Current e-marketplace business model is untenable

NEWS The organisation claims users of exchanges will refuse to pay per transaction fees because CEOs worry they are signing a blank cheque by getting involved. Hedda Bird, marketing director for PaperX, told silicon.com it was changing to a flat-rate charge. She said: "The complexity of the fees they have to charge, the fact that clients don't want to sign a blank cheque, and the current lack of liquidity in these markets will very quickly mean they [firms charging per transaction fees] will go out of business." Most B2B marketplaces operate on this premise, including all Commerce One markets such as Automotive industry exchange Covisint and the Global Trading Web. However Bird claims: "With transaction fees, suppliers see you as a barrier between them and their customer, whereas with fixed fee charging they see you as a partner in delivering ecommerce solutions." Andrew Tanner-Smith, industry analyst at Frost and Sullivan, claimed a flat-fee model was inevitable in any commodities market. However, he warned that "even a flat fee is going to look unattractive, unless companies like PaperX add some real value to their service". PaperX plans to charge participants between E0.5m (£300,000) and E3m (£1.8m) to join the exchange. Technology provider, Ariba, also agreed there was a move toward different charging models. Jon Watton, marketing director for Ariba UK, said "there is less and less tolerance of the transactional model." Exchange software provider Commerce One, whose business is largely predicated on a transaction-based model, refused to comment directly on PaperX's claims. Patrick Meyer, director of corporate communications for Commerce One EMEA, said: "If PaperX feel a flat-rate model is best for them then great. This is an embryonic industry, with space for many different business models. We are convinced our strategy is the right way forward." SILICON SAYS: The internet exchange business is still very young, with the parameters yet to be defined. Whether a flat rate or a transactional business model prevails remains to be seen, but what is certain is that we have to work hard to ensure the barriers to entry - especially to smaller suppliers - are as low as possible. Otherwise all these ventures - and even the mighty Commerce One - may fail. For related news and video, see:
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