diplomarbeit

Transcription

diplomarbeit

DIPLOMARBEIT
Internet Portals
for
Electronic Commerce
von
Rainer Faulstich
eingereicht am 13.10.2000 beim
Institut für Angewandte Informatik
und Formale Beschreibungsverfahren
der Universität Karlsruhe
Referent: Prof. Dr. Rudi Studer
Betreuer: Dr. Dieter Fensel
Heimatanschrift:
Studienanschrift:
Otto-Dix-Str. 2
Otto-Dix-Str. 2
76275 Ettlingen
76275 Ettlingen
Thanks to everybody who supported me throughout the time. Bedankt to Dieter who I enjoyed
a lot working with and who gave me great support during my stay at the Vrije Universiteit
Amsterdam-echt leuk! Thanks to my family and all the people who I don’t mention but didn’t
forget. Tot Ziens!
Internet Portals for Electronic Commerce
III
Contents
Contents ............................................................................................................................. III
List of Figures ......................................................................................................................V
0. Introduction ..................................................................................................................... 1
1. Portals for B2B Electronic Commerce and Knowledge Management........................... 3
1.1 Getting to Grips with Portal Pandemonium .................................................................. 3
1.2 Electronic Marketplaces and the Role of Internet Portals.............................................. 8
1.2.1 Electronic Marketplaces ........................................................................................ 8
1.2.2 Portals for Electronic Commerce ......................................................................... 10
2. A Business Approach to the Functionality of Internet Portals .................................... 14
2.1 The Internet as the Underlying Technology................................................................ 14
2.1.1 A Generic Framework for Electronic Commerce ................................................. 14
2.1.2 Key Features of the Internet ................................................................................ 15
2.2 Applying Internet Technology for B2B ...................................................................... 17
2.2.1 The Aspect of E-Procurement.............................................................................. 17
2.2.2 New Forms of Organizational Structure............................................................... 18
2.2.3 The Aspect of Disintermediation and the Emergence of Virtual Communities ..... 20
2.3 New Business Models for Electronic Commerce ........................................................ 24
2.3.1 Internet Portals as Third-Party Marketplaces ....................................................... 24
2.3.2 Competitive Positions.......................................................................................... 25
3. Aspects of System Design for B2B Portals .................................................................... 30
3.1 Requirements for EC-Systems and an Architectural Model ........................................ 30
3.2 From VANs and EDI to the Internet and XML........................................................... 32
3.2.1 On the Use of EDI............................................................................................... 33
3.2.2 VANs and the Internet......................................................................................... 33
3.2.3 VAN-Free Internet-Based EDI ............................................................................ 36
3.2.4 New EDI ............................................................................................................. 39
3.2.5 HTML and XML................................................................................................. 41
3.2.6 XML/EDI............................................................................................................ 43
3.2.7 XML Standardization Initiatives.......................................................................... 44
3.3 The Need for Interoperability ..................................................................................... 45
3.3.1 Ontologies........................................................................................................... 46
3.3.2 Product Classification.......................................................................................... 48
IV
3.4 Adding Security to a Site............................................................................................ 49
3.4.1 Pretty Good Privacy (PGP).................................................................................. 49
3.4.2 Secure Socket Layer (SSL), Digital Certificates and S-HTTP.............................. 50
3.4.3 Secure Electronic Transaction (SET)................................................................... 52
3.5 Personalization of a Web Page ................................................................................... 53
3.5.1 Authentication and Identity ................................................................................. 53
3.5.2 Profiles................................................................................................................ 54
3.6.3 Generating Custom Content ................................................................................ 55
4. Case Studies ................................................................................................................... 58
4.1 VerticalNet ................................................................................................................ 58
4.1.1 VerticalNet’s Business Model ............................................................................. 58
4.1.2 VerticalNet’s Web Sites ...................................................................................... 60
4.1.3 Critics and VerticalNet’s Strategy to Tackle Shortcomings.................................. 63
4.2 Chemdex.................................................................................................................... 66
4.2.1 Chemdex Business Model ................................................................................... 67
4.2.3 Chemdex Web Page ............................................................................................ 71
4.2.4 The Chemdex Ontology....................................................................................... 74
4.3 mySAP.com............................................................................................................... 75
4.3.1 The Components of mySAP.com......................................................................... 75
4.3.2 The SAP Internet-Business Framework ............................................................... 76
4.3.3 The mySAP.com Marketplace ............................................................................. 77
4.3.4 SAPMarkets ........................................................................................................ 78
5. Conclusions .................................................................................................................... 80
Appendix A ........................................................................................................................ 82
Appendix B ........................................................................................................................ 83
Appendix C ........................................................................................................................ 84
Appendix D ........................................................................................................................ 85
Appendix E ........................................................................................................................ 86
Bibliography ...................................................................................................................... 87
V
List of Figures
Figure 1: A framework for a Corporate Portal........................................................................ 5
Figure 2: Schematic illustration of an Enterprise Information Portal (EIP) ............................. 7
Figure 3: Layer Model of an Electronic Market ..................................................................... 9
Figure 4: A generic Electronic Commerce Framework......................................................... 15
Figure 5: Cellular model of corporate cooperation ............................................................... 19
Figure 6: Cisco’s Internet Marketplace ................................................................................ 21
Figure 7: NECX Global Electronic Exchange ...................................................................... 22
Figure 8: Plenaxx.com as an integrated portal ...................................................................... 26
Figure 9: Business model activities in business-to-business electronic commerce ................ 28
Figure 10: X.435 and Internet-based EDI messaging through a VAN................................... 35
Figure 11: VAN-free direct EDI exchange between companies............................................ 36
Figure 12: CitiusNet as an early EDI-based Internet marketplace ......................................... 37
Figure 13: Comparison of a message document in EDIFACT and XML/EDI....................... 44
Figure 14: Translation service between two product catalogs ............................................... 45
Figure 15: Translation service using a shared XML-DTD .................................................... 46
Figure 16: Digital Certificate ............................................................................................... 51
Figure 17: SET transaction flows ......................................................................................... 52
Figure 18: An example “e-Commerce Center” at VerticalNet .............................................. 62
Figure 19: An example “Storefront” at VerticalNet .............................................................. 62
Figure 20: Chemdex marketplace integration with Ariba Network customers through
MarketLink .................................................................................................................. 69
Figure 21: Different search options at Chemdex Web page .................................................. 72
Figure 22: mySAP.com marketplace for the chemical and pharmaceutical industry ............. 78
Erklärung
Ich versichere hiermit wahrheitsgemäß, die Arbeit bis auf die dem Aufgabensteller bereits
bekannte Hilfe selbständig angefertigt, alle benutzten Hilfsmittel vollständig und genau
angegeben und alles kenntlich gemacht zu haben, was aus Arbeiten anderer unverändert oder
mit Abänderungen entnommen wurde.
1
0. Introduction
The Internet community has found its new buzzword: “Portals”; they are coming up on the
Internet and are very likely to change the ideas and procedures of traditional business making.
Never before was access to information as fast and comprehensive as it is by using the
Internet. Portals serve as a means to find information more effectively in the “digital
universe” of the Web without spending such an investment of time. Portals therefore can be
seen as a “large door” or “gateway” showing the way to many other sites by following search
results or related categories. Existing well-known portals, like Yahoo, Altavista, Excite or
AOL, offer orientation in the fast growing medium of the Web and attract 15 percent of the
Internet traffic as well as 45 percent of Web advertisement.1 However their share of the
market is expected to decrease in the future, in favour of new kinds of portals. While massportals like the ones mentioned above provide a rather complete coverage of topics and
interests to fulfil the various demands, new so-called vertical portals or vertical sites are
becoming more and more attractive, optimising content in specific fields by concentrating on
target groups, categories or topics. Commerce, in particular, is expecting to derive benefits
from the portal hype. Forthcoming is a dynamic growth in electronic marketplaces.
Enterprises realize that the mere existence of a Web site is not enough. Enterprise or corporate
portals take this insight further and function as a source of information for internal and
external target groups, bringing together the Internet and the company’s extranet or intranet.
Enterprise portals lead to an intensification of trade and customer relations.
The prospects of effects on business factors by using Internet portals and trading in
electronic markets show promise-in respect to electronic commerce issues and from the
perspective of Knowledge Management. Hence, the approach taken in this paper is twofold:
chances that yield for businesses when using portals for business-to-business electronic
commerce will be shown and evaluated. Furthermore with the assessment of the potential
available through portal technology for carrying out business, the application area of
Knowledge Management moves into focus, and the question of how Internet portals can be
used to manage knowledge in order to provide efficient access to information arises. We
hence will consider Knowledge Management in the context of providing the portal user with
information, mostly industry specific and product related news in the form of news articles,
reports or community interaction.
1
[Gertz; p 43]
2
The structure of this paper is as follows. In the first chapter we will give an overview of
existing portals and an introduction to electronic marketplaces. The second chapter
approaches the functionality of Internet portals from an evolutionary business perspective,
related questions of new business models, intermediaries and community building will be
examined. The third chapter puts the stress on the underlying technology that is necessary to
tackle the challenges posed by the new environments for conducting business. The fourth
chapter provides case studies on exemplary Internet portals for business-to-business
commerce. The fifth chapter summarizes the outcome of this paper.
3
1. Portals for B2B Electronic Commerce and Knowledge
Management
1.1 Getting to Grips with Portal Pandemonium
Let us consider for a moment the idea that lead to the emergence of the portal concept.2
Initially, there was the desire for financing highly frequented Web sites through
advertisements3 especially Web pages of search engines. These were created to provide a
structured access to the vastly unstructured collection of information in the Internet, and the
browsers’ homepages seemed to be well suited sites to place ads. Netscape and its
“Navigator”, as an example, was then developed further to “Netcenter”. Netcenter offered
tools for download and plugins to browse the Internet. In return, Netscape placed a link to the
company’s homepage, where full versions were available with costs. Now, all-purpose portals
like Yahoo enrich their content continuously to attract Web traffic and to win the battle for the
advertising customer. By doing so these portals are about to create the same problem out of
which they evolved: the immense amount of information. Moreover, at the same time as the
spreading of available services at these “classic” portals, business-to-business portals and
portals for Knowledge Management found their way to the Internet.
In the following sections several kinds of portals are distinguished and characterised.4 All
portals have a browser-based interface in common and collect information from different
sources. Originally the browser interface was created to make applications accessible via the
Web. Its big advantage is the ability to be used as an integrated workspace and to be
customised according to personal preferences. Another common feature is the possibility of
personalising content so that the user is presented with the pertinent information and tools for
their needs. Browser interfaces are therefore a prerequisite for the following portal concepts.
All-purpose Portals. browser, search engines or Internet Service Providers (ISPs) serve as
entry points to the Internet or proprietary networks.
E-Commerce-Portal. to this category belong companies with wide content, like the offer
of mail-order firms. They are determined by a fluid transition from the actual Web site (the
company’s presentation on the Web) to the portal functionality of online purchasing in the
2
3
4
For some crucial dates of “portal history” see Appendix A.
[Gfaller; pp 27]
[Gfaller; pp 27]
4
case of business-to-consumer electronic commerce.
Business-to-business (B2B)-Portals. They support the logistics outside the company.
Forrester Research expects 25 percent of advertisement spending will go into vertical
portals in the next years, and 2004 vertical portals could make up to 53 percent of total
business-to-business commerce activities. There are three different shapes a B2B-portal
may have:
Integration of suppliers and customers. Cost savings for the portal provider are
expected (e.g. in a corporate portal with e-procurement and supply chain management
solution).
Electronic Marketplace. The portal providers might charge fees to enter the marketplace
and they receive a share of all transactions that are carried out (e.g. in a vertical Internet
portal). Portals can serve as industry specific marketplaces, offering e.g. product
catalogs for inter-business transactions and information on products as well as
information that is relevant to certain business areas. These portals can be set up as an
electronic marketplace to provide support for transactions within a specific industry
sector.
Application Service Provider (ASP). Renting out of software and services via the
Internet. It is said that ASPs will take over many tasks that will be outsourced by
companies. Rather than implementing application services themselves, companies will
turn towards ASPs to host IT-services, as it is already the case with groupware functions
and e-mail services.
Knowledge Portal. The aim of this portal is to make information accessible to the user.
They specialize usually in a certain topic to offer deep information coverage. Their
functionality is generally enlarged by online forums, news articles from a variety of
sources, mailing lists and regular news letters. The Internet offers a vast variety of
Knowledge Portals. A comprehensive knowledge portal of this kind is for instance
www.brint.com that offers access to four portals, namely E-Business & Electronic
Commerce Portal, Internet Business Technology Portal, Knowledge Management Portal
and a General Business & Technology Portal. Another example for a Knowledge Portal is
provided by www.netacademy.org, a portal for several research domains offering among
others online publishing. The “Netacademy Universe” covers for instance Business Media,
an Electronic Markets Journal and Knowledge Media. The first Dutch Knowledge
Management Portal is launched by Knowledge eXchange BV with support of Microsoft,
5
Compaq and Global Knowledge at www.e-kennis.nl.
Corporate Portals. A corporate portal fulfils a function comparable to the reception center
of a company. It is more than just a presentational means to promote the company’s
products or services. Depending on the entrant’s status as customer, supplier, visitor or
employee, it leads the user to the relevant information or application. It can be
implemented within an Intranet, Extranet or made accessible via the Internet. In a more
technical definition, it is a browser-based system, that provides universal single-point
access to business related information, in order to provide users with the personalized
information necessary to make business decisions. The main benefit is the increased
employee productivity through quicker access to relevant information. A corporate portal
framework is complex to build, it involves internal as well as external content services and
therefore can involve several layers of multiple technologies. 5 These are for instance the
presentation layer, accomplished through standard Web technologies, the collaboration
layer that uses groupware technology, content publishing features are involved, search
facilities or the integration of back-end data sources. A corporate portal framework
suggested by Intel Corp. is given in figure 1.
External Content
(Web Sites, Services, News)
XML
Extensibility
Personalization
Integration
Scalability
Gadgets
Search
Collaboration
Publishing
Security
Profiles
Browser
Internal Content
(Web Sites, Collaboration, Documents, Services, Business
Content)
Figure 1: A framework for a Corporate Portal
Corporate portals are also referred to as enterprise portals. The International Data
6
Corporation (IDC) defines four portal classes in order to structure their evolution:6
Enterprise Information Portals (EIP). An EIP provides the user with personalized
information on a subscription and query basis. They represent currently the most
prominent portal in today’s market. The term itself was first used by Merril Lynch7 in a
report in late 1998,8 however it was quickly adopted to describe a portal solution
integrating Business Intelligence, Content Management and Data Warehouse to address
the problem of connecting users with necessary business information in the decision
making process. One year later, IBM released its first EIP, linking together its datamanagement components and offering a new set of APIs. Many of the major corporate
portal vendors like Plumtree Software, Brio Technology Inc., DataChannel or Viador
Inc. announced support for IBM’s EIP in their products.
EIPs allow access to a huge amount of information objects from the Web browser to
open, edit or publish any of these objects.9 They therefore consist of a combination of
structured data from databases, processed data from data warehouses, partly-structured
data from groupware systems and unstructured data such as text, e-mails and Webcontent. A portal site of this kind is not just a collection of the different types of data
mentioned-it integrates in “one embodiment the aspects of business intelligence,
document classification, text analysis, group collaboration, executive information and
the company’s intranet.”10 For the purpose of evaluating an EIP solution the Patricia
Seybold Group published ten “essential requirements” that should be met by corporate
portal vendors’ EIP solutions. Some of these requirements are for instance ease of use,
dynamic resource access or extensibility. 11 The literature12 in some cases distinguishes
further collaborative processing EIPs that help users to organize and share workgroup
information and decision processing EIPs that support executives, managers or business
analysts with corporate information when taking key business decisions. It hence also
tracks decisions and actions that are taken based on the integrated business information.
We will stick here with the definition that calls the first type of EIP an Enterprise
Collaborative Portal (ECP) and the latter type an Enterprise Knowledge Portal (EKP)
5
[Aneja et al.]
[IDC]
7
See Appendix B for the excerpt of the report.
8
[Finkelstein]
9
[KMWP]
10
[Roberts]
11
[Brio]
12
[DecProc]
6
7
(see below). Figure 2 illustrates an EIP schematically. 13
Information
Assistant
XML
Delivery Services
Administration
Application Server
ERP Applications
Documents (structured,
unstructured)
OLAP
Data Warehousing
Multimedia
Business Information
Directory
URLs
Query Tools
Clients
(browser-based)
Server
Applications
Data Sources
Figure 2: Schematic illustration of an Enterprise Information Portal (EIP)
Enterprise Collaborative Portals (ECP). They provide a virtual place for people to
enable groupware functions and working together by tying in group interactive
functionality.
Enterprise Expertise Portals (EEP). An EEP provides connection between people
taking into account their individual abilities.
Enterprise Knowledge Portal (EKP). An EKP is characterised through the incorporation
of all the above mentioned portal types. In addition it takes the concept of an EIP to a
new dimension representing the next step in the evolution of an enterprise portal by
“building a fundamental block of Knowledge Management infrastructure.”14 Loosely
said, they do not only deliver information to the user, they seek to transform this
information into knowledge and business insight.15 According to [Grammer] several
converging ideas make up the EKP and it is influenced strongly by the goals of
Knowledge Management. The convergence of initiatives includes for instance Business
Intelligence, Expert Systems or Enterprise Application Integration. An EKP offers the
users a one-stop interaction with intellectual capital, expertise and applications, and it
13
14
15
[KMWP]
[Tkach]
[Gonzales]
8
can be successfully applied in areas such as Supply Chain Management (SCM),
Customer Relationship Management (CRM) or Intellectual Capital.
The main emphasis of this paper is put on Internet portals that support an electronic
marketplace for business-to-business commerce with integrated knowledge functions
contributing to the overall goal of generating value for business activities.
