e-Marketplaces: Crafting A Winning Strategy - Latec

Pergamon 

PII: S0263-2373(02)00045-2 

European Management Journal Vol. 20, No. 3, pp. 286–298, 2002 

© 2002 Elsevier Science Ltd. All rights reserved. 

Printed in Great Britain 

0263-2373/02 $22.00 + 0.00 

e-Marketplaces: 

Crafting A Winning 

Strategy 

PETER BRUNN, Technical University of Denmark, Denmark 

MARTIN JENSEN, Boston Consulting Group, Denmark 

JAKOB SKOVGAARD, McKinsey and Co., Denmark 

Very little theoretical work has been done that truly 

helps e-marketplace managers understand and craft 

strategy. To help fill this gap the Temple Framework, 

which is introduced in this article, has been 

developed. This theoretical framework explains 

how e-marketplaces, in order to achieve success, 

must create a powerful setup (thus creating a strong 

strategic position) and meet the challenge of building 

liquidity and capturing value. It also suggests 

ways to meet this challenge as well as it explains 

the considerations that must go into designing each 

element of the setup. 

The Temple Framework has been extensively tested 

during the roll out of gatetrade.net, an ambitious e- 

marketplace founded by influential Danish companies 

with a European and international presence. In 

this article, gatetrade.net provides valuable insights 

on some of the lessons learned while working with 

the Temple Framework. © 2002 Elsevier Science 

Ltd. All rights reserved. 

Keywords: e-Marketplace, Liquidity, Business 

Model, Temple Framework, Revenue Model, Collaboration, 

Business-to-Business, e-Commerce, e- 

Business 

Introduction 

Lately there have been many articles in business periodicals 

and financial newspapers about e-commerce 

and the new e-marketplaces that have started to pop 

up. Strategies of value creation in e-commerce have 

also been dealt with in this journal (e.g. Zott et al., 

2000) focusing on efficiency and ‘stickiness’ of e-commerce 

business models and illustrating this by ‘best 

practices’ in Europe. e-Marketplaces can be said to 

represent a second wave in the e-commerce propa- 

gation and extending the Business and Consumer 

combinations (B2C, C2B and C2C) into the prosperous 

Business-to-Business (B2B) area. In our understanding 

e-marketplaces can be defined as interactive 

business communities providing a central market 

space where multiple companies can engage in B2B 

e-commerce and/or other e-business activities 

(Jensen and Skovgaard, 2001). 

A few years back only a small percentage of these e- 

marketplaces existed, but now the rapidly increasing 

adoption of the Internet by companies world-wide 

has changed everything. The explosive increase in 

reach and the significant decrease in transaction costs 

that have followed in the wake of the Internet penetration 

have made the e-marketplace business 

model feasible and attractive. As a consequence we 

have seen the establishment of quite a few e-marketplaces 

in various settings, public as well as private. 

During the few years they have been around we have 

witnessed both successes and failures among the e- 

marketplaces. However, the failures far outnumber 

the successes. A general experience seems to have 

been that it is very difficult to establish as a public 

e-marketplace. Examples are Chemdex, Dell Marketplace 

and Junebox. Typically the public e-marketplace 

has high initial investments and also high operational 

costs, which can only be covered by a 

substantial, often unrealistic, market share. Adding 

to the difficulties may also be that the e-marketplaces 

have required their users to change their way of 

doing business, which is at best a slow process. One 

reason for this may be that buyers and sellers have 

in fact not been ready to change their way of doing 

business. Furthermore, participating in a public e- 

marketplace often means having to accept being outside 

the control of the e-marketplace. Together these 

286 

European Management Journal Vol. 20, No. 3, pp. 286–298, June 2002

E-MARKETPLACES: CRAFTING A WINNING STRATEGY 

circumstances have caused the failure of many public 

e-marketplace initiatives. 

In contrast, private e-marketplaces seem to have been 

more successful, e.g. Cisco Connection. A possible 

explanation is that in contrast to the public model it is 

the e-marketplace that must change the way of doing 

business. Another factor may be that integration 

issues regarding existing ERP systems tend to be simpler 

to solve for private e-marketplaces – a fact which 

was often not appreciated fully by many of the failing 

public e-marketplaces. 

A general lesson seems to be that investments to create 

e-marketplaces are very high, and that the technology 

is often not mature. Many e-marketplaces 

built during the past few years have been founded 

on optimism and hope rather than on attractive value 

propositions and solid strategies. We therefore see a 

need for taking a closer look at what considerations 

should go into crafting a strategy for an e-marketplace. 

A Holistic Approach 

Due to the recent conception of the e-marketplace 

business model there has been relatively little 

research conducted on the topic so far. Furthermore, 

most of the research that has been conducted has 

applied very specific viewpoints (e.g. looking at e- 

marketplaces from a technological viewpoint, as an 

investment opportunity, or from the viewpoint of a 

specific industry or a specific geographic market). 

Little research has been conducted aiming at 

developing models that can aid e-marketplace managers 

in understanding the e-marketplace business 

model and crafting strategy by providing a holistic 

viewpoint. 

