A | B | C

Agents: Intelligent software that can be used in an exchange or auction to monitor prices and conditions on behalf of buyer and supplier, and in some cases to automatically execute trades.

Application service provider: An online outsourcer or hosting service for applications, letting Net market makers rent instead of buying applications and services such as auctions, exchanges and catalog aggregation. Many application vendors are moving to a hosting model, but ASPs are often application-agnostic, plugging a feature of one application into a marketplace when appropriate and using another feature from another vendor elsewhere.

Auctions: Let multiple buyers bid competitively for products from individual suppliers. Suitable for hard-to-move goods such as used capital equipment (forklifts) and surplus or excess inventory. Prices only move up, but buyers can buy below list prices while sellers sell for more than a liquidator pays. Auctions are becoming a feature of many Net markets, but some use auctions as their primary market mechanism. Examples: AdAuction, TradeOut.com (used equipment).

Back-end systems: Legacy enterprise systems that handle order processing, inventory, and receivables management for both buyers and suppliers. To deploy a digital trading platform, companies must often integrate new technologies with these older systems, which can include mainframe or ERP applications.

Bill of materials function: Ability to present predefined lists of items routinely required by buyers for a specific purpose. Can greatly reduce the planning process. In vertical markets, the challenge is developing a complete list of items that need to be purchased for specific products or projects. PartMiner (electronic components) uses this function to create a complete view of buyer activity, both purchases that go to contract suppliers and purchases made on itsanonymous spot market. Enables a market to combine a channel enabler approach with an exchange.

B2b (business-to-business): Describes online transactions between one business, institution, or government agency and another. Differentiated from b2c (business-to-consumer) plays such as Amazon.com, eBay, and Yahoo.

Catalog aggregation: Normalizing product data from multiple vendors so it can be easily compared. Virtual distributors and content aggregators often provide this service to buyers. Most valuable when products are complex and have many attributes. Prices are set, sometimes on contract.

Catalog aggregators: Make sense of buying options by aggregating catalogs from multiple vendors with relatively static prices. Act as a neutral intermediary but help buyers make sense of multiple vendors. Also normalize information coming from diverse sources to enable comparisons of similar products and services.Typically function as virtual distributors but don't take possession of goods themselves. Collect transaction fees on purchases but can generate additional revenue via credit checks, logistics, fulfillment, insurance, or other parts of the transaction process. Must satisfy suppliers' needs for differentiation while making comparisons possible for buyers. Examples: Chemdex, PlasticsNet, Sciquest (scientific equipment), Testmart (test equipment). Synonym: Virtual distributor.

Channel enablers: Marketplaces friendly to existing distribution channels rather than trying to create a new channel. Maintain relationships for the traders rather than in the Net market itself. Examples: IMXchange.com (market for mortgage lenders and brokers), Channelpoint (market between insurance brokers and carriers).

Churn: The relentless cycle of acquiring new customers and losing others that characterizes consumer e-commerce and reduces lifetime customer value because switching is so easy. (See switching costs, lifetime value of the customer.)

Coalition: Coalitions are either buy-side or sell-side and are generally groups of buyers or sellers who agree to channel procurement through a single marketplace. They operate a marketplace without having a third party, neutral Net market as the hub. Many claim to be neutral--that anyone can join--but, by the nature of their partnership their first audience is either buyers or sellers. The advantage of coalitions, particularly buy-side coalitions, is they can do a lot of transactions, which creates marketplace liquidity. However, the problem with coalitions is they have several challenges to overcome--political challenges, both from regulators and relationships between powerful companies, as well as technology challenges of integrating legacy systems. Due to the complexity of these issues, none are operational yet. If they do in fact successfully overcome these obstacles and operationalize, we expect they will conduct a large number of transactions because they can force their suppliers to go through this marketplace to conduct the transactions.

Critical mass: When enough buyers and sellers participate in a Net market so goods or services change hands efficiently. Also, the time when a market gains momentum, achieves liquidity, and becomes a more efficient way to buy or sell than the traditional physical market or channel. (See network effect, liquidity.)

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D | E | F

Disintermediation: When a Net market bypasses a traditional channel, more directly linking buyers with suppliers.

Electronic Data Interchange (EDI): Older version of electronic commerce between buyers and suppliers; more cumbersome and costly than Net-based commerce, feasible only for large companies and their most significant trading partners. Many Net markets do EDI-to-XML transactions to enable trading between large and small companies.

Enterprise Resource Planning (ERP): Complex applications used by large enterprises to manage inventory and integrate business processes across multiple divisions and organizational boundaries, frequently the application backbone in many large enterprises.

Exponential market: Where one party can be both a buyer and seller.Both buyers and sellers benefit when a new participant joins because fewer participants are needed to create higher volumes. Grow faster than linear markets. Require well-defined or commoditized products to make purchase and sale easy. Transaction costs must be low to keep the market liquid. Examples: Altra (energy), e-Steel, MetalSite. Synonym: circular market. Antonym: linear market.