1.2 Electronic Marketplaces and the Role of Internet Portals
1.2.1 Electronic Marketplaces
In the economy marketplaces play a crucial role by creating economic value for sellers,
buyers and intermediaries. The introduction of information technology to the market
facilitates the formation of electronic marketplaces where traditional market functions are
carried out as well as new dimensions of conducting business. Three main features of
marketplaces-physical as well as electronic markets-are the following:16
Clearing of supply and demand through matching buyers and sellers. Several models are in
use to reach market equilibrium and can be distinguished by the number of participants on
the supply and on the demand side. Market models are for instance auctions (1 seller : m
buyers, the seller determines the minimum price the buyer has to pay), reverse auctions (n
sellers : 1 buyer, the buyer determines the maximum price she is willing to pay), call for
tenders (n suppliers : 1 purchaser, the purchaser specifies product characteristics), stores
(1 seller : 1 buyer) or exchanges (n sellers : m buyers).
Facilitation of transaction by providing support for all phases of business transaction, such
as information gathering, settlement, logistic functions and guaranteeing trust.
Providing the institutional infrastructure in the form of regulations, rules and standards.
The Internet technology affects markets in regard to several factors. In the next chapter
these factors will be examined in further detail. The most dominant influence is the decrease
in transaction costs when doing business in electronic markets and using Internet technology.
Every aspect of business activity will be affected by this evolution, marketing, procurement
and distribution. Digital information goods can be distributed with very low marginal costs,
16
[Bakos; p35]
9
they can be easily reproduced and bundled according to user demands.[Choi et al.; p.59-93]
discuss various aspects of digital products, their characteristics as well as their externalities.
Intermediaries and support systems are one of the components that surface in the context of
electronic markets. Another component are electronic trading systems, that were mentioned
earlier. Figure 3 depicts components and their functions, that define an electronic market.17
S
U
P
P
L
Y
S
I
D
E
Portals
E-Malls
Trust
Authorities
Search
Engines
Intermediaries and Support Systems
Electronic Trading Systems
Auctions/
Reverse
Auctions
CFT, RFQ,
RFP
Exchanges
Stores
D
E
M
A
N
D
S
I
D
E
Electronic Market
Figure 3: Layer Model of an Electronic Market
Electronic marketplaces are expected to be established within most industries and will
attack existing business practices and inefficient trading relationships within supply chains.
Forrester (www.forrester.com) created the eMarket Opportunity Index (eMOI), which
estimates the extend to which online trade will be done in electronic marketplaces within a
specific industry. The index is based on two characteristics.18 Firstly, the “industry readiness”
models the influence of structural items like fragmentation, proneness to demand shocks and
the distribution channel complexity. Secondly, the “product fit” identifies the impact of
product standardization, high transaction volumes and perishability. In Forrester’s report
“eMarketplaces boost B2B Trade”19, it is predicted that electronic marketplaces will account
for between 45 and 74 percent of electronic commerce in a supply chain. US business-tobusiness electronic commerce will hit $2.7 trillion in 2004 according to the report.
17
18
19
[Bieberbach et al.]
See Appendix C for further details.
[Forrester] Research
10
1.2.2 Portals for Electronic Commerce
Electronic marketplaces are the new generation of intermediaries facilitating B2B electronic
commerce-regardless their naming as “vortex”, “net market makers” or “butterfly markets”.
They all are electronic hubs, neutral Internet-based intermediaries that focus on a specific
vertical industry or on specific business processes. They host electronic marketplaces and rely
on the use of various marketing mechanisms to mediate any-to-any transactions among the
participating businesses. The creation of value is achieved mainly through the aggregation of
buyers and sellers, reduction of transaction costs and creation of marketplace liquidity when
reaching the critical mass of participants. In the recent past these eHubs have attained
enormous stock market capitalisation20 such as the IPOs of Ariba (Nasdaq: ARBA),
CommerceOne (Nasdaq: CMRC), Internet Capital Group (Nasdaq: ICGE), Chemdex
(Nasdaq: VNTR) or VerticalNet (Nasdaq: VERT).
A Classification for eHubs
Basically the landscape of eHubs can be analysed best from the perspective of the buying side
and on a twofold scale: the nature of purchased products and the characteristics of the
purchasing process.21
Considering first what kind of products are bought. To distinguish are hence
manufacturing inputs from operating inputs. Manufacturing inputs such as raw materials or
components are generally purchased in a vertical, industry-specific manner. This type of
portal is then called “vertical industry portal” or shortly “vortal”. Since vortals are the
platform for community interaction specializing in a particular vertical industry they can also
be referred to as “interest community Web sites”. VerticalNet for instance can be seen as an
early leader in the vortal market that hosts a number of vortal sites using the same format and
design.
In comparison, operating inputs as indirect products and services (Maintenance, Repair &
Operating, MRO) do not go into the finished product, such as office supplies, and therefore
are horizontal products applied across multiple industries.
Secondly, a distinction based on the sourcing process allows to derive scenarios of
business interaction either with pre-negotiated contracts (aggregating in a systematic market)
or with a spot-sourcing mechanism (matching).
20
21
[Nee]
[Sawhney]
11
An analysis on this twofold scale leads to the generation of several classification models
for electronic B2B hubs:22
Listing or Catalog-based model. They streamline the purchase of manufacturing as well
as operating inputs within a vertical or a horizontal industry respectively. Transactions are
based on pre-negotiated contracts that do not necessarily have to be the same for each of
the buyers. Individual pricing of products depending on the specific customer is possible.
Catalog hubs are usually set up in a highly fragmented market and can be focused on the
buy-side or on the supply-side. Examples are VerticalNet, Chemdex, ProcureNet.com or
MRO.com.
Yield managers. They focus on the spot procurement of operational inputs in horizontal
industries. Two types of models can be further distinguished. These are auction models and
tendering models (RFP or RFQ). They rely on spatial spot matching of buyers and
suppliers and work best in industries with non-standard, perishable or not saleable
products, used or excess material. Examples are AdAuction.com (advertisement) or
iMark.com (used capital equipment), as well as SkillsVillage (Human Resource). It has to
be mentioned that yield managers also can be applied in vertical markets.
Exchange model. Within vertical industries they aim to match temporally buyers and
sellers in a spot market. They suit best for markets characterized through volatility of
prices and demand and for products that are easy to specify. They require several
mechanisms such as bid-ask matching process, settlement, clearing and a marketwide
determination of the price. Examples are PaperExchange (paper industry) or E-Steel (steel
industry).
A special position is taken by MRO hubs. Some of the companies like Ariba,
CommerceOne or WW Graininger started with licensing e-procurement software to large
buyer companies. They changed their model from license-based to a hosted software model
and provide now rather a network-centric model with catalogs hosted on a common hub than
an enterprise-centric model. In contrast, ProcureNet23 is an e-business tools vendor that
pursues an enterprise-centric model. Its OneSource electronic procurement solution is an
extensive electronic catalog that allows for access to millions of items for office supplies and
other materials.
22
23
[Sawhney]
http://www.procurenet.com
12
In addition to the question of what is bought (nature of products) and how this is
accomplished (sourcing process) there is the question of which of the participating sides-the
buying or the selling one-is favoured by the eHub. Accordingly we can separate between
neutral and biased. All portals mentioned above are neutral. They face the initial problem of
focusing first on buyers or on suppliers without jeopardising their neutrality, in addition to the
difficulty to attract sellers when there is not yet a critical mass of buyers and vice versa. In the
case studies in chapter 4 we will see that VerticalNet focused on sellers first, whereas
Chemdex chose to attract buyers first.
Biased hubs in contrast work either for the buyer or the seller and seek to negotiate better
terms on behalf of their interest group. Alike the neutral hubs they can act as aggregators in
systematic markets or as matchers in spot markets. Firstly, a marketplace favouring the
buying side acts as a reverse aggregator or reverse auctioneer respectively. This is the case
with, for instance, FreeMarkets.com. Secondly, when favouring sellers an eHub acts as a
forward aggregator or forward auctioneer respectively. Examples are Cisco Systems or
Ingram Micro.
Portal Providers
Many businesses these days use Internet portals to carry out business transactions. These
service providers offer support for at least one phase of the transaction process up to support
for handling the whole range of the transaction process. This can be providing purchasers with
information (electronic catalogs), bringing together sellers and purchasers in the virtual
marketplace or support for ordering and electronic payment procedures.
Several software companies that are active in developing procurement software offer
software to build a vertical portal or an electronic marketplace. To mention some of the larger
vendors these are, for instance, Commerce One Inc., Ariba Inc. or SAP AG. Portal software
typically offers an integrated solution for connecting the Extranets of suppliers and customers.
This service does not necessarily have to be offered by the company that developed the portal
software. It can be provided through third-parties likewise. Additional features include
community management, components for catalogs, support for auctions or invitations for
tenders. However initially the core software feature was in particular the translation between
different EDI implementations. The third-party marketplace provider takes care of directing
messages to the relevant trading partner and translates them into the corresponding format.
With the emergence of other message standards than EDI the communication between market
participants is also accomplished on formats based on XML that is then converted into the
13
format of the individual company. Transaction processes are therefore carried out without
committing to the same specific format. XML-first considered to be a better way to create
Web pages-is now widely viewed as the leading technology for data exchange in electronic
commerce. Software products from XML companies like WebMethods offer middleware
products that offer support for defining XML standards with tools for data extraction,
formulating XML and making this data available to the own system. We will look closer on
XML in chapter 3.2.5.
14
2. A Business Approach to the Functionality of Internet
Portals
2.1 The Internet as the Underlying Technology
2.1.1 A Generic Framework for Electronic Commerce
Electronic Commerce is not a new phenomena. Traditional interorganizational electronic
commerce was born at the beginning of the eighties when the standard for Electronic Data
Interchange (EDI) was adopted. Its clear aim was to simplify data exchange between trading
partners in favour of a higher degree of automation of common trade procedures like ordering
or invoicing. A considerable reduction in transaction costs due to improved speed and
efficiency was the primary benefit of EDI use. Although today the use of EDI is gaining
momentum in the light of opportunities offered by the inclusion of the Internet, for nearly a
decade EDI did not manage to become a widely and coherently used means for conducting
business. Rather there evolved a flourishing industry of EDI-converters to translate between
different EDI systems. Since the “standardization” of EDI followed the principle of power,
the more powerful market player imposed his format on his suppliers, creating “islands” of
EDI usage24, such as the automotive industry or the railway companies. For smaller and
middle sized companies, the costs related to an introduction of EDI often result in higher
business costs, rather than in cost reduction and therefore do not enhance productivity. To
name some figures it is estimated that in the USA only about 44,000 enterprises make use of
traditional EDI, in Europe about 50,000.25
Speaking of electronic commerce just as “doing business electronically” sums up the
evolution taking place rather incompletely. This loose definition lacks major possible benefits
the electronic marketplace offers by enabling the integration of all business processes from
production to customer service.26 Electronic Commerce acts as an “umbrella concept”27
bringing together applications such as EDI, Electronic Publishing in marketing or customer
support, Electronic Messaging (email, fax) and Corporate Digital Libraries to support
information sharing and collaborative work. The Internet and WWW with its client-server
model seems to be the predestined integrating architecture.
24
25
26
[Merz; pp.315]
[Timmers; p.3]
[Choi et al.; p.XXIV]
15
Turning towards a more flexible technology like the Internet or the World Wide Web, new
opportunities and chances arise also in regard to the formerly discussed problems involved
with EDI. Before delving into this issues a generic framework for electronic commerce28 is
sketched out in figure 4.
Electronic Commerce Applications
Supply Chain Management
Procurement and Purchasing
Customer Relationship Management
Home Shopping
Online Marketing
Remote Banking
Common business
services
infrastructure
Security
Authentication
Messaging and
Information
Distribution
Architecture
Multimedia
Content and
Network
Publishing
infrastructure
Internet,
Wireless and
other
communication
networks
Public Policy, Legal and Privacy Issues
Technical Standards
Figure 4: A generic Electronic Commerce Framework
As illustrated in figure 4 four building blocks of the electronic commerce infrastructure are
based on existing technology and on what is in many respects still soft legal subsoil. Together
with this twofold base these blocks enable the use of various applications for e-commerce. We
will use this framework as the underlying to examine several aspects of electronic commerce
in the following.
2.1.2 Key Features of the Internet
So what advantages29 does the Internet provide versus traditional architectures like EDI and
what how does the Internet leverage electronic commerce? Firstly, there are
lowering of transaction costs and entry costs. Whereas the implementation of proprietary
EDI systems and the use of private data networks-so called Value Added Networks
(VAN)-for transmission and transaction is costly an Internet connection and alternative
27
28
29
[Choi et al.; p.216]
[Kalakotta et al.; p.4]
[Timmers; pp.9] and [Merz; p 319]
16
Web-based commerce solutions are much more cost-saving. Especially for SMEs ecommerce applications get affordable.
Secondly, the ubiquity of the Internet connects even the remotest locations and turns them
into Web-accessible electronic market participants.
The Web Browser delivers a variety of functionality providing a single user interface, and
enhances seriously application integration at the desktop level. The browser interface and
integrated software guarantees transparency when e.g. accessing the electronic catalog of
an online bookstore or making payment transactions (near implementation of SET
standard, see chapter 3.3.3).
24 x 7 Availability denotes that Web servers are online usually 24 hours a day and 7 days
a week. This has advantageous implications in particular for the business-to-business area.
Customer service can be untied from supplier availability. Many standard interactions
between supplier and buyer can be automated like pre- and post sales enquiries of tracking
of order and delivery status.
We also want to look at the degree of personalization30 and the related issue of one-to
one marketing in the light of the medium Internet. Capturing data and analysing customer
characteristics is facilitated, there are means for generating customer profiles and
consequently the possibility of offering the individual user a custom-tailored Web page .
For the application area of business-to-business electronic commerce this might mean, for
instance, that participating businesses, when entering an electronic market, are presented
with a list of recently purchased products or information corresponding to their interests. In
chapter 3.4 we will discuss several ways to add personalization to Web sites. The WWW
also provides the technology for applying pull and push-based advertisement31 connecting
the company and the customer more closely, for instance Web-based billboards, catalogs
such as browsable and searchable databases or endorsements.32 Studies looking at
marketing strategies from the electronic commerce point of view are well covered in the
literature (see e.g. [Kalakotta et al.; p.475-511], [Choi et al.; p.213-259], [Timmers; p.139163]).
A wide ranging of interactivity is the reason for an Internet based person-to-person and
person-to-application interaction compensating the inevitably imminent loss of personal
30
[Maddox; pp.195]
In push advertisement the ads are pushed towards the customer (such as banner ads and e-mails), whereas in pull advertisement the
customer interacts and plays a more active role in determining what he wants to be offered, i.e. he is pulled to the seller. In the Web push and
pull can not be clearly distinguished and rather hybrid models of advertising are being applied.
32
[Kalakotta et al.; pp.491]
31
17
contact in electronic markets. Particularly with regard to marketing issues, a customer
centred interaction is interesting and can increase sale opportunities. Interactive
applications support hybrid push and pull systems that offer the user an orientation to his
information needs and a high degree of control for the user.33
2.2 Applying Internet Technology for B2B
2.2.1 The Aspect of E-Procurement
Bearing these reflections in mind the Internet is capable of changing radically traditional
business
fields.
According
to
a
study
by
the
German
BME
(Bundesverband
Materialwirtschaft, Einkauf und Logistik e.V.) applying Internet technology to procurement in
form of electronic procurement can result in a cut in purchase costs of up to 50%-on
assumption that the internal workflow can be optimised. 34 The exchange of electronic product
catalogs also makes a contribution to these savings, although currently different functionality
and formats complicate processing the business partner’s data. For this very reason the BME
presented a draft standard for electronic catalogs called “BMEcat” (see chapter 3.3). Internettechnology offers several opportunities to create networks in order to improve the process of
purchasing and production planning. When connecting the Intranet of companies to build
Extranets this will allow business partners to coordinate their production plans more
effectively. Using Supply Chain Management (SCM)35 bottlenecks in delivery can be
recognised early and be responded to, whereas the supplier can predict customer’s demand
good in time. In this framework therefore also the logistics service provider has to be part of
the network. In particular for goods of low material value but high order frequency where
hitherto procurement costs often exceed material value, electronic procurement lowers
purchase costs combined with a saving of time, for instance through decentralized
procurement of MRO products. Unfortunately however, a not yet clearly laid down legal
position, in so far as liability and contract law is concerned, seriously hampers the spread of
Internet-based business transactions. Rather than going deeper into the matter of Supply
Chain Management we want to sketch out influences on the organizational structure of
companies. Changes come along with the joining of former single entities that created
33
34
35
[Schubert; p.121]
[Willrett; pp.20]
A Supply Chain is the network of suppliers and customers within that any business operates [Kalakotta et al.; p.406].
18
business value to business value creating models of cooperation. For further aspects of Supply
Chain Management see e.g. [Kalakotta et al.; p.247-439].
2.2.2 New Forms of Organizational Structure
Electronic commerce applications like SCM and e-procurement are important also in the light
of organizational changes that are taking place within companies. As it is becoming
impossible for companies to compete at the level of isolated entities the organizational
structure of companies is changing creating a situation in that competition is shifted towards
competition between networks of “tightly aligned and coordinated companies”36. This will
result in a blurring of corporate boundaries where affiliation to a company is more an issue of
legal, financial or marketing aspects rather than in terms of organizational structure. These
networks of companies are called “virtual organization”. Virtual organizations that act for the
reason of conducting trade transactions are denoted as “virtual enterprises”. It defines “a time
limited cooperation of legally independent companies in order to make out a certain product
or to provide a certain service. Each of the involved companies contribute their core
competence to the virtual enterprise”37. In many companies the establishment of “profitcentres” with decision-making power, e.g. to form cooperations with profit-centres of other
companies, shows this trend towards virtual companies.
By changing the structure of the way in which companies operate the Internet is putting
linkages within the traditional value chain38 on the test bed assessing their contribution to add
value under these new conditions. In the context of virtual organizations, in particular in
business-to-business electronic commerce we have to look at value chains from a new
dimension: by linking together two key elements of the traditional value chain-supply chains
and distribution chains-new value chains as a single integrated concept can be created. That
concept describes business activities with their potential for adding value along the entire
interconnected value chain expressing that one company’s distribution chain is another
company’s supply chain. Value chains therefore can not be considered as isolated. These
arising business models can be depicted as “value webs”39 consisting of a dynamic set of
relations between operating business units, so called “cells”. The idea of value webs
(following the notation of value chains) takes into account the emergence of new forms of
organizational structure and coordinations along the value chain that are based on the Web as
36
[Kalakotta et al.; p.406]
[Schuh et al.; p.11]
38
See Appendix D for some further remarks on value chains.
