B2B Auctions And Exchanges Will Mature Beyond Price, Predicts Forrester Research
Source: Forrester Research

Advancing eMarketplaces will propel dynamic pricing beyond today's limited uses. According to a new Report from Forrester Research, Inc. (Nasdaq: FORR), trade via real-time models like auctions and exchanges will reach $746 billion in 2004. As eMarketplaces evolve, firms will move beyond today's simple, ad hoc purchases toward configuring online markets for each transaction -- trading across product attributes and giving special attention to preferred partners.

"Dynamic pricing is expected to grow twenty-fivefold over the next five years," said Steven J. Kafka, analyst at Forrester. "During this period of rapid expansion, today's rudimentary eMarketplaces will evolve to support matchmaking across multiple product attributes, automated matching of bids, and deeper integration with back-end systems. This new environment will enable broader participation of suppliers with the fear of price margins getting squeezed."

As eMarketplaces expand their trading practices and deals materialize and evaporate with one click, traditional processes for finding suppliers and negotiating long-term contracts will change. Due to the new set of suppliers available at every transaction, buyers will need to establish a set of criteria to automatically evaluate new suppliers.

Forrester believes that over the next three years, the combination of next-generation eMarketplaces and smarter participants will catalyze an entirely new trading environment involving on-demand trading, contingent dealmaking, and partner preferencing. Although most firms currently use auction and exchanges on an occasional basis, on-demand trading will help companies match their purchasing requirements to an appropriate dynamic auction and automate recurring bidding decisions.

In offline transactions, buyers make implicit tradeoffs among multiple product attributes, and contingent dealmaking will bring the practice online. With well-defined preferences for nonprice attributes, companies will be able to optimize their purchases by factoring in critical elements like quality, warranty service, and credit. Buyers and sellers will also bid using ranges for key product attributes.

Lastly, in these highly evolved venues, firms will tailor every interaction with suppliers, excluding nonqualified vendors and providing bidding advantages for preferred partners.

For the Report "B2B Auctions Go Beyond Price," Forrester spoke with 19 eMarketplaces, eCommerce integrators, infrastructure firms, and technology vendors. Small signs that eMarkeplaces are already initiating aggressive enhancement plans include experimentation in multi-attribute deals, testing of trading algorithms, and the beginning of integration efforts.