Exchanges: Two-sided marketplaces where buyers and suppliers negotiate prices, usually with a bid and ask system, and where prices move both up and down. Work best with easily definable products without complicated attributes--commodities, perishable items such as food, or intangibles such as electric power. Produce fluctuating, sometimes volatile prices. Particularly appropriate if a true market price is difficult to discover. Also work where brokers make high margins by buying low and selling high to purchasers who don't know the original sellers. Examples: Altra (energy), Paper Exchange (paper products), GoFish.com (frozen fish), Arbinet (telecommunications bandwidth). Synonyms: digital exchange, online exchange, dynamic exchange, dynamic trading exchange.

Fragmentation: Market condition when there is no dominant group of buyers or suppliers, but where many buyers are chasing many suppliers, often inefficiently.

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G | H | I

Horizontal market: Sell materials or services that any company needs, not those used for manufacturing or production. Services include MRO, benefits management, and procurement process management. Examples: Ariba Network, CommerceOne's MarketSite.net, EmployEase. Synonyms: functional market, hub. (See MRO.)

Ignition: The point at which a market gains momentum, liquidity is achieved, and the Net market becomes a more efficient means of buying and selling than the traditional physical market or channel. (Related term: Critical mass, liquidity, network effect.)

Infomediary (consumer): Trusted third parties that act as custodian, agent, or broker of customer information, marketing it to businesses on the consumer's behalf while protecting consumer privacy.

Infomediary (business): Third party that provides research, competitive information, and advice on products or services to help buyers make informed buying decisions. TestMart, for example, tells engineers whether a test and measurement device is Y2K compliant, whether manuals are in stock, warranties available on secondary equipment, etc. Synonyms: lead generator, vertical portal.

Information portals: Create, install. and host personalized Yahoo-like information portals for enterprises and their employees. Suppliers: Aeneid, Moreover. Synonym: vertical portal.

Intermediary:Aggregates data and facilitates transactions by bringing buyers and sellers together. Internet-based intermediaries create multivendor, multiproduct marketplaces.

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J | K | L

Lattice vortex network: Term coined by Mohanbir Sawhney and Steven Kaplan to describe how vertical and functional markets intersect and partner.

Lead generation: Typically seller-driven, they derive revenue from ads, commissions on sales, or fees for delivering qualified leads to suppliers. Also may generate RFPs (requests for proposals) and RFQs (requests for quotes) for buyers. Provide value by understanding information needs of their users and integrating and aggregating content, information and transactions for buyers and sellers. Most lead generation markets seek to migrate to transaction-oriented catalog aggregation model. Examples: PhotonicsOnline.com (lasers), SolidwasteOnline.com (sewage treatment systems), PlasticsNet.com, Questlink.com (electronic components).

Lifetime value of the customer: The amount a customer spends over time with a supplier minus the cost of acquiring the customer. Both vertical and horizontal Net markets have promised investors they will "own" the b2b customer, become the default buying option, and thus have customers with a higher lifetime value than consumer e-commerce businesses. That promise has slowed development of partnerships between vertical and horizontal markets.

Linear market: When products move from one end of the supply chain to the other, typical of traditional markets and manufactured goods. Adding a seller primarily benefits buyers, and adding a buyer mainly benefits sellers. Antonym: exponential market.

Liquidity: Volume of transactions. With enough buyers and sellers, a market has continuous bidding, offers, and consummated transactions, and market liquidity is achieved. (See critical mass, network effect.)

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M | N

Market maker: In a stock exchange, market makers take ownership of shares, allowing people to buy and sell those goods from them. They also can make or lose money from price movements. Outside the financial community, market makers help match buyers and sellers, regardless of whether or not they take possession or own goods. (See Net market maker.)

Metamediary: Besides providing a multi-vendor, multi-product marketplace, the metamediary provides additional services for market participants. These services can be offered directly by the metamediary, or the metamediary can invite third party service providers into its marketplace. Services provided could include quality assurance, procurement management, fulfillment, or payment settlement.

MRO (Maintenance, repair, and operating equipment): Routine purchases such as office supplies, travel services, or computers needed to run a business but not central to the business's output. Ariba and CommerceOne sell buy-side procurement software for MRO. (See horizontal market.)

Net Market: An online intermediary that connects fragmented buyers and sellers. Net markets eliminate inefficiencies by aggregating offerings from many sellers or by matching buyers and sellers in an exchange or auction. For buyers, they lower purchasing costs while reaching new suppliers. For suppliers, they lower sales cost and reach new customers. A central hub where a trusted intermediary integrates both procedures and technology can save costs. Synonyms: infomediary, metamediary, electronic markets, e-markets, Internet markets, I-markets, vertical hubs, e-hubs, butterfly markets, vortex businesses, digital exchanges, online exchanges, fat butterfly.

Net market maker: A company creating an Internet market to match buyers and sellers. Doesn't necessarily own goods. (See market maker.)