39
[Marshak]
37
19
the electronic medium. Within value webs cells are not bound to fixed cooperations, they play
different rolls within it, i.e. act in different electronic markets depending on the actual
transaction and on their ability to bring in surplus value. Figure 5 illustrates these reflections
graphically.
Cell
Virtual enterprise
acting in an emarketplace
Company
Figure 5: Cellular model of corporate cooperation40
In this framework it might very well be that cells within an affiliated company have to
compete with cells outside the company for receiving orders. Let us take for example the
situation when a cell could hire an external design department instead of the one within the
same company. If a decision is taken there has to be a third party acting as an coordinator.
Two principle scenarios are possible: the coordinator allocates tasks or subtasks to relevant
cells and afterwards stays in control of the whole transaction or the coordinator brings
together client and contractor only until phase of negotiation. In the latter case the coordinator
acts as a broker with the remaining phases of the transaction being coordinated by the two
contract partners.41 In the future technological support in the form of intelligent information
brokerage will allow brokerage systems to build and manage the organization architecture.
Brokerage will be largely supported by software systems in the future-in analogy to human
agents called software agents-following the aim of increasing efficiency in the electronic
market.
40
41
[Merz; p.68]
[Merz; p.69]
20
2.2.3 The Aspect of Disintermediation and the Emergence of Virtual
Communities
Talking about virtual or electronic markets in Internet commerce the role of portals moves
into focus. Internet portals represent the interface for trade and transaction communities in the
value web. [Marshak] sees Internet portals as a powerful tool in building the value web. They
perform the role of intermediaries bringing together people to form virtual communities for
commercial, transactional or interest sharing purposes.
Herewith two aspects are taken up that will be further examined. The first aspect is the
question of how the Internet affects the traditional role of intermediaries. The second
reflection is related consequently to this and deals with the emergence of virtual communities
on the Internet and their part in the value web.
The Role of Intermediaries
Taking up the idea of linking together traditional value chains there is also, in addition to the
increased flexibility these value chains in the form of value webs offer, a change in their
composition. Whereas traditional sales for instance is composed of a chain of producer,
export, import, wholesaler or retailer in many areas of business links in this chain have
already been bypassed and therefore have vanished. In particular in the area of business-toconsumer electronic commerce this change already took place. Online ordering of books CDs
or travel tickets is easily possible. This trend of cutting out links in the traditional value chain
is defined as disintermediation. How will the area of business-to-business be affected by
disintermediation and does disintermediation really dominate in Web business? We will look
in the following at three cases to find an answer to this question.
Cisco Systems. The success story of Cisco Systems Inc., a manufacturer of Internet gear
like routers, hubs and switches, is interesting in two respects.42 Firstly it shows a tremendous
launching of a Web commerce business in response to a heavy increase in sales caused by the
Internet boom. Cisco searched for new means to deal with incoming orders from its direct
business customers and resell partners and moving business to the Web proofed as the right
solution. Secondly, which is more important in this context there were serious concerns of
Cisco’s direct resell partners who contributed largely to Cisco’s turnover and saw their
business jeopardized by Cisco’s Web business.43 In fact, intermediaries that add significant
42
A case study on Cisco Systems Inc. can be found in [Maddox; p.25-43].
To a certain extend Cisco managed to protect its existing resellers by providing them with a Web solution of an ordering process that was
advantageous concerning reduced order times and better and faster delivery. However the potential of disintermediation can be clearly
43
21
costs to the value chain are likely to be bypassed when manufacturers deal directly with their
customers.
Figure 6: Cisco’s Internet Marketplace
NECX. However, it is not always the case that middlemen are bypassed. For
intermediaries themselves it can be beneficial to setup a Web business in order to extend
business activity. NECX, an independent distributor of semiconductors, network components
and computer products launched its online marketplace for buyers and sellers of high-tech
products in 1995.
The approach the company chose was to build a vertical value-added network (VVAN).44
This is thought to be a synthesis of the value-added network and the mall approach that
“carries many of everything”. A VVAN adds value within a vertical area, i.e. it is “deep and
wide in a particular niche market segment.” In a later section of this work we will refer to this
model as an “industry sector marketplace”. NECX is now a wholly owned subsidiary of
VerticalNet that offers access to VerticalNet’s vertical communications and advanced
technologies communities. NECX success shows that electronic commerce on the Internet
doesn’t necessarily lead to disintermediation-it offers new possibilities for creating
competitive strength for existing well established companies.
recognized.
44
[Maddox; p.143-158] provides a very detailed case study on NECX Web story.
22
Figure 7: NECX Global Electronic Exchange
These two cases demonstrate that Web commerce poses threats to traditional middlemen,
as well as it offers potentials for existing middlemen to extend their business.
New Intermediaries. And yet there is another aspect to it. Internet commerce in electronic
marketplaces furthermore creates the ground for the appearance of new intermediaries as well.
These intermediaries perform functions in the electronic marketplace that are the basics in
traditional physical markets. This includes matching of buyers and sellers, managing physical
delivery, providing product information or aggregation of information goods. We earlier
illustrated the creation of value webs that are based on the outsourcing of certain functions
within companies. Supported by information and communications technology, this will result
in a greater reliance on electronic markets and intermediaries of various kinds and there are
new tasks emerging in these markets that need to be carried out. Through externalization45
new chances for intermediate activity are surfacing. We therefore observe currently both
trends on the Internet: new intermediaries appear, as well as disintermediation takes place and
eliminates middlemen.
45
[Timmers; p.134] sees externalization as other forms of organization of firms than vertical integration. Outsourcing of certain functions
will lead to greater reliance on intermediaries in electronic markets.
23
Providing Trust in the Electronic Marketplace
It is hence relevant to examine electronic markets for their potential of disintermediation by
looking at commodities (goods as well as information) and their potential for
disintermediation.46 For commodities with clear features that can be searched for, it is
possible to evaluate them prior to purchase by appropriate search for information on that
specific feature of the commodity. We hence speak of “search commodities”. Typical
products are books or media products. Other commodities in contrast can only be evaluated
by experience after the purchase or consumption (“experience commodities”) or even can not
be evaluated at all due to the lack of know-how and time (“trust commodities”). Search
commodities offer clear potential for disintermediation, whereas the situation is more difficult
with the latter two. Certain phases of the transaction can be supported by means of new
technologies, however real disintermediation is first possible when there is some kind of
standardization. This can be standardization of information about the product, as well as
standardization of the product itself. Both lead to the necessity for a common quality system
to tackle the problem of lack of trust. The introduction of a third party that acts as an
“certification agent”47 can create the necessary trust by assuring quality and creating a de
facto standard. It furthermore can play an arbitrary role in case of disputes. This is therefore
an example that the surfacing need for intermediation creates opportunities for new business
models to establish.
Both reflections-disintermediation and trust creation-have one thing in common. They
show that certainly the role traditional middlemen are playing is changing. [Maddox; p.224]
states that now the “Web site itself is the middleman” mainly to provide information, but also
to facilitate contact between buyers and sellers. These Web sites link their market participants
to valuable news and other sources of information, so that information “itself [becomes] the
intermediary between buyers and sellers” [Maddox; p.225]. Web sites that provide
information and bring together buyers and sellers are those Internet knowledge and B2B
portals that we focus on.
Virtual Communities and Internet Portals as Intermediaries
When new kinds of intermediaries such as the portals we sketched out are coming up through
creation of virtual communities this situation can lead to the emergence of new business
46
47
[Picot et al.]
[Timmers; p.131]
24
models (see the following chapter). To name reasons for the formation of virtual communities
as intermediaries we will summarize the functions they are supposed to take on:
Community portals have an aggregation function, i.e. they bring together people that share
the same interests for information exchange as well as for commerce transactions. Hence
they significantly reduce search costs and transaction costs.
They have the ability to protect privacy. Community portals can take measures to protect
their communities, e.g. they force subscription to their sites.
They act as an trust agent to guarantee quality of information.
Internet portals provide the technical infrastructure for getting easy access to information
or offer the platform for carrying out business. They therefore reduce overhead expenses.
Virtual Communities can very well enhance the pushing through of standards. An Internet
portal that attracts a critical mass of transactions and business partners to their sites can
create a de facto standard for business transactions in that specific industry.
2.3 New Business Models for Electronic Commerce
In the following newly-arising business models that represent different strategies and focus of
Internet presence will be described and their suitability for industry internal competition
analysed.
2.3.1 Internet Portals as Third-Party Marketplaces
One of the new emerging models is the third-party marketplace48 whose basic function is to
provide a channel for Web marketing for companies. It is therefore usually an additional
online channel for companies to supplement other distribution channels like physical markets.
A third-party marketplace offers at least a user interface to the product catalogs of several
suppliers. In addition it might offer other services as well such as ordering, payment and
logistics or the whole range of secure transactions. The typical concept of a third-party
marketplaces is to offer an electronic industry mall (e-mall) for a specific vertical industry
(vertical portal) or for a wide range of industry sectors (horizontal portal).
E-malls respectively consist of a collection of e-shops like their counterparts in the
physical world and are well known from business-to-consumer electronic commerce. Often e-
48
[Timmers; p.39]
25
malls are hosted under a well-known brand name to create confidence and trust in order to
stimulate buying. However when specialising in a specific market segment e-malls in
business-to-business commerce can turn more into an industry sector marketplace (vertical
portal) for B2B electronic commerce in a certain market segment. For instance the earlier
discussed example of NECX (see chapter 2.2.3) is such an electronic industry sector
marketplace.
In particular when it comes to standard items trading in third-party marketplaces lowers
transaction costs. Products for the business area of Maintenance, Repair & Operations (MRO
goods) for instance provide these characteristics and therefore quite quickly moved to the
Web evolving to an important field for business-to-business commerce.49 An example of an
implementation of a third-party marketplace in MRO is MRO.com50 bringing together buyers,
suppliers and distributors in a marketplace and an exchange for online procurement.
To demonstrate the importance of the right business model for the economic success of a
company [Timmers; p.36 and 55-60] provides a case study on Industry.Net, the “pioneer of
industrial marketplaces on the Net”. Despite its title Industry.Net never gained foothold in
terms of financial stability. Several takeovers lead Industry.Net through the stages of different
business models, taking more the role of an industry sector marketplace (e-mall) or enlarging
the range of covered industry markets and heading more towards the role of a third-party
marketplace. Now Industry.Net operates under the name TechSavvy51 and specializes in
providing a broad base of technical, engineering, design, maintenance and procurement
information for professionals across the disciplines addressing the demand for increased
technical information.
2.3.2 Competitive Positions
Delving into the characteristics of third-party marketplaces for business-to-business in
particular, several players in the electronic marketplace might show special interest in this
model and are highly predestined as third-party market providers. 52
There are the ISPs who increasingly build and host e-shops for other parties. They can
exploit their experience as e-shop providers and in building the Web, to push into the
business-to-business third-party market. A possible hurdle might be building up the content
49
[Maddox; p.135]. According to [Timmers; p.56] the MRO market is worth annually between $60 and $300 billion in the USA.
http://www.mro.com
51
http://www.techsavvy.com
52
[Timmers; p.39]
50
26
such as product catalogs.
Another candidate are value chain service providers.53 These are for instance providers of
logistics or electronic payments (banks), that specialize in one business process to contribute
with this specific function to the value chain. [Timmers; p.40] states that there is a trend for
providers of third-party markets to move towards offering value chain integration54,
expressing that several steps within a value chain are integrated. The idea is to generate
further added value from the information flow between those steps.
One example of value chain integration as a third-party marketplace is a project of the
Swiss UBS bank55 in conjunction with Swisscom and three other founder companies. They
will provide with plenaxx.com AG56 the first integrated business-to-business portal. With a
capital investment of 50 million Swiss francs plenaxx.com aims to become the leading
portal for e-business solutions in the SME segment. The portal will allow access for third
parties to present their services as well as it will support web communities. Merged
Internet technologies are enhanced by e-mail, fax, voice and WAP services. The product
range offered by plenaxx.com includes several business areas and sector solutions that are
designed in particular with respect to a SME’s value-added chain.
Figure 8: Plenaxx.com as an integrated portal
53
[Timmers; p.40]
[Timmers; p.39]
55
[UBS]
56
Plenaxx.com will start its operation in October 2000.
54
27
Services are
a personal workplace as an integrated interface with added personalization for email, fax,
calendaring, WAP gateway and personalized news.
For companies and workgroups plennaxx.com offers internal applications such as ASP or
workgroup networks as well as external applications like web design and web hosting.
Partners and virtual projects are supported by integrated services such as mailing lists,
project planning and file management.
It is further possible to build communities and service channels. Plenaxx.com is built to
enable SMEs to easily gain access to e-business solutions without costly investments of their
own. Modular services will be integrated along internal as well as external functions and
business processes.
Electronic catalog providers for instance such as the earlier mentioned MRO marketplaces
also belong to the model of value chain service providers. By extending their content of
electronic catalogs covering a bigger number of vertical markets, they can develop from
industry sector marketplaces to third-party marketplaces. VAN providers can make profit
from their experience in community building and move their business to the Internet. Thr
same goes for EDI providers that might integrate EDI within a third-party Internet
marketplace.
And yet another service provider on the Internet is possibly lurking to play a role in the
business-to-business portal competition. Information portals like Yahoo could challenge
competition by extending their content with product catalogs and raise functionality through
integration of transaction handling services.
We already discussed the emergence of trust agents on the Internet to provide confidence
for business transaction as well as to guarantee quality of information. However rather than
enhancing their services with support for trading transactions e.g. payments, these companies
seek to expand their business through globalization. VeriSign for instance acts as certificate
authority and made a niche out of selling digital certificates. The company defines their keys
to success as focus and scale57 indicating that specializing in one field and ensuring that
millions of certificates can be handled are critical success factors for VeriSign. As
competitors in third-party marketplaces they therefore play a minor role. They pursue gaining
world-wide market share as trust providers through globalization.
57
[Maddox; p.126]
28
Summarizing these reflections there are two trends that currently depict the situation when
examining the activities of participants in the business-to-business Internet market:58
Firstly there is the emergence of highly innovative services such as the service offered by
trust agents who specialize in niche segments.
Secondly information providers seek to raise the integration of information flows. This can
mean the possibility of adding functionality to their sites. Catalog providers offering
transaction handling for instance belong to this category. It also can mean that third-party
market providers increase the degree of coverage of vertical markets. Industry malls
operating in an industry sector marketplace might pursue enlargement of their range of
industry sectors.
To graphically illustrate these activities in business-to-business trading we define a three
dimensional activity area for Internet portals and Internet services (see figure 9). On the
vertical axis the degree of integrated functionality is scaled, the first horizontal axis shows the
coverage of vertical markets, whereas on the second horizontal axis the degree of innovation
is displayed.
integrated
functionality
internal
competition
high
low
degree of
innovation
wide
coverage of vertical
markets
high
Figure 9: Business model activities in business-to-business electronic commerce
With regard to coverage of vertical markets there is a trade off between a broad coverage
of vertical markets and an expertise position in a single vertical market. Secondly to provide
information is just one aspect of business support, other aspects are support of ordering phase,
58
[Timmers; p.42]
29
payment or delivery, in brief the full handling of transactions. This scale is expressed in the
degree of integrated functionality from low to high. Thirdly, a high degree of innovation with
a comparable low degree of functionality can lead to a strong market position in a niche
segment.
Although currently the Internet market for vertical portals to do business-to-business
transactions as well as for Knowledge or Information portals is far from saturated growing
competition can be expected. Market participants specializing in niche products might be
competitively unchallenged and follow the objective of globalization. The competition among
third-party market providers-[Timmers; p.117] calls this “internal competition”-will increase,
as new entrants to the market come up and since service providers tend to move towards the
same integrated generic model.
30
3. Aspects of System Design for B2B Portals
3.1 Requirements for EC-Systems and an Architectural Model
In chapter one we addressed the aspect of how the Internet leverages new opportunities in
terms of applied technologies. In contrast to EDI as a proprietary system the Internet
technology enables electronic commerce to be attractive to small businesses as much as for
large companies. In this chapter the underlying technical concepts for building electronic
commerce applications will be the subject of our attention. The success of B2B electronic
commerce systems is widely determined by the ability to join together software systems of
different users and developers. Joining together implies not only the capability of the merged
systems to communicate and to add value to the business process but also to keep these
systems as flexible as possible. As an introduction some requirements for a successful ecommerce system are presented:59
To overcome differences in hardware and operating systems there is first the basic need for
interoperability.
E-commerce software systems need flexibility to be able to be adapted to new situations
and business environments. In particular with respect to the earlier mentioned creation of
virtual organizations that change according to the current cooperation flexible systems are
a prerequisite.
Coherence guarantees communication across systems, i.e. standardized vocabulary.
When companies cooperate for instance in a purchaser-supplier relation an integrated
business process has to be managed. Workflow management has to bring internal processes
and business rules in line with this global inter-organizational workflow. Adapters are used
to integrate local software systems in order to control their interfaces and processes in a
uniform and coherent shape.
Contracts are necessary to establish and fix legal aspects of transaction partnerships.
In the following we want to depict an electronic commerce application architecture to build
a classification system for electronic commerce technologies.
The architectural model consists of five layers of functionality or services. These layers
59
[Merz; p.313]
31
will be presented bottom-up:60
(1)
The network infrastructure is considered to form the enabling technologies for basic
mechanisms as well as for standards. These technologies are not restricted for use with
e-commerce. Herein belong communication protocols like TCP/IP or HTTP, wireless,
programming languages (Java or scripting), cryptography algorithms or mark-up
standards such as HTML, SGML or XML.
(2)
Software platforms that offer a set of components and technologies for combination to
mediate between diverse software programs are called middleware services. These are
in particular software components, for instance for public-key infrastructure, payment
procedures (transaction security and management), search engines or profiling that
enable interaction between dissimilar systems and distributed systems. Middleware
therefore establishes the basis for interoperability. It is also a means to accomplish
transparency61 and to facilitate a distributed computing environment (DCE) or the
emerging distributed object computing framework (CORBA, OLE or OpenDoc).
