace operates is critical. Having personnel with a background in
Activities procurement and information technology is also important.
Technology/ Some marketplaces act as application service providers and provide system integration
infrastructure and software development services. Most marketplaces pursue a strategy of partnering
Value with technology organisations to provide value to marketplace participants.
Activities
Owned by entrepreneur or consortium of buyers or suppliers. Investors either have a
background in technology or operate in the marketplace’s product market. Evidence
Ownership
suggests that to be successful, having investors who operate in the electronic
marketplace’s business sector is crucial.
Subscription model which combines membership/licence fees with transaction fees
is the dominant revenue model. Various membership categories may be available
Revenue Model to buyers and suppliers which they may choose, depending upon their anticipated
utilisation of the electronic marketplace. In the case of auctions, systems development
or other professional services, a once off fee is charged.
Market Brokered and dealer structure, with brokered structure being the dominant structure.
Structure

Table 7: Refined electronic marketplace characteristics framework

This paper contributes to addressing ontological issues in relation to electronic marketplaces

by exploring the characteristics of third party market system intermediaries. Specifically, we

104 • O’Reilly & Finnegan

have developed an integrated conceptual framework for characterising electronic marketplaces
by using extant research to develop a preliminary framework (Table 1) and refining it using a
cross case comparison of eight electronic marketplaces. The resultant characteristics framework
(Table 7) represents a significant advancement to understanding the phenomenon of third part
intermediaries, and allows the following conclusions to be drawn.
First, in contrast to the work of Dai and Kauffman (2002) and Soh and Markus (2002), we
reveal that documenting an electronic marketplace’s value proposition is only useful in provid-
ing a high level overview of the functions which a particular electronic marketplace supports,
and not a useful mechanism for distinguishing between electronic marketplaces. Thus, for third
party intermediaries, the value proposition should be considered at the level of the business
model of the entity (e.g., company) running the marketplace. This finding is significant as the
term value proposition is frequently used by researchers to document the detailed value which
a marketplace offers to the market. We purport that these are best explained in terms of value
activities.
Second, building on existing research (e.g., Kaplan and Sawhney 2000; Wise and Morrison
2000; Howard et al. 2006; White et al. 2007) that focuses on physical product attributes to
characterise the product-market focus of electronic marketplaces, our analysis highlights the
importance of contractual products and thus identifies the need to acknowledge the role of
speculators in electronic marketplaces.
Third, our results confirm those of Dai and Kauffman (2002) as to the market value and
technology value activities provided by electronic marketplaces; although we do find that aggre-
gation and matching are the dominant market value activities. In addition, we add to the work
of Dai and Kauffman (2002), in relation to management value activity, by revealing that the
expertise, knowledge, and contacts of electronic marketplace personnel are the key aspects of an
electronic marketplace’s management value activity.
Fourth, we reveal that ownership characteristics (particularly the background of investors)
may be a more important aspect of electronic marketplaces than previously believed that has
been done by extant research (cf., Bakos 1997; Lennstrand et al. 2001; Howard et al. 2006;
White et al 2007), and that revenue models and market structures have become more standard-
ised than suggested by previous work (e.g., Lee and Clark 1996; Lennstand et al. 2001).
This research study informs practice by providing practitioners with a comprehensive over-
view of the characteristics of electronic marketplaces and their operational guises thereby inform-
ing marketplace designers and managers alike. By being aware of the potential of these entities,
marketplace designers should be better informed when designing their entities’ functionality.
Overall, our study responds to issues raised by Wang et al. (2008) for more systematic ap-
proaches to research on electronic marketplaces and for a larger pool of case studies. Our study
reveals a maturing of the electronic marketplace phenomenon as evidenced by increasing stand-
ardisation of characteristics around the aggregation of market information and knowledge. This
is in keeping with the work of Hayek (1945). While the value propositions of the marketplaces
studied focus on facilitating transactions, it is evident that the marketplaces provide significant
value added by processing information and market knowledge. From a transaction perspective,
this is evident in bringing suitable buyers and sellers together. However, it is much more preva-
lent in the market, management and technology value added activities. Here, it is notable that
the knowledge processed by marketplace personnel is as desirable by market participants as the

Electronic marketplaces • 105

technical infrastructure operated by the marketplace. It therefore is not surprising that owners
tend to be technology and/or business experts. Our study has provided the detailed analysis
across multiple marketplaces missing from extant work and our research design allows us to
generalise to theory (cf., Lee and Baskerville 2003). Furthermore, by enhancing understanding
of electronic marketplaces, this paper also contributes to theory as per Gregor (2006). In extend-
ing this research, we call for research that establishes the association between these characteristics
and the success of an electronic marketplace, re-iterating Wang et al.’s (2008) call for further
research on the electronic marketplace phenomenon.

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