Network effect: Describes how all buyers and sellers benefit when a new market participant is added. The network effect produces a cycle with more buyers attracting more sellers and more sellers attracting more buyers. Robert Metcalfe created the notion that the value of a network grows by the square of the number of participants. Synonym: Metcalfe's Law. (See liquidity, critical mass.)

Normalize: To create a consistent set of terms and product descriptions, often using industry-specific translation software. Primarily used by catalog aggregators, normalization technology requires translating schema or structures in product databases. (See ontology.)

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O | P | Q

Ontology: A Yahoo-like hierarchy of relationships and a glossary used as a standardization device to describe goods and services and to facilitate commerce in a Net market. (See normalize.)

Price transparency: When both buyer and seller know pricing. Net markets can eliminate arbitrage situations when only a broker knows the price. Net markets can result in sellers making more money and buyers paying a lower price, since broker margins are reduced.

Procurement hub: An MRO procurement marketplace for routine purchases such as office supplies, travel services, or computers needed to run a business but not central to the business's output. A type of horizontal or functional market. Examples: Ariba, Commerce One. (Related terms: MRO, horizontal market)

Purchasing hub: Buyer-centric mediators that aggregate demand from small buyers to negotiate better terms with large sellers. Can be horizontal (operating supplies) or vertical manufacturing. Used for spot purchasing (using exchange or auction) or systematic purchasing (catalog mechanism). The horizontal purchasing hubs use horizontal logistics (UPS, for example), while the vertical purchasing hubs generally need vertical logistics (for hazardous chemicals, for example) work with existing distributors.

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R | S | T

Request for Proposals (RFP): Invitation to suppliers to bid on supplying products or services that are difficult to describe for a company or public agency.

Request for Quotation (RFQ): Invitation to suppliers to bid on supplying easily described products or services needed by a company or public agency.

Reverse auctions: Buyers post their need for a product or service, then suppliers bid to fulfill that need. Unlike an auction, prices only move down. FreeMarkets (industrial parts, raw materials) uses reverse auctions as its primary market mechanism, serving large buyers. Since buyer power is key to reverse auctions, they work either for large enterprises or when practiced by intermediaries like KillerBiz andBizBuyer, which aggregate demand of many small buyers. Reverse auctions also are becoming common features of many Net markets.

Spot market: A market for unplanned purchases not made under contract terms. Transactions usually made on a one-time basis. Related terms: spot buy, spot demand.

Sticky, stickiness: The ability to retain participants. (See switching costs, lifetime value of the customer.)

Standards: Efforts to create wide use of specific protocols so software from different vendors can interoperate more easily, particularly within a vertical industry. Standards bodies or efforts often work more slowly than entrepreneurial companies in setting up interoperable terms of trade. Many e-commerce standards today are based on XML (eXtensible Markup Language), which provides a flexible way to describe product specifications or business terms. Relevant b2b e-commerce standards efforts include BizTalk, promoted by Microsoft so different industries can communicate online with each other; Open Buying on the Internet (OBI), overseen by trade group CommerceNet; and RosettaNet, an effort within the computer manufacturing industry.

Strange attractor: A key feature that causes buyers and sellers to use a Net market, often eliminating a transaction cost in a specific industry. Examples: CarStation (locating, then obtaining auto body parts), e-Chemical (distributing industrial chemicals), Chemdex (comparing chemical reagents from different vendors), Floraplex (paying sellers in seven days, not 45).

Supply chain management: An attempt to coordinate processes involved in producing, shipping and distributing products, generally with large suppliers. Net markets can extend supply chain management to all trading partners regardless of size because they provide a central hub to integrate information from buyers and sellers.

Switching costs: Costs incurred in changing suppliers or marketplaces. Net markets often seek to re-architect procurement, search, and other processes so buyers stay put, a key reason switching costs are higher in business-to-business than consumer e-commerce. (See lifetime value of the customer, churn).

Taxonomy: A classification system for items based on their relationship to one another. Related terms: ontology, normalize.

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U | V | W | X | Y | Z

Viral: A self-propagating practice or pattern of Internet use that moves from person to person. Works best in consumer e-commerce because of easy adoption. Longer sales cycle for b2b e-commerce makes viral practices less important. Example: HotMail's explosive growth.

Virtual private marketplace: A private market to enable approved suppliers to bid on a large buyer's business or to enable more cost-effective transactions under negotiated terms. Can be a hosted extranet or a feature a larger Net market. For example, National Transportation Exchange sets VPMs for large shippers to schedule and obtain bids from approved carriers, in addition to NTE's main spot market. FreeMarkets sets up VPMs for large buyers to interact with their suppliers through reverse auctions.

Workflow Marketplace: Provides project tracking or collaboration services for complex, iterative, multi-party projects in construction, syndicated bank debt, or licensed trademarks. Charge subscriptions but add transaction fees, such as Bidcom.com charging a contractor to print project blueprints. Create an information-sharing network that gives all parties an appropriate view of the project. Examples: Bidcom (construction), Hurricane (intellectual property). Also, many Net markets incorporate workflow to hold onto users. Once a Net market becomes part of everyday business processes, the switching to another Net market becomes much harder.