Security and management are important aspects on all levels of the electronic commerce
model. Transaction processing (TP) is especially crucial in electronic commerce and
therefore so is transaction security. This is mainly done by authentication and
authorization (see chapter 3.4.1) and secure transmission technology such as HTTPS
protocol (see chapter 3.3.2). Middleware provides here atomicity, consistency, isolation
and durability, the so called “ACID-properties” of transaction processing.62
(3)
EC-frameworks are created by combined use of middleware components. They give the
basic structure for application processes, data structures and interfaces, yet have to be
extended and customized through the individual user. This is for example software for
online shops that integrate product catalogs, payment support or user interfaces that
need to be adapted according to individual company needs.
(4)
Usually a combination of EC-frameworks is applied to develop EC-applications for use
in a specialized context.
(5)
On top of the electronic commerce architecture model there are the business and market
models that define the roles within the company, as well as the part that the company
takes in the market. This is the first step in developing a EC-system. Technology is
therefore not the first objective and is specified afterwards.
60
61
62
[Merz; pp.29] and [Kalakota et al.; p.217-229]
Transparency guarantees that users are unaware of accessing multiple systems.
[Treese et al.; p.308]
32
After having presented the common technological architecture of commerce systems we will
look at different approaches to establish message transmission for the exchange of business
transactions. These are basically use of EDI and newer initiatives to use different formats
mainly based on XML. A brief introduction to use of EDI will lead up continuously to the
introduction of XML and related topics such as interoperability of commerce systems.
3.2 From VANs and EDI to the Internet and XML
Shortcomings of VANs and EDI
As already sketched out in the previous chapter the use of EDI implies major disadvantages in
terms of dependency on proprietary EDI implementations and incurred high costs. The
opportunities that are surfacing through applying Internet technologies and the demand for
more functions and support for interorganizational cooperation have put pressure on EDI. So
there have been efforts made to equip EDI with further functionality in order to get rid of
EDI’s restriction of being limited to modelling the exchange of text only. And yet in another
respect the current situation of EDI use is disadvantageous. Whereas in Europe the EDIFACT
standard is largely accepted, in the USA the ANSI X.12 standard is widely used and both are
not interoperable. In the light of growing together of markets in virtual electronic commerce
reality interoperable systems are needed.
The Internet takes over from EDI
The shift from EDI-based trading towards Internet-based commerce can be best detected
when looking at industries that traditionally have made sophisticated use of EDI. In the
automotive industry, for example, all major players signed B2B software providers that
supply procurement systems and create electronic marketplaces. So did Ford with Oracle,
General Motors with CommerceOne or BMW with Ariba. Likewise ERP and supply chain
software providers seek to enrich their products with support of and integration with software
for electronic procurement and B2B trading. A number of alliances of B2B companies and
ERP software providers have been formed, such as Ariba with I2 Technologies and IBM,
CommerceOne with SAP or the Sun-Netscape alliance. The most challenging task now is to
integrate the purchasing process into back-end systems. Then integration of the supply chain
will bring the same benefits for transactions among companies that ERP systems brought to
the internal operations within companies-integration, reduced costs and automation.
33
To fully understand the emergence of enterprise portals as well as vertical Internet portals
and the service they deliver some aspects of the major changes around EDI will be sketched
out in the following. Other approaches to interconnect transaction processes that particularly
come up with the existence of XML will be outlined.
3.2.1 On the Use of EDI
An EDI business communication is based on an agreement between a company and its trading
partners, that are its customers and suppliers for conducting business. The resulting EDI
implementation consists typically of the use of a common EDI standard that specifies
transaction sets such as invoice, ordering or remittance advice. To translate among different
EDI message standards that are used on the part of the trading partners translation software is
applied. Financial institutions are part of the implementation to facilitate payments. Large
companies (especially in the automotive industry) have proprietary hardware and networks for
EDI exchange with their suppliers. In this case of direct-dial systems the user directly
accesses the modem of the partner and transfers the document. Other companies hand over the
managing of EDI data communication to third-party service providers, the VANs. To further
actually exchange EDI messages between partners, the EDI software must be implemented
according to the agreement. On the first layer of the EDI software, the EDI document is
created by the business application in the internal format of the company. An EDI translator
on the following level transforms the document into the agreed-on EDI standard, so that the
receiving company can process it. The translator software therefore describes the
“relationship between the data elements in the business application and the EDI standard”.63
The translator’s wrapper module or a separate wrapper application furthermore wraps the
document in an EDI envelope and assigns the receiver’s ID to this EDI-package. In particular
these EDI envelopes will be the focus in the following when we look at how Internet
technology is applied for EDI documents exchange.
3.2.2 VANs and the Internet
The basic idea of an EDI transaction is that in most cases it can be depicted as an exchange of
electronic mail (mail-enabled EDI)64 between computer programs.65 To distinguish EDI
63
64
[Kalakotta; p.376]
[Kalakotta; p.388]
34
messages from typical mail messages the headers and the envelopes show special
characteristics. Two types of envelopes are dominating:
X.435 envelope:
Originally the X.400 standard was designed to ease the message transmission between
different computer systems. Instead of needing a translator or gateway between each of the
different electronic mail systems X.400 just needs one gateway to communicate between
them. X.400 itself never really had a breakthrough due to several reasons, however a
promising subset, X.435, was particularly dedicated to electronic commerce. Within the
X.400 message it defines the inclusion of EDI content. This is done by inserting a special
field in an X.400 envelope in order to identify it as an EDI message. The big advantage was,
that X.435 was able to handle multiple body parts, i.e. attachments could be sent in the same
envelope. Further functions included data encryption, proof of delivery and integrity. All in
all a reliable and secure EDI messaging standard that is primarily used in VANs. In the
following the EDI message exchange should be sketched out briefly. The company dials up to
the VAN and places the EDI document in its mailbox at the VAN. The VAN picks up the
message and delivers it to the mailbox of the relevant trading partner. The trading partner logs
on to the VAN with a certain time frequency and collects its mail.
Internet-EDI based on MIME:
The Multipurpose Internet Mail Extensions (MIME) standard defines the transmission of
multimedia message attachments (here EDI transaction sets) as enveloped messages. It uses
the Internet Simple Transport Protocol (SMTP) that constitutes a common specification for email messaging and makes the Internet a seriously alternative transportation channel to VANs
for the exchange of EDI content. VANs therefore are extending their services with offering
access via TCP/IP protocol and support for Internet mail and MIME protocol. As an example
of the use of Internet-EDI, the course of the communication between a manufacturer or
distributor and its shippers should be mentioned.66 Forms-based requests for quotes (RFQ) are
sent from the manufacturer to a VAN mailbox through an Internet connection using the
Simple Mail Transport Protocol (SMTP). After converting these documents to EDI-RFQs, the
VAN forwards them to the shippers. The shippers return EDI quotes to the VAN to forward
65
66
Originally EDI messages were designed to be transmitted via Telex.
[Kalakota; p.394]
35
them to the manufacturer. The remaining phases such as contract awards and purchase orders
follow the same principle. However SMTP and MIME do not provide any form of
authentication, data integrity or confidentiality. Therefore companies have to use additional
measures to protect their EDI messaging. Figure 10 illustrates the use of e-mail based EDI
with X.435 and Internet e-mail via SMTP and MIME through a VAN.
Company A
VAN
Company B
TCP/IP,
SMTP, MIME
Translation
Compliance Check
Format Translation
Routing to mailbox ID
X.25/X.435
Company C
Company D
Figure 10: X.435 and Internet-based EDI messaging through a VAN
VAN service providers offer the company one single central point of access through that it
conducts its EDI transactions and thereby ease the many-to-many relationship in trading. It
directs message traffic so that the company is release from the ineffective task of establishing
communication connections with each of its trading partners-the VAN takes care of
translating into required standards and formats, checks for compliance and offers security
features and document tracking. However these services are not without major impediments.
VANs are slow and using them is also an important cost factor.
The Internet with its rather simple technology architecture and cheap usage is an affordable
alternative to VANs for many firms, who are looking for online collaboration with their
customers and partners. Efforts have been made especially from Internet service providers to
move EDI technology away from VANs and onto the Internet. VAN service providers for
their parts see themselves under competitive pressure and offer new services additional to
usual email and EDI applications such as global directory services and interactive groupware
sessions.
In the next section we will look at the way of exchanging EDI message through the
Internet without the use of a VAN.
36
3.2.3 VAN-Free Internet-Based EDI
The Internet is suitable for EDI use in regard to several factors. One is the flat-pricing, what
means that pricing doesn’t depend on the amount of transferred information like it is on the
VAN. Cheap access and low connection costs and the use of common mail standards for
guaranteed and fast delivery. The lack of security support of Internet based email can be
overcome easily by using encrypting software, such as public-key encryption to ensure
privacy of EDI messages and identify sender and recipients. Furthermore Internet applications
are based on established technologies and hence available from independent vendors. These
reflections show that EDI can very well be communicated via the Internet without the use of
VANs. Transferring EDI directly using Internet technologies has been pioneered by the U.S.
government and was quickly adopted by companies.
Before being able to exchange EDI transactions the trading partners must agree on the
protocol used for exchanging EDI messages as well as on some other details for the exchange.
Two basic types of messaging are common. Firstly, Internet e-mail based messaging is used
where EDI data is enclosed within the e-mail message through MIME encapsulation and
typically encrypted with PGP (Pretty Good Privacy). Trading partners therefore exchange
email addresses, the agreement on encryption and digital signature protocols, their public keys
and the agreement on X.12 or EDIFACT transaction sets as format of the messages.
Secondly, FTP-based messaging that is accomplished by creating an account for every trading
partner to enable FTP login. Each EDI message will then be stored in a file under certain
conventions such as directory name and file name. In response to the use of different
protocols, data standards and application systems EDI gateways are set up to communicate
between different standards within the company as well as with other business partners. They
perform tasks like construction and deconstruction of EDI messages, translation between EDI
document formats-as EDIFACT/X.12-and in-house standards, they ensure the correctness of
messages and provide queue management for outgoing and incoming messages.
Internet
TCP/IP, SMTP, MIME
Company A
EDI gateway
Company B
TCP/IP, FTP
EDI gateway
Figure 11: VAN-free direct EDI exchange between companies
37
Figure 11 shows the situation of EDI exchange via the Internet without a VAN as third-party
service provider.
CitiusNet as an early European B2B Mover
CitiusNet67 is a company that provides a third-party electronic trading system for products
that are used in the production and administrative process such as office goods. Providing
originally an EDI support system for linking just to one supplier-CitiusNet (by that time
CitiusNet operated under the name Brun Passot). In order to fight this drawback the company
started to develop a multi-supplier telepurchasing system and launched CITIUS in 1993, the
“first European platform for B2B electronic commerce”68 and evolved to an early Internet
marketplace. CitiusNet as the electronic intermediate connected purchasers and suppliers
through EDI using a telecommunications network or optionally a VAN. It offered supplier
catalogs, catalog management, order management, EDI translation services and payment
transactions. Figure 12 illustrates the business of CitiusNet in comparison to traditional
VANs.
VAN 1
Supplier A
Supplier A
Purchaser A
Purchaser B
Supplier B
Purchaser A
Supplier C
Purchaser B
CitiusNet
Supplier B
Supplier C
VAN 2
Supplier D
Supplier D
Figure 12: CitiusNet as an early EDI-based Internet marketplace
The case of CitiusNet69 is not only interesting in terms of moving business from VANs to
an Internet marketplace but also in regard to building competitive advantage. According to
[Timmers; p.70] three crucial competitive advantages established CitiusNet’s assets. The first
is community building. This represents the idea that once a large purchaser is using
CitiusNet’s marketplace, its suppliers are pulled to the market as well since they themselves
will benefit from putting their catalogs online and thereby generate more business. Secondly,
content is important. A rich set of product catalogs will clearly attract more customers. And
thirdly control is necessary to identify business processes and requirements in order to be able
67
68
[Timmers; p.66]
[SIM1996]
38
to add value to the customers’ business process.
The Company’s Extranet
When two cooperating companies conduct business in a way such as depicted in figure 11
their Intranets are usually connected in the form of an Extranet for access to shared data and
services. The Extranet can be described as “Intranet for cooperating firms” or as “controlled
Internet”70 since only authorized business partners get access. These are in particular sales
partners and suppliers that are cooperating along the value chain of a company. Suppliers for
instance have various reasons to be part of a company’s Extranet. They take part in invitations
for tenders, they can submit offers on their parts and update wholesale prices of their
customers. Typically the number of participants in a company’s Extranet are strongly limited
and well-known. The Extranet can be also open to customers to get individual support or
product information. For every participant in the Extranet the company individually maintains
the relevant access rights. Within this cooperation network information is exchanged,
customer support is provided and transaction processes such as ordering and payment carried
out. Usually all these features are accessed through the company’s Web site. Such a gatewaysite can be called a corporate portal (as we introduced it in chapter 1.1).
In particular for SMEs the costs of setting up an Extranet and its operation usually doesn’t
pay off. This situation created the demand for new intermediaries that provide a platform for
operating an Extranet. Similar to an e-mall, these Extranet Service Providers (ESP)71 provide
features like catalog hosting, invitations for tenders or auctions. Whereas the Extranet is
especially designed to protect the company’s data and to allow access only for trusted parties
handing over business processes to a third-party such as an ESP requires the creation of trust.
This is best achieved when the ESP itself has a positive reputation or can get a trustworthy
company to use its service what will result in pull-effects on other companies.
At this point we come back to the vertical Internet portals or hubs that we introduced
earlier as third-party marketplaces of the new generation. They serve as a point of access for
companies operating in a specific business field to support business transactions. A vertical
portal can also be the platform for different business communities and can support all
transaction phases. Particularly used for procurement to lower transaction costs vertical hubs
provide product catalogs and supplier listings. Furthermore they might as well offer online-
69
70
71
CitiusNet now operates as Open Global Commerce at http://www.opengcom.com.
[Merz; p.362, p.361]
[Merz; p.370]
39
brokerage services to find business partners that match best specific supplier or purchaser
profiles.
3.2.4 New EDI
New EDI can be introduced as a “refocus of the standardization process”72. It focuses on a
standardization on the level of document processing in regard to the relevant business
processes, whereas traditional EDI aims at the document interchange level. To get business
processes to communicate with each other and perform a transaction there is the necessity for
both interacting business practices to understand each other, i.e. a set of standards for business
practices has to be created. The bridge is hence to be build between the programming
languages that are applied to express these interchange standards and the language of
business. A database standardizes the way of programming business specifications by
capturing business semantics. We will look briefly at some of the new proposals to facilitate
the use of EDI or to extend EDI functionality, i.e. to make EDI more dynamic. 73
Interactive EDI: This aspect of new EDI is also called interactive query response. It is
characterized through a point-to-point connection between customer and supplier. Interactive
EDI is implemented with use of the Web and the Web browser and bypasses the intermediary
(VAN). So rather than to solve the problem of converting an EDI message to a local format or
to embed EDI in the complex business process, this approach is more focused on facilitating
the use of EDI by visualising outgoing and incoming EDI messages in the Web browser.
Three different solutions are proposed to visualise these e-forms:
Using server side scripting dynamic HTML documents can be generated and send to the
user’s browser. Likewise through filling in a HTML form in the browser an EDI message
is assigned values to and then the message is sent. In this case the EDI message format is
generated on the server.
Client side java-applets are able to generate flexible forms and therefore eliminate some of
the restrictions implied with dynamic HTML documents. Input from the user can be
checked on the spot for correctness and the applet converts the input to EDI format before
sending it to the server. However the disadvantage is that the java code for visualization
and conversion has to be programmed individually and constitutes an enormous financial
72
[Kalakota; p.364]
40
expenditure.
XSL (Extended Stylesheet Language) offers new possibilities as well. When information
for visualization of an EDI-message is coupled to a XML-DTD (Extended Markup
Language-Document Type Definition) loading of the message in XML format
automatically includes a link to the relevant XSL rules that are standardized for every
message type. They could be made centrally available in the Internet. A generic Java
software could specify the visualization for that the syntax is laid down in the DTD. We
will look at XML in the context of EDI and more generally later in this work.
Open EDI: Open EDI is designed as a business procedure particularly to enable electronic
commerce for businesses interacting for just short time periods. It therefore is a response to
the dissatisfaction with what traditional EDI offers for today’s business requirements, such as
the rapid changes of short-term partnerships. Open EDI shortens the contract agreement that
usually precedes the EDI business by using simpler legal codes. The ISO reference model for
Open EDI consists of a business operational view supporting semantics of business data and
rules for business transactions, and a functional service view addressing problems of
information technology. Compared to traditional EDI this new standard does not only
determine the data format, it broadens the view on business processes and includes therefore
aspects of the entire workflow. By using Unified Modelling Language (UML) to define
processes in regard to its requirements, it will be possible to describe business processes in a
more precise and formal way. This will also ease the development of pre-tailored software
components. Recently Open EDI also uses XML for data transfer, relying on repositories that
manage XML-DTDs.
Universal EDI: Like Open EDI, Universal EDI seeks to go further than standardization of
message format and aims on defining complete business processes. Four communication
levels are applied to the regarding EDI transaction intending to describe details of the
cooperation between the companies. The top level presents options that are made available by
the business model (business methods). On the second level (business processes) steps within
the regarding transaction are examined. The third level (information model) consists of classic
EDI use and applies documents and forms that resulted from the specifications of relevant
business processes. On the last level (technology level) the Universal EDI software chooses
73
[Merz; p.321-328] and [Kalakota et al.; p.395-401]
41
the transmission or processing technology such as EDI, fax or email. It is noteworthy that
schematization of routine processes in, for example travel bookings, procurement, financial or
departmental communication is not hampering the efficiency, since it doesn’t eliminate
flexibility but seriously improves interoperability. Through detailed business analysis in the
first stage and deriving standards in the following stage Universal EDI aims at an
comprehensive support of the cooperation of companies.
The latter two developments are still in their beginnings. However, new chances for
alternatives are arising when turning towards the language of the Internet-HTML-and its
origins.
3.2.5 HTML and XML
To characterize activities around markup languages, one can describe it as “divide and
conquer”74-separation of syntax, semantics and presentation to seek for their independent
standardization under constraints of a minimum of standardization and a minimum of
standardization time. Our focus will be on XML that offers a basic markup language on which
decentralised standardization of separate extensions can take place. 75
The use of the Internet in the last few years has changed significantly. Whereas in the
beginning the Web was mainly used for presentational reasons, nowadays more and more
dynamic and structured content is visualized. This goes for online product catalogs as well as
for editorial content like information, news and personalized web pages. In this context
HTML operates as a thin dynamically generated presentation layer, that lies on top of a
complex software architecture. HTML alone doesn’t meet the new requirements due to its
static characteristics and the restrictions it lays down. When HTML was designed its strong
advantage was this very limitedness by defining syntax, semantics and presentation in one
document type. Visualization therefore was reduced to visualization of one standardized
document format which paved the way for the development of the HTML browser. New
approaches are taken that are particularly interesting in respect to electronic commerce and
knowledge management.
HTML originated from SGML (Standard Generalised Markup Language) that is a rather
complex standard for describing the structure of documents. A SGML document consists of
74
[Merz; p.329]
42
three components:
For document markup tags (also known from HTML) are used. Whereas in HTML tags
have a defined meaning in terms of visualization in the browser and predefined syntax, in
SGML tags just represent an instance of a type defined in the SGML-DTD. SGML
standardization therefore standardizes only the syntax of these tags that is a tag name in
brackets (i.e. <...>) and a list of optional attributes.
The SGML-DTD specifies the syntax according to which a valid SGML document has to
be constructed. The syntax itself for these construction rules within the DTD are
standardized within the SGML standard so that software which conforms to SGML can
interpret different DTDs.
Presentational issues of a SGML document are handled through the DSSSL (Document
Style Semantics and Specification Language), a scripting language specifying the
visualization of SGML element types, i.e. the SGML tags.
In 1989 Tim Berners-Lee developed such a SGML-DTD that got known as HTML tying
down the syntax of tags, their semantics as well as their presentation. Designed in particular
for presentation HTML perfectly fulfilled its purpose. However, to meet today’s business
needs more flexibility is required. Orientating back to the roots of HTML new standards
especially XML are created. The objective is to create a language similarly generic to SGML
to allow definitions of document types and presentation, however without its complexity.
XML as a kind of “SGML light” takes on the threefold component structure of SGML. A
XML document consists of elements (tags) that for their parts can also contain elements and
attributes. The XML-DTD lays down the syntax for the XML document, i.e. the way in which
elements of different types are combined and attributes assigned. DTDs can be included
within the XML document or be referred to using an URI (Uniform Resource Identifier). It is
also worth mentioning that XML documents not necessarily need a DTD. However it is
especially the possibility given by URIs for referencing even XML-DTDs that are located
somewhere else on the Web, which offers enormous potential. XML documents are not only
linked as regards content but also in terms of DTD standards. Every business community
could create its own standard DTD and link its XML documents to it.
XSL can be seen as the counterpart to DSSSL in SGML defining how a XML document is
presented. This is also the reason for the fact that there is no general XML browser. By the
75
For detailed information on XML visit http://www.w3.org/XML/ and also http://www.ibm.com/developer/xml/.
43
time HTML browsers will be replaced with XML-browsers XSL builds the bridge between
HTML and XML documents. When loading a HTML document in the XML browser the
browser will use a XHTML-DTD to interpret the HTML document and displays it in HTML
format. Since XML goes beyond simple Web browsing XSL offers exactly the flexibility that
is needed in a rapidly changing and varied business environment. One and the same XML
document can be presented in a different way according to the business context it is used and
needed in. XSL is therefore mainly used to transform XML documents into other formats
such as HTML, PDF or EDI.
Moreover XML is not only used in respect to the WWW and the construction of Web
pages but also to exchange data within or between companies. XML can be applied for
instance to build product catalogs and to enable communication among them-an achievement
which was never contemplated by EDI and related standards. Rather than having to be done
by the business partners themselves third parties can provide XML support in regard to
product catalog interaction. If two companies want to carry out a transaction using XML two
scenarios can be constructed. Assuming both companies use the same DTD for XML
documents the transaction is interpreted in the same way from both companies. However,
assuming two companies use different DTDs there emerges the need for translating one DTD
into the other, so that the respective company can understand the other’s XML documents.
This is accomplished through XSL use.
This is exactly where vertical portals come back into focus. Similar to the service provided
by VANs vertical portals translate between different XML documents that are based on
different XML-DTDs. Vertical portals take up a powerful position in the XML
standardization struggle-industry communities that use a particular vertical portal for their
transaction can turn their XML into a sort of “standard XML” for that particular industry
when the critical mass of portal users is reached.
The situation of translating between different types of XML-DTDs that is addressed here
will be further discussed from the aspect of interoperability of e-commerce systems in chapter
3.3.
3.2.6 XML/EDI
Especially when it comes to electronic commerce the potential of XML use for business
transactions is enormous. EDI is coming back into focus since now with XML there arise also
new chances for facilitating EDI implementation. In order to integrate EDI with XML, EDI
message types have to be reproduced in a XML-DTD. Complex EDI structures can be divided
44
into smaller and simpler XML-DTDs that can be easier standardized. Figure 13 shows one
and the same message document of an order, on the left in traditional EDIFACT and on the
right in XML/EDI.76
EDIFACT document
XML/EDI document
UNB+UNOA:1+4012345678901:14+409876543
2123:14+990107:1215+00000123’
UNH+004711+ORDERS:D:96A:UN’
BGM+226+99999’
DTM+137:19990731:102’
[...]
UNT+25+000005’
<?xml version=”1.0” encoding=”ISO-8859-1”?>
<!DOCTYPE ORDERS SYSTEM
“http://www.xmledi.org/orders.dtd”>
<ORDERS>
<UNH NRN=”004711” NK=”ORDERS” VN=”D”
FN=”96A” VOC=”UN”/>
<BGM NTC=”226” NNR=”999999”/>
<DTM DZQ=”137” DZ=”19990731” DZF=”102”/>
[...]
<UNT AS0”25” NRN=”000005”/>
</ORDERS>
Figure 13: Comparison of a message document in EDIFACT and XML/EDI
3.2.7 XML Standardization Initiatives
Apart from XML/EDI there are a variety of approaches to seek standardization of XML for
the exchange of transaction information between suppliers and buyers. Therefore in particular
procurement software vendors play a crucial role in pushing XML standards.
One of these standardization efforts is Commerce XML77. More than 40 companies active
in B2B electronic commerce as suppliers, buyers and Internet technology companies
collaborated in creating cXML as a “set of lightweight XML-DTD”78. Ariba Inc. was heavily
involved in developing and promoting cXML and induced many other vendors now to
support cXML as well. cXML was designed to facilitate especially the direct communication
between the Ariba procurement systems and the company’s suppliers. It therefore appears that
it is not meant to support Internet exchanges or vertical portals. It might rather be used by
larger companies to interact with a small number of primary suppliers.79
Other complementary XML initiatives are for instance Electronic Business XML (ebXML)80,
CommerceNet81, Internet Content Exchange (ICE)82 by Vignette Corp., Open Buying on the
76
[Merz; p.349]
http://www.oasis-open.org and http://www.cxml.org
78
[Cover]
79
[Keenan]
80
http://www.oasis-open.org/cover/ebXML.html
81
http://www.commerce.net
82
http://www.oasis-open.org/cover/ice.html
77
45
Internet (OBI)83, Common Business Library (xCBL)84 by CommerceOne, the Open Trading
Protocol (OTP)85, RosettaNet86 or BizTalk87 by Microsoft and SAP. Another initiative is the
Dublin Core88 Metadata Initiative. Its content description model consists of a set of
metadata89 elements specifically intended to describe electronic resources in order to support
resource discovery.
3.3 The Need for Interoperability
In order to conduct electronic business in an effective and efficient way it is crucial to share
information between e-commerce systems. However a variety of different e-commerce
systems and software systems within enterprises are the main reasons for the lack of
interoperability and constitute barriers to electronic commerce. A number of initiatives were
created to develop technologies based on XML that became de-facto commerce standards,
such as xCBL, ebXML, BizTalk, RosettaNet, OBI or OTP (see above).
Considering trading in an electronic B2B hub two scenarios can be constructed that illustrate
the way how the involved commerce systems share relevant information. In the first example
the portal translates between the two used XML-DTDs. This is the technology that is applied
for instance on the mySAP.com portal. In the worst case (n*m) translations between a number
of n buyers and m suppliers have to be accomplished. Figure 14 shows such an industry portal
and its translation service. 90
Order
XML-DTDA
Vertical
Portal
Order
XML-DTDB
Translation
Service
Product Catalogue
A
Product Catalogue
B
Buyer A
Supplier B
Figure 14: Translation service between two product catalogs
83
http://www.openbuy.org or [Treese et al.; p.97]
http://www.commerceone.com/xml
85
http://www.otp.org
86
http://www.rosettanet.org
87
http://www.biztalk.org
88
http://purl.org/dc
84
46
The second possibility is that the trading community relies on a shared XML-DTD. In that
case all XML-DTDs of the participating trading partners are mapped into the standard XMLDTD of that particular industry portal. Hence a maximum of (n+m) translations are necessary
to map the DTDs of a number of n buyers and m sellers to the shared XML-DTD. Figure 15
illustrates the mapping process.
Translation
Service
Order
XML-DTDA
Vertical
Portal
Translation
Service
Shared
XML-DTD
Order
XML-DTDB
Product Catalogue
A
Product Catalogue
B
Buyer A
Supplier B
Figure 15: Translation service using a shared XML-DTD
3.3.1 Ontologies
Despite the usefulness of developing and adopting a single specific standard for transactions
and content the achievement of such a shared standard is often time consuming and hampered
due to competition among companies and various other problems related to cross-industry
initiatives. The problem of lacking interoperability between systems can be characterized as
the “structural and syntactic problem.” It is commonly agreed on that XML is improving the
degree of interoperability between e-commerce systems since XML offers means for syntactic
representation of knowledge. To facilitate interoperability based on XML standardization
initiatives develop taxonomies91 focusing on standard tags on which participating businesses
have to agree on and use consistently. However, even under the assumption of completely
eliminated structural and syntactic difficulties one problem remains-the lack of semantic
interoperability, i.e. lack of understanding the meaning of data. How can two products be
understood as one and the same product when they are listed in different product catalog
sources under different names and in different categories?
89
90
Metadata can be loosely defined as “structured data about data”.
[Fensel; p.45]
47
To address this question another approach than seeking for standardization of XML is
under way with the application of ontologies in areas of electronic commerce and knowledge
management. An ontology “provides a shared and common understanding of a domain that
can be communicated between people and heterogeneous and distributed application
systems”.92 The main initiative around ontologies is Ontology.Org, a research forum that
spearheads the application of ontologies in Internet commerce. The term “ontology” was
already used in the 80s in Artificial Intelligence and Knowledge Representation and referred
to models of a domain. Expert systems forming the meta schema of knowledge bases relied
upon ontologies to facilitate knowledge sharing and reuse. In today’s context of B2B
commerce ontologies can be applied to model elements of commerce in a marketplace and
describe relationships between them, i.e. their semantics.93 Thus they “act as semantic
conceptual models94 representing common knowledge in a well-defined, sound, consistent,
extensible, reusable and modular fashion.”95
Without doubt architectures for B2B digital markets will have to support mediation and
translation between a variety of business procedures and trading characteristics. It is therefore
crucial to develop a framework for the infrastructure of a marketplace that provides
interoperability without imposing a uniform standard operation mode with that users have to
comply. An ontology-based approach provides facilitation of large-scale connectivity,
coordination, communication and automation of electronic commerce through intelligent
agents. An ontology consists of five elements:96
Entities (things).
The relationship between those things.
The properties and property values of those things.
Functions and processes that involve those things.
Rules about and constraints on those things.
The application of ontologies for electronic commerce can be viewed on a near-term and a
long-term basis. In the near-term a shared and common ontology of a trading hub will be used
91
According to [Roddy] a taxonomy can be defined as “Knowledge with minimal hierarchic structure”.
[Fensel; p.1]
93
[Smith]
94
By “conceptualisation” we understand an “abstract model of some phenomenon in the world by having identified the relevant concepts of
[it]” (see [Fensel; p.8]).
95
[Roddy]
96
[Roddy]
92
48
to identify a business vocabulary97 and industry specific views on products (product catalogs).
In the long-term intelligent agents will apply ontologies to find the best suitable business
partner in an automated e-commerce environment.
For further insights into ontology-based approaches as well as some of the complementary
projects around ontology application in electronic commerce and knowledge management see
[Fensel].
3.3.2 Product Classification
A complementary activity in the struggle for e-procurement standards to ease interoperability
follows the aspect of product classification and coding. The UN/SPSC (United Nations
Standard Products and Services Classification Code)98 emerged in February 1999 and consists
of an eight-digit, hierarchical classification system for products and services. The UN/SPSC
coding system specifies five factors that determine the UN/SPSC Code assigned to a product
or service. These are the segment (logical aggregation of families for analytical purposes), the
family (commonly recognized group of inter-related commodity categories), the class (group
of commodities sharing a common function or use), the commodity (group of substitutable
products or services) and the business function (functionality performed by an organization in
support of the commodity).
It is noteworthy that adopting UNSPSC in a company to code its catalog does not mean the
change of all of its part numbering systems. Since UNSPSC is a code used for classifying
commodities “it doesn’t drill down to the attribute level of parts”99 due to its hierarchical
system. Here, below the global classification scheme parametric searches are applied and
content has to be organized according to attributes.
A similar initiative is under way in Germany with eCl@ss100, a standard for classification
of materials and product groups. eCl@ss was developed by a number of leading German
enterprises and offers a standard for the exchange of information between suppliers and
customers. Some of the companies that agreed to apply eCl@ss are BASF, Bayer, Henkel,
SAP and Volkswagen/Audi. eCl@ss consists of a set of four hierarchic classification keys and
a subject catalog containing 14.000 terms. Each of the four hierarchy levels is depicted by a
combination of two digits-resulting in an eight digit classification key for products.
97
A vocabulary can be defines as “Machine-usable knowledge as standardized terminology” (see [Roddy]).
http://www.unspsc.org
99
[PorterAM]
100
http://www.eclass.de
98
49
In combination with eCl@ss there is the B2B-Initiative101 around the Bundesverband
Materialwirtschaft, Einkauf und Logistik e.V. (BME) that pursues the goal of giving in
particular SMEs an understanding of electronic commerce. The used standard is named
“BMEcat”102, it is based on XML and was developed with a series of industrial partners
among many others Alcatel, Bayer, BMW, DaimlerChrysler, Audi and Deutsche Telekom.
The B2B-Initiative offers its users an online-tool for converting product catalogs into the
BMEcat-format with access to the eCl@ss classification.
In the preceding chapter message technologies were introduced and discussed that facilitate
the exchange of transactions. These standards were entirely based on EDI in the past, however
now are widely accomplished through use of XML. We addressed as well the need for
interoperability of e-commerce systems and the activities around ontologies and product
classifications to solve this problem. In the following two other features that are crucial for
the operation of Internet portals for B2B electronic commerce will be discussed. This is firstly
the question of how the security problem can be tackled. Secondly, we will focus on
possibilities to create custom content, one of the big advantages of Internet technologies.
3.4 Adding Security to a Site
3.4.1 Pretty Good Privacy (PGP)
Carrying out business transactions in “good old EDI times” was a trustworthy exchange of
EDI messages in terms of security. Either a point-to-point connection between the trading
partners’ systems was established or the exchange was accomplished through a VAN. In the
latter case the VAN provided to a sufficient extent the necessary and requested security. But
what is the situation like when it comes to exchanging confidential information over the
Internet? The short answer is that Internet technology is very well capable of providing
necessary security. Security on the Internet is based on the idea of encryption, i.e. coding of
transmitted data so that it can not be read by unauthorized parties. Considering first the
scenario of exchanging EDI documents via Internet e-mail and SMTP. Software for
encrypting messages is easily available, for instance the widely used Pretty Good Privacy
(PGP).
101
102
http://www.b2b-initiative.de
http://www.bmecat.de
50
3.4.2 Secure Socket Layer (SSL), Digital Certificates and S-HTTP
Considering the case when business transactions are conducted via an Internet portal, whether
an enterprise or a vertical Internet portal as third-party marketplace, support for security is a
crucial feature. Transmitting logins and passwords, credit card numbers or other type of
confidential information do call for encryption. The most commonly used security protocol is
the Secure Socket Layer (SSL) protocol that was developed by Netscape. Since SSL sits
between the IP and TCP layer, its use it not restricted to HTTP only. It also encrypts FTP,
Telnet, SMTP or NNTP connections and therefore can be widely applied. A HTTP connection
in combination with SSL encryption establishes the “HTTPS protocol”. Communication via
SSL is based on public key encryption and the use of session keys. The HTTPS protocol
basically works as follows.103 On request of a client, the server sends a digital certificate (see
below) containing the server’s public key as well as information on the supported encryption
methods. After that the client generates a session key and wraps it with the server’s public key
before sending it back to the server. A HTTP connection that uses SSL is identified through
the prefix “https://”. One and the same web server extended with a secure server module for
SSL support, can hence handle HTTP as well as HTTPS connections. Both browsers,
Netscape and Microsoft Internet Explorer, support HTTPS protocol.
When doing business electronically, it is not just the secure transmission of information
that is important, but also the verification of identity. We mentioned earlier the necessity for
creation of trust, and in this context the emergence of certificate authorities as intermediaries
to provide trust. This process of verifying someone’s identity is called authentication. A
digital certificate (DC) is used to assure the customer of the legitimacy of a web site. It also
can be used for client authentication. VeriSign for instance has licensed RSA Inc.’s publicprivate key technology and is practically the leading certificate authority that issues and
verifies digital certificates. To support SSL encryption, a private encryption key has to be
purchased from VeriSign or another certification authority. A DC is created by the user filling
out forms with a certificate authority giving identification information and creating a public
key pair. After submitting, the user’s public key is digitally signed with the authority’s root
key to create the DC. It typically consists of four elements (see figure 16):
The subject whom the certificate was issued for
The certificate issuer’s name (e. g. VeriSign, Verisign/RSA of Thawte)
51
The subject’s public key used for encrypting, decrypting and digital of messages and
digital signatures
Some time stamps
Figure 16 shows a digital certificate issued by RSA Data Security for the Industry to Industry
company.
Figure 16: Digital Certificate
For reasons of completeness another approach next to SSL and HTTPS also should be
mentioned. Secure-HTTP or S-HTTP was developed by Enterprise Integration Technology,
however in practice this protocol is quite rarely in use. In contrast to HTTPS, S-HTTP does
not sit on the transportation layer but is an extension to the HTTP protocol itself. It
furthermore supports public-key digital certificates, although not necessarily requiring them.
One of the major differences between SSL and S-HTTP is the way they handle digital
certificates. With SSL actually the server is identified with a digital certificate. This might
have consequences for electronic commerce. When one and the same web server is used to
host pages of several companies (as is the case with service providers), there is just one single
certificate that tells the name of the shared web server rather than the company’s name. SHTTP overcomes this problem, because it is implemented within the HTTP protocol as
additional header information. So every new link can contain security information. 104
103
104
[Netsc]
52
3.4.3 Secure Electronic Transaction (SET)
Another security standard for the way credit card payment transactions should be handled in
electronic commerce, is Secure Electronic Transaction (SET)105. SET was developed by a
number of partners, such as major credit card companies, banks, technology partners and
merchants. And although still in an early stage, SET can be considered as the emerging
standard for Internet credit card transactions. It focuses strongly on encryption and
authentication of all transaction partners. It is noteworthy that SET messages can be carried in
HTTP as well as in electronic mail. A set user is given an electronic wallet (digital certificate)
that can be considered as an “electronic credit card”. In order to conduct a transaction, a
combination of these digital certificates and digital signatures are used between the purchaser,
the merchant and the respective banks. SET requires a SET-enabled server on the part of the
transaction provider and a SET-enabled browser on the client site. It furthermore makes use of
SSL as well as of S-HTTP. We briefly sketch out the different steps in a SET transaction.
Merchant
(3)
(6)
(1)
(7)
Merchant obtains
digital certificate
SET payment
gateway
(4)
(5)
Acquiring
bank
(2)
(5)
(4)
Customer
with SET
wallet
Customer obtains
digital certificate
Issuing bank
Figure 17: SET transaction flows106
The customer receives a digital certificate after opening a Mastercard or Visa bank account.
This DC includes the credit card holder’s public key and a digital signature from the bank.
Teh same goes for the merchant and his bank. When the customer places the order, her
browser (1) receives and confirms the validity of the merchant’s certificate. Then the
customer’s browser (strictly speaking the customer’s SET wallet) sends the (2) order
105
106
[Maddox; pp.124] or [Treese et al.; p.95 and pp.285]
53
information, encrypted with the merchant’s public key, as well as the payment request, that is
encrypted with the customer’s bank’s public key, to the merchant. In the following step the
merchant sends the payment request to a (3) SET payment gateway to verify the customer by
checking the digital signature on her certificate. The payment gateway then (4) validates the
merchant as well as the customer and (5) obtains an authorization from the customer’s bank.
The authorization is sent back to the (6) merchant who in return delivers a (7) receipt to the
customer wallet. Figure 17 illustrates the described process.
3.5 Personalization of a Web Page
We mentioned earlier the need for authentication in the context of payment transactions and
confidential information that is exchanged between transaction partners on the Internet. With
it, authentication is not just a means to assure someone’s identity in respect to securities
issues, it is furthermore a crucial point in adding personalizing features to a web page.
This means that for every user there is a web page tailored to meet his very personal
interests, whether this might be information on products in personalized product catalogs in
the application area of electronic commerce portals, or information on certain topics when it
comes to knowledge portals. Several authors refer to personalization as “mass
customization”.107 The Internet offers successful tools for conducting one-to-one marketing.
Pull and push technologies can be applied in a hybrid way, first by letting the customer decide
what he wants to see, second then by pushing this content to create a personally tailored web
page. [Treese et al.; p.200] identify three key elements in order to add personalization to a
site. The first is authenticating the user, second is creating a user profile and the third element
is creating custom content.
3.5.1 Authentication and Identity
Authenticating a user can be seen from different perspectives. In a rather loose context it just
indicates that a series of visits can be assigned to the same user regardless of her real identity.
In the context of electronic commerce, authentication is more strictly connected to the users
real identity, i.e. the companies as transaction partners. In the following some techniques for
authentication will be sketched out.
107
[Kalakota et al.; p.424]
54
A widely used technique is to store data in the browser cookie. There has been a passionate
discussion going on about use and also feared misuse of these small text files stored on the
client computer. A web server can write data to that file and read from it in order to
identify a user at re-entry or store information about the current session. The latter is the
case when for instance online shopping is done, and the shopping cart as an example is
implemented as an entry in the cookie file. Technically speaking, data in the cookie file
can only be read by the web server that wrote the data. Cookie use, since it works on the
client, requires that cookies are enabled, and there is also another restriction. When the
same user accesses the service from another computer, authentication through cookie
information will fail.
The second possibility is to prompt the user for a login name and a password that is then
stored in a server site data base. On the first visit, the user is requested to register for the
service. Usually some additional information has to be provided on the part of the user.108
This can be accomplished through answering questions about the user’s company or
personal interests for instance.
Public key digital certificates (DC) also serve to identify parties especially in commerce
transactions. Digital certificates can be used for client as well as for server authorization.
The usage of DC was discussed earlier in this work.
Now, after the system identified the user, the second element of personalization comes into
focus: Profiling.
3.5.2 Profiles
Creating and using profiles is a very powerful tool in the context of one-to-one marketing in
the Internet. A user profile is the key element to personalizing a Web page and it is very well
capable of leveraging the desired long term lock-in of customers. In former times customers
were locked-in by the use of proprietary systems and a kind of decent pressure, these days
personal web pages keep customers with the service provider. One of the easiest ways to get
information about the user is to present the user with a list of categories and subcategories
from which keywords can be selected. This procedure usually takes place when a customer
visits a page for the first time and goes through the registration process. Based on the user’s
108
[Treese et al.; pp.261]
55
selections, dynamic HTML pages are created. Sites like www.my.yahoo.com implement this
concept. However, the user is not always asked to select content from a given list to create a
profile. User profiles can be also created implicitly without the knowledge of the user, based
on the user’s path through the web sites. Two basic types of profiles can be distinguished
based on their location. Client site profiles are for instance browser cookies that are saved on
the client. On the server site, profiles can further be categorised depending on the roles they
are supposed to play. [Schubert; pp.109] identifies for instance identification profiles
containing the user’s name or other data. A system profile stores user-IDs, rights and logs
activities. The session profile gives information on the user’s Web session. Profiles are also
important in another respect. Software agents make use of profiles to store necessary
information about the user, in order to act on the user’s behalf.
3.6.3 Generating Custom Content
After having authenticated the user and making profile information available, the problem of
generating personalized content has to be addressed. A typical example for custom content is
the “personal newspaper” where stock quotes, weather news or other type of information is
displayed according to individual choice. This is usually accomplished through keyword
selections at the time of registration. After the user signs on, his profile is loaded and
according to the preferences, placeholders in the standard HTML frontpage template are filled
with the corresponding content.
To summarize, profiles are used for personalization and individualization of offers and
information especially in the phase of information gathering. In the agreement and transaction
phase profiles are additionally used to reveal the user’s identity to a system. Profiles are
therefore beneficial to both parties, customers and providers.
Keywords-based personalization
Besides keyword based personalization, there are sophisticated technologies that support
generating profiles and make use of them for further purpose. Installed personalization
engines do not just display content that has been selected by the user through an interactive
dialogue, they also present information and advertisements that might be of possible interest
to the user. These systems are called recommendation systems. Two basic technology
approaches can be differentiated: rule-based filtering and collaborative filtering.
56
Rules-based personalization
A rules-based engine generates content according to a set of business rules and business logic
designed by the site designers. Therefore personal habits or interests of the current user are
not considered, rather preset if/then statements are used. For instance when considering
product catalogs, if the customer is a company operating in office supplies, information on
chemical products will be of minor interest. The underlying business rules have to be refined
continuously in order to derive suitable recommendations, since they are not capable of
learning. The other problem is that the service provider needs to deploy a large amount of
these static business rules to capture all relevant combinations. Rules- based products are for
example available from Broadvision or Art Technology Group.
Collaborative filtering
The second tool to add personalization is collaborative filtering. These engines collect input
from many users and identify groups of individuals with similar interests. To personalize a
page, the individual user’s preferences are compared to the aggregated data, and the user is
then assigned to a certain cluster. By comparing and matching sets of preferences against each
other, recommendations for the individual user are derived. These filtering systems base their
decision on demographic information like age, social status or gender collected form its users,
as well as personal preference information input by the user. The success of collaborative
filtering engines very heavily depends on the size of the underlying database to come up with
representative recommendations. Moreover, due to the fact that user data is just based on
purchasing history, i.e. no static business rules can be applied, collaborative filtering engines
also have their restrictions. Another problem is to gather detailed user preferences, because
hardly anyone wants to spend a lot of time giving statements about his likes and dislikes.
However
collaborative
filtering
is
extremely
powerful
for
community-based
personalization109 as it is the character of a community to share at least partly the same
interests. Collaborative filtering products are for instance Net Perceptions and Like Minds
(now Andromedia) or Firefly.
Analyst tools
Both engines, rules-based and collaborative filtering, get their input from a database. In it all
the user data is stored, profile as well as the user sessions (these click streams can also be
109
[Manna]
57
stored in a separate file for further analysis). Tools for collecting web site data are so called
tracking systems, that keep record of where a user is at the moment and also possibly where
she has been previously. Technically, tracking can be done through cookie use or by passing
around a session number or user ID (URL rewriting).110 To analyse collected user data, eanalytic engines can be used. They are basically tracking systems that apply web mining
techniques to reveal who is visiting a site and which path visitors follow. Moreover analytic
tools are capable of asking the user questions concerning the content and structure of the web
site, in order to improve content towards customer requirements. Analytic tools are not
necessarily hosted on the same location as the web site, it is possible that this service is
carried out remotely. Net Perception, for example, offers the tool Intelligence Channel to
analyse user navigation.
110
[About.com] or [Treese et al.; pp.262]
58
4. Case Studies
In the previous chapters we looked at Internet Portals first from the perspective of business
related issues and examined the roles they play as intermediaries in a changing business
environment. Secondly, requirements that portals need to fulfil-such as new technologies in
the form of XML, security issues and the task of creating personalized Web content-were
discussed. In this chapter these findings will be applied in several case studies. All vertical
trading hubs that are subject to the analysis are early players in the area of business-tobusiness commerce via Internet portals and are now starting to report substantial revenue and
raising hope to reach the profitable zone in the foreseeable future.
The focus of these case studies is firstly on the business model the companies pursue to
operate their vertical portals. We will also examine the formation of business partnerships and
alliances that go along with the increase of offered functionality and scope. As far as possible
the underlying technology architecture will be illustrated, however it should be mentioned that
information on how these companies for instance implement their product catalogs in respect
to applying ontologies, use of XML standards or product classification is hardly available.
Therefore these issues can not be the main approach in this paper.
4.1 VerticalNet
4.1.1 VerticalNet’s Business Model
VerticalNet (Nasdaq: VERT) is the Internet’s operator of currently 57 specific vertical
industry portals that are designed as online business-to-business communities. The various
industry sectors covered are grouped into 14 categories, among others Communications,
Energy, Healthcare, High Tech, Manufacturing/Discrete and /Process, Science and Services.
Founded in 1995, VerticalNet’s industries meanwhile carry products from more than 3500
suppliers. Its vertical trade communities provide users with comprehensive sources of
information, interaction and e-commerce functionality.
VerticalNet’s corporate mission is “to be the leading digital sales and information channel
for industrial, professional and technology-based businesses.” Mark Walsh, VerticalNet’s
president and CEO entered the company in 1997-just as the business-to-business market got
the attention of investors-having a strong record of “being on the right side of the fence at the
59
right time”.111 Walsh previously founded and ran AOL’s business-to-business division AOL
Enterprise, and now is the major driving character behind VerticalNet’s business activities. 112
VerticalNet’s business strategy is characterized by the three C’s:
Content. VerticalNet offers industry specific news, product information and supplier
product catalogs. Information is delivered in the form of news articles, books and videos
for purchase and journals. Information on new product releases are available as well as
supplier directories. To provide qualified industry content, VerticalNet started right away
to hire journalists and editors away from renowned trade magazines.
Community. Community features are offered for instance in the form of chat rooms where
businesses from a particular industry exchange information and experience.
Commerce. This describes support for business transactions including auctions,
exchanges, RFQs or RFPs. Other e-commerce capabilities are offered horizontally across
VerticalNet’s communities, such as IndustryDeals.com, a large collection of used and
surplus inventory and products and VerticalNet’s “front door” for its auctions. Another hub
is the IT CareerHub.com providing career services, or the Professional Store.com, that
allows community specific ordering of books, videos, software or periodicals/publications.
When creating VerticalNet, its business model was largely based on advertisement
revenues. The sites initially offered content and just from late 1998 on, sites were enriched
with commerce and transaction functionality. The strategy was to first create communities
that add value to their members, then-when relationships are established-to move on to
commerce. 113 VerticalNet’s asset was to apply this model to a variety of industries, creating
the set of vertical industry communities it covers now. All VerticalNet communities share the
same design and format facilitating navigation for the user once he is used to act in one
industry. By doing this, VerticalNet can spread costs for auction, exchange and other
technology over a large number of sites.
VerticalNet is largely set out as a sell-side solution to aggregate suppliers and build
communities of interest. It is important to mention that this model is contrary to most of the
newer exchange models of other B2B software suppliers like Ariba or CommerceOne, who
follow a buy-side model and aggregate buyers to purchase supplies. VerticalNet therefore acts
in a less competitive environment. This model provides VerticalNet with competitive strength
111
[Junnarkar]
In July this year, VerticalNet appointed Joseph Galli, president and COO of Amazon, as new president and CEO. Walsh will remain at the
company as chairman.
112
60
to raise barriers of entry.
4.1.2 VerticalNet’s Web Sites
Entering one of VerticalNet’s business communities, the user faces a well designed and
comprehensive entry page. We will group the content into six sections for easier evaluation.
These sections are the same on all of VerticalNet’s community sites, offering navigation to
industry news, product catalogs and community interaction. In the following we will look at
these different navigation paths to find products and information.
The first possibility is to start using the “Site Search” functionality. A pulldown menue
lets the user select from several categories. These are among others Products&Services,
Company listing, Books/Software and RFPs/RFQs.
When looking for information, the “Editorial” as the second section links you to News
and Analysis. VerticalNet offers here sophisticated articles, that are to a large extent
written by VerticalNet’s own qualified editors and therefore are not just a collection of
articles combined from different sources of information.
The third section, here “@Pulp & Paper Online”, provides direct links to latest headlines
and features. The “Deal of The Day” offers one certain product to special conditions. In
the “Editor’s Choice”, selected products are introduced.
As the fourth section we name the “Professional Center”. Its “Career Center” enables
employers to post job offers and recruit in a cost effective and efficient way. Job seekers
access the pool via the “Job Search” or the “Recruiter Center”. The “Training Center”
provides easy, centralized access to training and education courses, materials, and services
offered by training companies, trade associations, publishers, and universities. Following
“Resources” the user can get access to an “Events Calendar” and “Community Interaction”
with Discussion Forums and Live Chat.
As the fifth section, “Online Catalogs” offers direct access to all available online catalogs
of companies in the respective vertical industry.
The sixth section is the commerce area and labelled “Product Center”. We will focus on
this area, because here the commerce transactions take place.
“Product Info” takes the user to a site from where to start when looking for a certain
product, browse for products (following “Buyer’s Guide”) or get to know about product
113
[Jones]
61
reviews (following “Product Showcase”). The “Buyer’s Guide” permits the user to type
in keywords to search for products in Products/Services or Suppliers. Secondly it lists
categories of products for further browsing. The “Product Showcase” presents a listing
of products chosen by the editor, that can be selected and further information requested.
Another feature of the “Product Info” page is to allow buyers to submit RFPs, as well as
suppliers to search for posted RFPs.
The “Marketplace” firstly provides a link to the area where books, software, videos and
research information is available. Secondly it repeats the “Editor’s Choice”, already
presented in the third section. Some, not all vertical industries114 offer here a link to a
site called “Industry Deals”, VerticalNet’s Asset Recovery Marketplace for used
equipment, surplus inventory, and materials in a vertical industry. These items are
available either in an auction or at fixed price from VerticalNet’s online store.
Purchasers can browse through several categories for wanted items and place bids in
auctions. When putting an item up for purchase, sellers decide for auction or fixed price
and select the category, their product should be listed in. Membership for taking part in
auctions is free, when a transaction takes place, a commission has to be paid by the
seller.
The “Supplier” site is the location where companies on the selling-side are listed. A
company’s “e-Commerce Center” is a specifically composed and detailed vendor site. It
contains the company’s logo, its browsable and searchable product catalog, a list of its
“Hot Products” and an “About Us” and “Contact” area. Figure 18 shows an exemplary
“e-Commerce Center” of 3M.115 The other way, in that suppliers are presented, is the
“Storefront”, designed for product showcasing in order to attract buyers. They provide
links to the company’s Web site, contact information, a product showcase and news
about the company and its products. They do not provide a catalog. Figure 19 shows
such a Storefront for Siemens. 116 Mainly through the commercial agreement with
Microsoft (see below), the number of storefronts could be increased by about 5000 in
the quarter ended June 30, 2000 and reached now a total of 8345.117 Companies are
charged annually for hosting their e-Commerce Center and Storefront with VerticalNet.
114
See for instance the “Chemical Online”-community at VerticalNet.
See http://www.pulpandpaperonline.com/ecommcenters/3m.html
116
See http://www.chemicalonline.com/storefronts/siemens.html
117
[VertQ2]
115
62
Figure 18: An example “e-Commerce Center” at VerticalNet
Figure 19: An example “Storefront” at VerticalNet
VerticalNet is currently in the process of continuously adding commerce services to all of
its vertical portals. It has to be mentioned that due to this, the “Product Center”-section of the
different communities is not concurrent across different communities at the moment.
Unfortunately in common is the rather irritating navigation in the “Product Center” in
particular for the new user. It is not clear, where links take you to by using mysterious “Click
here” hints and other forms of unclear hyperlinking. Some links even take you to the same
63
web page although followed from different categories by using inconsistent names for the
same content-so the case with “Online Catalogs” from the “Marketplace” menu and the link
named “E-Commerce Centers” from the “Suppliers” menu. “Used Equipment & Surplus
Goods” actually takes you to the site named “Industry Deals” and are auctions or fixed price
transactions, whereas RSQs/RFPs are reached via the “Product Info” group. Furthermore the
difference between “e-Commerce Centers” and “Storefronts” is not clearly communicated.
Summarizing, the industry specific content offered at VerticalNet’s sites is very
comprehensive. Navigation for the new user might be confusing, however the possibility to
search for products either following product categories or via exploring product catalogs from
a company’s storefront is a helpful tool.
4.1.3 Critics and VerticalNet’s Strategy to Tackle Shortcomings
As sketched out VerticalNet’s model can lead it into the profitable zone. However,
VerticalNet reaped some criticism as well. Critics say VerticalNet lacks expertise in its 57
industries. Furthermore, in comparison with other trading exchanges, it doesn’t offer enough
interactive trading functionality and value-added services like financing.118 Another criticism
aims at the relative infrequency of online transactions, since buyers and sellers tend to finalize
deals offline. Also there is no front-end software platform that would allow users to integrate
sales and procurement data into their legacy systems. 119 This lead to a debate about “whether
VerticalNet is a business-to-business up-and-comer or merely a wanna-be”120, and some
described it as similar to “millennia-old trading bazaars”121. This is grounded on the fact that
VerticalNet’s business model heavily relies on advertisement, raising concerns about the
sustainability of this model. 122 In an increasingly competitive environment for vertical portals,
it is crucial that users are provided with the depth of functionality they need to really facilitate
online business and reduce costs.
Less critical voices refer to VerticalNet as having “first mover status and domain
expertise”, also it is about to attract the critical mass of users in its vertical industries.123 All
these are very important characteristics. Looking at VerticalNet’s financial figures, there is
reason to see the company as an increasingly established B2B enabler. In its quarterly
118
[Wilson]
[Banham]
[Bousquin]
121
[Banham]
122
[Wilson] or [Banham]
123
[Banham]
119
120
64
report124, VerticalNet states a combined revenue for the three months ended June 30, 2000 of
$53.6m, topping analysts’ predictions of $38m to $43m. 125 Of this revenue just 38%
($20.4m)126 was advertisement based, whereas this percentage used to be much higher in
previous quarters. VerticalNet is on the way to change the composition of its revenue
portfolio towards a higher degree of transaction based revenue. However VerticalNet still
reported a net loss of $85.7m for the quarter ended June 30, 2000, resulting in an accumulated
deficit of $116.4m. These net losses derived primarily from VerticalNet’s significant
infrastructure expansion, expenses related to the development and extension of vertical trade
communities, and a series of acquisitions and alliances, through which VerticalNet addressed
the shortcomings mentioned above.
In July 1999, VerticalNet revealed the acquisition of LabX.com as wholly-owned
subsidiary, an online trading community for used and excess scientific laboratory equipment
for the life science industry, offering a variety of e-commerce services for buyers and sellers
This includes auctions, for-sale ads and wanted ads. LabX.com serves as the electroniccommerce portal for VerticalNet’s Science group (Bioresearch Online, Drug Discovery
Online, Laboratory Network.com). Underlying an alliance from end of 1999 with
Neoforma.com Inc.-a provider of online auctions of medical products, supplies and
equipment-VerticalNet provides through LabX.com the Internet channel for Neoforma.com’s
used lab equipment. It furthermore is agreed on that VerticalNet builds and manages a cobranded career centre and an online training and education centre. In return, users of
VerticalNet' s laboratory and medical marketplaces gain linked access to Neoforma.com' s
online medical product catalogs. VerticalNet will further benefit from Neoforma.com’s
experience in managing auction services.
In August 1999, VerticalNet closed the acquisition of Isadra with adding Isadra’s software
to VerticalNet’s suite of enabling technologies.127 Isadra provides an “industry-standard
framework for the intersection between networks of sellers and networks of buyers.” Its hubbased Cooperative Commerce (TM) architecture enables driving traffic and transactions
among suppliers and customers across VerticalNet’s multiple verticals to provide real-time
product information, pricing and availability. 128
124
[VertQ2]
In comparison the three months combined revenues ended June 30, 1999, were $3.6m (see [VertQ2]).
126
[Bousquin]
127
[VertPR08/25/99]
128
[Isadra]
125
65
In late 1999, VerticalNet acquired NECX.com LLC as a wholly-owned subsidiary in a
$125m deal. NECX.com is the most significant trading exchange for electronic components.
Its platform is said to provide VerticalNet nearly entirely with what it needs for its vertical
industries. The NECX exchange model can hence be duplicated across its 57 communities.
Until now VerticalNet integrated NECX market-making operations with its trade
communities contained in the Communications and the Advanced Technology groups.
NECX.com contributed to VerticalNet’s revenue with $29.1m or 54% in the three months
ended June 30, 2000.129
Tradeum Inc. was made a VerticalNet subsidiary in March this year.130 Its flagship
product is Xchange Suite, a Java and XML-based platform, designed for real-time content
aggregation. It allows VerticalNet to build dynamic marketplaces for matching up multiple
buyers and sellers electronically. VerticalNet’s acquisition of Tradeum can be seen as a
reaction to earlier announcements by its competitors to buy up expertise, particularly in the
field of XML-enabled exchange and auction functions-CommerceOne merged with
CommerceBid, and Ariba took over TradeX131 and Trading Dynamics. In May 2000,
Tradeum announced its eMarketplace Suite (TM), an integrated solution that combines its
existing Xchange Suite with Isadra’s Cooperative Commerce (TM) technology.132 The
eMarketplace Suite contains a comprehensive set of multiple transaction mechanisms
(catalogs, auctions, exchanges, RFQs/RFPs), market design tools and multi-party information
integration.133 Its integration to VerticalNet’s strategic partners Rightworks134 and Yantra135
also offers comprehensive buyer services-such as e-procurement, user interface components,
workflow and project tracking among others-and seller services, among others branded
showcasing of products and services and delivery/inventory management. Critical support
services for value-added solutions are provided for instance through VerticalNet’s partnership
with CyberSource Corp., offering payment, credit-card authorization and sales-tax
calculation. 136
129
[VertQ2]
[VertPR03/08/00]
See Appendix E.
132
[VertPR05/15/00]
133
[Tradeum]
134
Rightworks is one of the leading software providers for B2B exchanges.
135
Yantra, a provider of e-Commerce operations solutions, teamed up in February 2000, intended to tie together all pieces of VerticalNet’s
value chain-Web site front-end, back office ERP, financial systems, delivery and logistics and CRM platforms-to an integrated back-end (see
[VertPR05/15/00] and [Netmarket]).
136
[VertPR05/10/00]
130
131
66
VerticalNet’s most impressive strategic partnership is with Microsoft Corp., announced in
April this year and intended to deliver B2B services and content especially to SMEs.137
According to the agreement Microsoft will purchase at least 80,000 VerticalNet Storefronts
and E-Commerce Centers and distribute them to third party businesses and provide
VerticalNet with significant marketing and distribution support. VerticalNet agreed to use
Microsoft’s key technologies as underlying platform. Microsoft therefore made an equity
investment of $100m in VerticalNet.
VerticalNet also pursues plans for globalization. In a joint venture in February this year
with British Telecom and Internet Capital Group, VerticalNet enters the European B2B
market. The newly created company is called VerticalNet Europe and receives $227m in
cash and assets from the three partners, of which $107m are combined cash contributions of
the three partners.138
4.2 Chemdex
Chemdex is one of the Internet’s leading vertical markets for providing B2B electronic
commerce solutions for the life science industry. Chemdex currently offers more than 1.5
million products from 2300 suppliers in its electronic marketplace in order to streamline
business processes of the participating enterprises. Chemdex comprehensive commerce
solutions consist of the online marketplace for chemical and biological reagents, equipment
and lab supplies, secondly of procurement support and thirdly services and support to the
user.
In February 2000, Chemdex changed its name to Ventro Corp. (Nasdaq: VNTR) to
incorporate all existing operations of Chemdex and its subsidiaries. The change in name also
reflects Chemdex intention to take its platform to other vertical markets. Ventro therefore was
created to leverage the assets-originally developed by Chemdex for the life sciences
market-across multiple industries. Besides Chemdex, Ventro’s companies are Promedix,
Broadlane, Industria Solutions, MarketMile, Amphire Solutions and Ventro Life Sciences,
Europe.
137
138
[VertPR04/10/00]
[VertPR02/01/00]
67
4.2.1 Chemdex Business Model
When David Perry and co-founder Jeff Leane started operation of Chemdex Corp. in late
1997 their aim was to facilitate procurement in the life science industry with benefits to both
buyers and suppliers/vendors. Among others buyers benefit from a centralized location for
purchases, savings in order costs, facilitation of “comparison shopping” and tracking and
coordination of orders through software integration. On part of the suppliers there has to be
named the opportunity to place product catalogues accessible to the largest buyers, and the
integration into in-house commerce systems.139 In particular the pharmaceutical and
biological industry is characterized through a high degree of market fragmentation where
traditional paper-based catalog procurement is a time consuming and highly informationrequiring process for the purchasing side. Similarly difficult for producers of chemical
products is to get these to the market. Chemdex business model is based on transactional
revenues, i.e. product catalogs are made available online free of charge, whereas a fee is
charged on every transaction that takes place. When building the Chemdex marketplace, the
founders focused on the buying side, trying to win large players as buyers. Genentech for
instance was one of the first to participate as a pilot customer. By winning large buyers first,
Chemdex hoped to attract new suppliers to their marketplace, as well as gaining from the fact
that large buyers try to convince their suppliers to follow and to move online.
According to a study of Mercer Management Consulting Chemdex business model returns
cost savings to its suppliers and customers in a threefold manner.140 Firstly, it reduces
dramatically search time a researcher has to spend. Secondly, transaction costs using
traditional procurement methods are by far higher than with using the Chemdex marketplace.
Thirdly, the aspect of marketing also benefits from cost savings. The study furthermore
identifies three phases along the value chain of the supplier and the buyer where Chemdex
adds value:
Information gathering and research. Marketing product catalogs on the supply side and
looking through numerous catalogs on the buying side made information gathering timeconsuming and costly, in particular in a highly fragmented market as the life science
industry.
Purchase Process. An error-prone and inefficient order process that was based on filling
out forms and faxing orders to suppliers is replaced with an online order process, electronic
139
140
[eCom]
[Mercer]
68
routing of the order and quicker delivery.
Account Management. Automated billing, order tracking, purchase records and
integration in existing accounting systems are strong assets of Chemdex online
marketplace.
Chemdex Web sites were designed to be powered with integration of the marketplace into
customers’ back-office B2B electronic commerce systems such as procurement and ERP
systems. To accomplish seamless integration Chemdex introduced the MarketLink Program
in late 1999 enabling the exchange of information in a number of formats and methods.141
Chemdex MarketLink platform as front-end provides customers with a single integrated
system which open architecture components are built on industry standards such as XML,
EDI, cXML and OBI. Depending on the needs of the customer MarketLink is implemented
individually with a customizable scope. Linkages between the Chemdex marketplace and
third-party e-commerce systems have to be established at several points of the customer’s
supply chain: product search and selection, pricing according to specific customer’s price list,
back office order management, order status information and invoicing. The MarketLink
Program won support by a number of the largest e-commerce solution providers-Ariba142,
CommerceOne143, Concur, SAP and the Sun-Netscape Alliance. Chemdex is also a charter
member in the Ariba Supplier Link program within the Ariba Network offering buying
organizations that use Ariba solution, to purchase goods in Chemdex marketplace. Chemdex
suppliers gain access to some of the largest industry buyers. Figure 20 illustrates this
relationship.
Partnerships with these companies provide Chemdex with a broader customer base and
increased number of orders for Chemdex suppliers. Based on a strategic alliance with IBM
form November 1999, IBM Global Services provides resource and system integration tools to
deliver Chemdex vertical market solutions and integrate them into the ERP and procurement
systems of suppliers and customers in the pharmaceutical and healthcare market.144
141
[ChemSys]
[VentroPR04/12/99]
143
[VentroPR02/14/00]
144
[VentroPR11/11/99]
142
CUSTOMER
Procurement
Solution
ERP Solution
69
M
a
r
k
e
t
L
i
n
k
SUPPLIER
Chemdex
Matketplace
Ariba Network
Platform
Figure 20: Chemdex marketplace integration with Ariba Network customers through
MarketLink
With the creation of Ventro, Chemdex technical architecture will also power Ventro’s other
companies. One of them is Promedix, that was acquired in February 2000145 in a stock deal
valued around $340m.146 The acquisition provides Ventro with Promedix expertise in the
healthcare industry-Promedix carries out an online marketplace for specialty medical
products, offering healthcare professionals a one-stop shopping possibility for product
information and purchasing. Tenet Healthcare Corp., a owner and operator of a number of
acute care hospitals and related health care services, revealed that it made a strategic
investment in Promedix147 and agreed also on choosing Promedix as its exclusive provider of
specialty medical products.148 Tenet is furthermore Ventro’s partner in a joint venture that
formed a new company, Broadlane,149 to streamline the supply chain of healthcare
organizations. Broadlane provides an online marketplace for the high-volume medical and
related supplies market. Tenet brings in its purchasing power of its group purchasing
organizations (GPO)150 whereas Ventro (Chemdex) contributes its scaleable e-commerce
platform and procurement solutions.151 Additional to the high-volume items Broadlane
distributes specialty medical products via Promedix.
VWR Scientific Products Corp. is one of the largest distributors of lab equipment,
chemicals and supplies to research organizations, offering hundreds of thousands of products
145
[VentroPR02/11/00a]
The deal was announced in September 1999 (see [VentroPR09/22/99] and [Boulton]).
147
[VentroPR09/22/99]
148
[VentroPR12/13/99]
149
[VentroPR02/24/00]
150
Tenet’s GPO is BuyPower that purchases equipment and supplies on behalf of Tenet’s acute care hospitals (among a number of other
acute care hospitals), other healthcare facilities and physicians. BuyPower generated an annual purchasing volume of more than $3b in 1999.
146
70
from nearly 2000 thousand vendors in March 1999. Chemdex and VWR formed a strategic
partnership to build an electronic marketplace for lab supplies. 152 LabPoint as a first outcome
of the relationship started operation in November 1999 and combines VWR’s distribution
services with Chemdex technology platform. More than one million products from 1500
suppliers form a large online catalog for the life science industry supported by a single
combined e-commerce procurement and distribution solution. Three key components
characterise the combined marketplace. Firstly, procurement applications support workflow
and control. Secondly, tools and technology integrate with back-office systems allowing
access to LabPoint through existing procurement solutions. Thirdly, LabPoint offers a wide
range of services mostly provided by VWR. 153
Ventro’s second acquisition in February 2000 aimed at providing Ventro’s customers with
further complex content. SpecialtyMD.com was selected since it offers content in a
comprehensive form of, for instance medical product specifications, information about
medical procedures, studies and multimedia content such as from clinical conferences. 154
Moreover it offers sophisticated tools for search and procurement such as multiple search
paths through selecting categories of products and related product reviews-facilitation and a
comprehensive and well informed buying decision are the expected benefits to the user.
In January 2000 Chemdex teamed with DuPont to form Industria Solutions, Inc. designed to
streamline procurement in the fluid-processing industry such as chemical, oil, gas,
pharmaceutics or pulp and paper companies.155 The company will enable its customers to
access a broader supply resource offering features like real-time pricing, RFQ’s, auctions,
reverse auctions. DuPont as one of the largest purchasers of process plant equipment
contributes its strong buying power through conducting procurement via Industria Solutions.
Ventro Corp. is not the only player in the medical supplies and equipment market.
SciQuest.com, Inc., VerticalNet and Neoforma (both are in an alliance as said above) are at
the competitive forefront in the medical and laboratory products market. Although Ventro
established some important agreements with key customers (purchasers), its customer base
remained narrow156 and revenue nearly totally yielded from two major customers. These
customers were however attracted with promising special discount prices resulting in
decreased gross margins. Chemdex hope to attract other customers through brand recognition
151
[VentroPR12/13/99]
[VentroPR03/08/99]
153
[VentroPR11/15/99]
154
[VentroPR02/11/00b]
155
[VentroPR01/24/2000]
152
71
and thereby increase transaction volume seems to pay off. In its second quarter 2000 report157,
Ventro reports a gross margin158 of 7.21%. Compared to the quarter ended June 30, 1999 the
gross margin was 5.3%. This increase shows that Ventro’s current position is promising.
Ventro’s net loss in the three quarters ended June 30, 2000 was approximately $120m on
$25m in sales revenue. With Ventro’s focus on its new multiple markets and expanding
Chemdex model into new markets, Ventro is estimated to reach revenues of $445m in
2001.159
4.2.3 Chemdex Web Page
Chemdex basically offers two applications for conducting electronic business. These are
Science360, an Internet-based procurement application that combines an online marketplace
with capabilities for purchasing products, and LabPoint offered jointly with VWR Scientific
Products (see above).
In order to analyse the order process through Chemdex we will first look at Chemdex
customer solutions. Afterwards interaction from the supply side will be subject of the
illustration.
Customer Solutions160
Two elements characterize Chemdex Science360 solution: the marketplace and the
procurement application. 161
After logging in to the online marketplace users have got several possibilities of
interaction.162 To start an order process users can choose from four options. Firstly, they can
make use of a search engine to search for keywords. Search results within the search can be
refined by choosing search regions or limit the search to selected suppliers from the supplier
list. For every product detailed product information is available. The second option to search
for products is by using the category search to browse different categories. Figure 21 shows
the Web page for the search functionality.
Secondly, a quick order can be performed by directly typing in a catalog number that
156
[Redher]
[VentroQ2]
158
The gross margin indicates the proportion of gross profit and total revenue. It is therefore calculated as (Total Revenue - Total Cost of
Revenue)/Total Revenue.
159
[Malik]
160
[ChemCust]
161
[ChemSci]
162
[ChemTut]
157
72
uniquely identifies the product and the supplier. For regularly ordered products this speeds up
the order process considerably. Thirdly, ordering can be accomplished via a list of favorite
products to that users can individually add products for quicker ordering. Off-catalog ordering
is the fourth way of ordering a product. Here products can be ordered that are not available
through the marketplace online catalog.
Figure 21: Different search options at Chemdex Web page163
A special functionality of the order process is the audit trail. This means that Science360 takes
into account business processes and approval rules within the ordering organization resulting
in orders able to be routed to the responsible persons for approval. This is accomplished by
use of email that optionally includes notes and attachments from the ordering person.
Once orders are submitted they are stored in the order management for easier tracking of
order status. Orders are grouped according to their status as unsubmitted, pending, denied or
shipped.
The second component of Science360 is procurement. Several key features designed in
respect to facilitation of control over the entire purchasing process can be identified. For
163
Illustration according to the Chemdex online tutorial at http://www.chemdex.com.
73
instance contract pricing is supported in accordance with customized supplier lists, as well as
the earlier mentioned inclusion of the company’s approval workflow. Integration with ERP
systems is offered and complemented with automated ordering, billing and shipping.
Furthermore Chemdex-hosted solutions are offered for companies without assimilable
procurement
solution.
Large
companies
with
already
existing
procurement
solutions-commercial or custom designed-gain access to the Science360 marketplace through
MarketLink. Chemdex takes care of updating and maintaining the database in that case
leading to reduced total costs of ownership.
Supplier Solutions164
Keeping the product catalog up to date, complete and accurate are some of the strongest
requirements for a marketplace that should add value to its customers. Therefore four
component products for suppliers form a complete integrated solution to increase sales and
improve marketing through the Chemdex marketplace.
Web Catalog Manager. This tool is designed to offer a web-based application for product
!
updates, such as product information, new products or prices. It is thought to support the
supplier in performing smaller changes to its catalog. Product information is reviewed by a
Chemdex employee to check for conformity with Chemdex product classification.
Catalog Transfer Manager. This tool is used when a larger amount of catalog data has to
!
be uploaded to the Chemdex master catalog. Three phases determine the process of catalog
data processing. In the data acquisition phase catalog content is uploaded to Chemdex via
the Catalog Transfer Manager of FTP alternatively. The data has to correspond to
predefined data templates provided by Chemdex. The data processing as the second step is
done by Chemdex content engineers who review the catalog data. The data is then
processed in a way that it conforms to the standard ontology for classification of product
information in the Chemdex master catalog. The third phase consists of the return of the
processed catalog data to the supplier.
!
Supplier Pages. To provide for supplier companies the opportunity to directly market
products to the marketplace, supplier pages communicate company and information.
Suppliers therefore create and maintain their own web page within the Chemdex
marketplace that is accessible from the supplier list or the product details page when
searched for a product.
164
[ChemSuppl]
"
74
Supplier Reports. These reports deliver valuable information to the supplier about its
customer base, buying preferences and transaction data. Yet not all services are installed,
however a comprehensive data warehouse is planned including financial as well as order
transaction data. Suppliers will obtain crucial information about their customers and each
purchase that was performed through the Chemdex marketplace.
4.2.4 The Chemdex Ontology
The online marketplace of Chemdex uses a shared ontology of live science products that
allows to accommodate different product classification schemes within a representation. As
mentioned above all entries from multiple catalogs are converted into this common ontology
that is acceptable to each of the business partners.165 The first step of developing this ontology
consists of an analysis of buy-side behaviour in view of different supply-side ontologies. A
resulting start ontology is the basis on which the content engineering process runs as well as
the design of related search tools. The start ontology is altered with influences that come
along over the time and with its usage. The main focus of interest is to stabilise the ontology.
An ontology of a vertical industry market can even become the standard ontology of an
industry once it is adopted by a large number of market participants. One of the characteristics
of the shared ontology is that it allows vary product classification schemes to be integrated
into the representation. The representation itself is being accepted by each of the involved
trading businesses. This common ontology also is the crucial factor for building the complex
and highly scaleable platform like the Chemdex marketplace. A “shared information structure
and shared information access”166 are two requirements for a successful and efficient market.
Therefore content management and platform engineering play two equally important roles at
Chemdex.
165
166
[OntoChem]
[OntoChem]
75
4.3 mySAP.com
In May 1999 SAP, one of the leading providers of inter-enterprise software solutions,
announced at its annual European customer conference (Sapphire 2000, Nice, France) an ebusiness environment called mySAP.com, that provides companies with the possibility of
end-to-end integration between front and back-end systems and between enterprises. 167 The
mySAP.com portal is a suit of Internet business applications that is designed to leverage
SAP’s strong position in industry-focused business software as well as its uniquely large base
of enterprise software customers. Exploiting the power of the Internet mySAP.com enables
companies of all industries to bring together employees, partners and customers to collaborate
on a global level to streamline business processes such as supply chain optimization and
managing strategic relationships.
4.3.1 The Components of mySAP.com
mySAP.com is considered to be an unified environment that connects together all SAP
products (including SAP R/3, SAP industry solutions and other key initiatives) but also
content, services and software from other providers. Three core aspects are the underlying of
the mySAP.com concept. Personalization functionality is one aspect allowing of specifically
customized applications and information for customers, companies or industries. Another is
collaboration beyond company boundaries. Access to open markets and a broad base of new
potential business partners are the main benefits here. Thirdly, highly scaleable, secure and
open applications meet the specific needs of mySAP.com customers. mySAP.com comprises
furthermore four components that integrate between all internal and external business
processes-the architecture for value creation and One-Step Business:168
mySAP.com Marketplace. This electronic B2B-hub provides a single virtual business
#
environment for companies to perform collaborative business among customers, suppliers
and business partners.
#
mySAP.com Workplace. A Web-based portal provides users with role-based access to
SAP and non-SAP applications, information and services. Its three elements-Workplace
server, Workplace middleware (standard Web server and Internet Transaction Server) and
the Web browser-are sizeable according to the number of users. Almost 200 roles are
167
168
[Leininger]
http://www.mysap.com/solutions/
76
defined in templates and can be used for matching activities and functions to specific job
descriptions.
mySAP.com e-Business Applications. A wide range of business scenarios provide access
$
to SAP R/3 functions and to all other SAP tools as well as non-SAP systems. Various areas
are covered by the business scenarios, among others for instance E-Commerce (a
comprehensive infrastructure that supports reliable, secure business transactions over the
Web, such as “Buying over the Internet” with SAP B2B-Procurement and “Selling over the
Internet”)169, Customer Relationship Management170, Supply Chain Management171,
Business Intelligence172 and Financial173.
mySAP.com Application Hosting. SAP also offers hosting of end-to-end solutions,
$
implementation, operation and maintenance.
4.3.2 The SAP Internet-Business Framework
Built on SAP’s Business Framework that was developed in 1996 to provide a technology
infrastructure to access and link between SAP solutions and non-SAP software, the newly
launched Internet-Business Framework ties down the technology for collaborative business
communication over the Internet. It is therefore an integrated architecture consisting of
Internet-based components that are linked under flexibility and open standards. Basically four
technologies can be identified:174
The mySAP.com Workplace offers role-based and streamlined access to all information,
$
functionality and services via a Web browser.
In order to link business processes as well over company boundaries for collaborative work
$
SAP developed the WebFlow technology that is based on SAP’s workflow engine.
SAP’s WebMessages allow remote access to all applications and business data. Based on
$
Web-standards the SAP Business Connector (see below) enables to exchange XML-based
business documents and integrate them with all SAP solutions.
$
The SAP Interface Repository publishes all mySAP.com standard interface definitions and
data types in a XML-based interface repository. SAP customers and third parties can
download relevant XML schema in order to integrate seamlessly mySAP.com components
169
http://www.mysap.com/solutions/e-commerce, http://www.mysap.com/solutions/buying.html and
http://www.mysap.com/solutions/selling.html respectively
170
http://www.mysap.com/solutions/crm
171
http://www.mysap.com/solutions/scm
172
http://www.mysap.com/solutions/bi
173
http://www.mysap.com/solutions/financial
77
with other components for business communication.
SAP’s B2B Integration
As business-to-business integration we define “the automated exchange of information
between different organizations [...] across multiple industries-with incompatible IT
systems”175.
SAP’s Internet Transaction Server (ITS) acts as a gateway between the Web server and a
SAP R/3 application server to extend SAP R/3 to the Internet. It therefore enables users to
access SAP applications from the Internet or the Intranet by providing an HTML-based
interface.
The second element is SAP’s B2B Procurement (BBP), an open solution for interenterprise procurement. It offers a comprehensive set of processes necessary for facilitation of
the procurement of MRO goods and services.
Thirdly, the SAP Business Connector (BC) is a middleware product that integrates thirdparty applications into an SAP R/3 system using open technologies. The BC converts XML
documents to formats that can be read by the SAP R/3 applications. Therefore all SAP
functionality-accessible via SAP’s Business Application Programming Interface (BAPI),
Application Link Enabling (ALE) technologies and documents in the SAP data format
(IDOC), can be made available via the Web in the form of secure XML-based services to
business partners.
4.3.3 The mySAP.com Marketplace
The mySAP.com Marketplace consists of several applications that allow for interaction of
business partners. One of the core elements is a Business Directory in that buyer and seller
companies register their profiles and through that they locate other businesses and services.
The integration of exchange of business documents through the SAP Business Connector
allows user from SAP R/3 as well as from non-SAP systems to create an electronic end-toend business cycle by using the mySAP.com Marketplace. Another core element are the
services that can be accessed mainly the SAP B2B Procurement (BBP). Linking to all
suppliers on the mySAP.com portal is done by establishing a link to the portal.
The BBP server on the buyer side is connected to a messaging engine. The portal maps the
174
[SAPIBFa] and [SAPIBFb]
78
order information to the data format used by the supplier. It is then sent to the BBP server on
the seller side. The portal hence doesn’t use a standard ontology, however rather maps every
data format to the required data format of the business partner.
4.3.4 SAPMarkets
SAPMarkets, Inc. is the SAP subsidiary that drives all mySAP.com Marketplace efforts. The
business model is based on fixed entry fees that all mySAP.com Marketplace customers are
charged and per-transaction fees that depend on the service provided by SAPMarkets.
Additional a yearly maintenance fee is charged.
Figure 22: mySAP.com marketplace for the chemical and pharmaceutical industry
The mySAP.com Marketplace can be delivered in a threefold manner. 176 One is as a
service, i.e. that SAP brands and manages the marketplace as well as delivers applications and
the base infrastructure. The mySAP.com Marketplace at http://marketplace.mysap.com for
instance was launched in October 1999 and offers personalized content, collaboration,
community and commerce to more than 6000 registered companies. Another example is the
175
176
[Vridhagiri]
[mySAPWP]
79
marketplace for the chemical and pharmaceutical industry at http://chempharm.mysap.com.
Figure 22 shows this marketplace.
The second possibility is to operate a marketplace in a joint venture. In that case a
consortium founds a new company and SAPMarkets supplies the software and some services
and content-in exchange for equity. This legal entity brands and manages the marketplace.
Such a joint venture with Deutsche Bank for instance is http://www.emaro.com, an online
marketplace for office supplies and equipment.
The third option is to purchase mySAP.com Marketplace as a product. SAP delivers
applications and the base infrastructure, whereas the product owner brands and manages the
marketplace. Such a marketplace is provided for the healthcare industry for example with
http://www.neoforma.com.
In June 2000, SAP unveiled a strategic alliance with Commerce One, that will provide its
customers with SAP’s supply chain, customer relationship, business intelligence and product
life-cycle software. This alliance can be seen in the light of the rival alliance in March 2000
between Ariba, I2 Technologies and IBM. With this alliance SAP and SAPMarkets hope to
increase sales of mySAP.com.
80
5. Conclusions
Internet portals for electronic commerce and knowledge management-in the context of adding
knowledge to the portal in form of information-are at the heart of current evolution of Internet
applications. Portals for community interaction mainly for conducting business and sharing
information will continue to transform the way companies conduct their business. They are
developing towards further integration of all phases of business transactions-information
gathering, selection process, settlement, delivery, payment and after-sale service. New
possibilities are offered for all market participants: buyers, sellers and intermediates.
Especially through the application of Internet technology, new Web transaction standards,
such as XML, and the provision of hosted services, electronic commerce is not any more only
available for large companies. Now also smaller companies are able to benefit from
conducting commerce electronically through Internet portals.
We started our investigation of B2B Internet portals with an introduction to electronic
marketplaces that are at the centre of electronic commerce of the new generation and looked
at the roles that B2B hubs play.
Looking at the business of Internet commerce we sketched out that along with the changes
in technology through using the Internet as the underlying infrastructure, the traditional
organizational structure of companies is transforming and new business models are arising.
Moreover we have examined the question of disintermediation and the situation of internal
competition in third-party marketplaces.
These findings seamlessly lead to the examination of the technology of Internet commerce
and the definition of requirements for successful implementation of B2B Internet Portals. The
transition of EDI to the development of a new message standard, XML, have been discussed.
Complementary to a number of XML standardization initiatives are approaches using
ontologies that are capable of facilitating interoperability of commerce systems. It has to be
pointed out that integration of electronic procurement systems with the back-end systems is
not yet achieved to a satisfactory level and is currently the most challenging task. In addition
to the requirement of technical interoperability there is the need to address security issues.
Therefore commonly used standards have been illustrated in this paper. The third requirement
is expressed with the necessity to provide personalized Web content. Several techniques have
been introduced and analysed.
81
In three case studies the corporate strategies have been subject to the examination. The
formation of partnerships and strategic alliances proved as essential in order to extend
services and integrate functionality with the portal to win competitive advantage. Generally, it
can be observed that most of the Internet portals for electronic commerce that are online now
are shaping up in quite the same way in terms of offered services. Taking the example of a
catalog based portal these are, for instance, the functionality for finding products using either
categories or keyword-based search functions and offering of auctions or RFP/RFQs. Mostly
as well industry specific information is provided. However we found that these portals vary in
their strategies they pursue to attract buyers and sellers to their electronic marketplace.
The achievement of some forms of standardization within a vertical industry (possibly in
form of a standard ontology) will be the prerequisite for further automation of business
transactions. Since it is unlikely or even impossible to use a single standard for all systems
and across a number of vertical industries, translation services between different formats and
standards will be crucial to the success of Internet portals. Only if systems communicate with
each other the real potential of electronic commerce can be leveraged: integration and
automation of all business processes.
Appendix A
82
Appendix A
Some crucial dates in the emergence of portals177
April 1994: David Filo and Jerry Yang, doctoral candidates in electrical engineering at
Stanford University, start Yahoo as a way to keep track of their personal interests on
the Internet.
December 1994: Netscape releases its first commercial Web browser, based on the immensely
popular shareware product Mosaic.
December 1996: Yahoo launches personalization features that will later evolve into My
Yahoo.
Summer 1997: Planet Direct, c/net and others sell software to ISPs, which lets them create
user-specific homepages referred to as "portals."
Fall 1997: Infoseek, Excite and Lycos use "portal" concept to differentiate their services from
simple search engines and directories.
Fall 1997: AOL, Microsoft and Netscape seek to exploit their position as browser suppliers,
in order to establish their share in the portal market.
August 24, 1998: A Plumtree press release uses the term "corporate portal."
November 1998: Merrill Lynch report on "Enterprise Information Portals" is published.
177
http://www.knmag.com/km199907/featurea2.htm
Appendix B
83
Appendix B
Merril Lynch report on the Enterprise Information Portal, November 16, 1998178
"Enterprise information portals are applications that enable companies to unlock internally
and externally stored information, and provide users a single gateway to personalized
information needed to make informed business decisions. Enterprise information portals (EIP)
are an emerging market opportunity; an amalgamation of software applications that
consolidate, manage, analyse and distribute information across and outside of an enterprise
(including Business Intelligence, Content Management, Data Warehouse and Mart, and Data
Management applications)."
178
[Finkelstein]
Appendix C
84
Appendix C
The company’s value chain according to Porter
The concept of the value chain has been examined in detail by Michael E. Porter. He defines
the value chain as a “collection of [a firm’s] activities that are performed to design, produce,
market, deliver and support its product.”179 Therein value is defined as “the amount buyers are
willing to pay for what a firm provides them”180. To identify value activities within the value
chain, activities need to be isolated according to their strategic and technological
characteristics. A generic model of a value chain therefore consists of
primary activities. These are inbound logistics, operations to produce the final product,
%
outbound logistics, marketing and sales, and services.
%
Support activities act along the entire value chain to enable specific value activities. These
are procurement, technology development, human resource management and the firm’s
infrastructure.
Linkages between value activities can be defined based on the relationship between the way
one value activity is performed, and how this influences the costs or performance of another
value activity. [Porter; pp.50] points out, that a company’s value chain can not be regarded as
isolated within one company. He terms linkages between a firm’s value chain and the value
chain of its suppliers or customers “vertical linkages”, leading to “supplier linkages” and
“channel (customers) linkages”.
In the context of Internet commerce and the changes in organizational structure, the
integration of value chains leads to the idea of “value webs”.
179
180
[Porter; p.36]
[Porter; p.38]
Appendix D
85
Appendix D
Forrester’s eMarketplace Opportunity Index (eMOI)
Forrester Research uses the eMarketplace Opportunity Index (eMOI) to determine the degree
of online trade that is accomplished through electronic markets. The following figure
illustrates its composition and shows the saturation of certain eMarketplaces.
Appendix E
86
Appendix E
The story of TradeX
From May 1999 on, Tradex Inc. was in a strategic partnership with VerticalNet. Tradex
software lets a site host several product catalogs and also handles purchases that are made
from these sites. VerticalNet’s intention was to increase transaction functionality, in order to
get users to complete their deals online. Tradex was an investment of the Internet Capital
Group (ICG) (Nasdaq: ICGE), a holding company that is extremely involved in enabling and
operating business-to-business marketplaces. ICG has properties in a number of vertical as
well as horizontal market makers and owns 36% of VerticalNet. In December 1999, ICG lost
Tradex, when Ariba bought Tradex in a $1.86b deal. 181 In the following, ICG made a 51%
interest investment in Rightworks Corp., one of the leading providers of e-procurement
software for powering B2B exchanges. Rightworks is a competitor to Ariba and TradeX.
181
[Dignan]
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