For this reason the goal of our study on e-marketplaces 

has been to develop and test a holistic theoretical 

framework for e-marketplace strategy that can 

help bridge the gap between existing but fragmented 

theory and the needs of e-marketplace managers. By 

this we hope to cast light on the question highest on 

the agenda of e-marketplace managers: how to craft 

a winning e-marketplace strategy? 

Understanding e-Marketplaces 

Crafting a winning e-marketplace strategy starts with 

an understanding of the e-marketplace business 

model. Without a deep understanding of how e-marketplaces 

create value the chances of crafting a strategy 

that will lead to sustainable competitive advantage 

are slim. 

The core service of e-marketplaces is to provide a 

central market space, where e-commerce can be conducted. 

However, although e-commerce is a very 

important aspect of e-marketplaces, it is important to 

understand that e-marketplaces are not limited to 

facilitate e-commerce, nor is e-commerce necessarily 

the most important aspect of a given e-marketplace. 

Other e-business activities that are just as valuable 

for the participants often take place (see Figure 1). 

For example, e-marketplaces can extend e-commerce 

with the functionality of electronic catalogues and 

auctions and by providing order fulfilment services 

such as tracing, financing and logistics. Another 

possibility is for the e-marketplace to play the role 

of organiser of various forms of collaboration for the 

participants of the e-marketplace, e.g. demand forecasting 

and inventory management. 

These types of activities allow e-marketplaces to 

build their value proposition upon three fundamental 

elements. In order of rising complexity they are 

(1) increased market efficiencies, (2) increased supply 

chain efficiencies, and (3) new value creation. 

With respect to market efficiency it is a fact that few 

real markets are truly efficient as predicted by 

microeconomic theory. Opaqueness, large transaction 

costs, regulation etc. are all conditions that make the 

real-life situation look a whole lot different than the 

theory. e-Marketplaces have the potential to make 

real-life work more like theory predicts, as they can 

significantly increase market efficiency. The intensified 

competition and the increased transparency of 

the Internet go hand in hand with the emergence of 

e-marketplaces and push prices closer to the theoretical 

equilibrium. This is because the e-marketplaces 

facilitate a way to increase transparency and bring 

together buyers and sellers and match their needs at 

much lower costs than before. Also supply chains have 

a vast potential for better efficiency. For the purpose 

of optimising business processes across supply 

chains, Supply Chain Management (SCM) has been 

studied and practised intensely in the 1990s. Successful 

e-marketplaces build on the same thoughts as 

they bring a standard for collaboration and interaction 

between companies. By providing users with 

good collaboration tools such as demand forecasting, 

inventory management and production planning, e- 

marketplaces help provide increased visibility across 

several tiers of the supply chain. Furthermore, 

because the way to collaborate is standardised, e- 

marketplaces also allow for a much more dynamic 

choice of sourcing partners (Means and Schneider, 

2000). In essence e-marketplaces are positioned to 

bring a new era of synchronised supply chains that 

are dynamic and therefore can be continuously 

improved. On top of the increased efficiencies in the 

market, and in the supply chain, e-marketplaces also 

bring fundamental changes to the way business is 

conducted in the B2B market space. Hence numerous 

opportunities on how to create value-adding activities 

exist (Berryman et al., 2000) – many of them as yet 

unexplored. The foundation for innovative services 

creating new value is information. The vast amount 

of information about product offerings and trans- 

European Management Journal Vol. 20, No. 3, pp. 286–298, June 2002 287


Figure 1 

The e-Marketplace Business Model 

actions of the participating companies now available 

from one single source becomes more transparent. 

Building on that information base new value can be 

created by bringing more radical and transformational 

changes to the supply chain yielding 

efficiency at a level not at all possible before the 

emergence of e-marketplaces. Furthermore, value can 

be created from new ideas having a fundamental 

impact on the business scope of both the e-marketplaces 

themselves and the participating companies. 

These observations regarding the value creation of 

e-marketplaces apply broadly to all e-marketplaces. 

However, it is useful to distinguish between two 

types of e-marketplaces: horizontal e-marketplaces 

and vertical e-marketplaces. The horizontal e-marketplaces 

are based on functions and/or products common 

across industries (i.e. the operating input), while 

the vertical e-marketplaces are those that are based 

on a specific industry tied together by the manufacturing 

input. The core value proposition of horizontal 

e-marketplaces is usually that of lower transaction 

costs in the purchasing process while a lower price 

is also often the result for buyers. However, because 

of the diversity of customers it is hard for horizontal 

e-marketplaces to introduce effective collaborative 

tools with an effect on overall supply chain efficiency. 

In contrast facilitation of collaboration is usually the 

core value proposition of vertical e-marketplaces as 

they are well positioned to cater for special needs, 

wants and customs attached to each industry. 

The Temple Framework 

Understanding the basics of the e-marketplace business 

model however, is not enough. For e-marketplace 

managers the question remains: how to craft a 

winning strategy? 

To provide managers with an overall perspective on 

e-marketplace strategy we have developed a comprehensive 

framework (see Figure 2) called the Temple 

Framework. It identifies the main challenge of achieving 

e-marketplace success (building liquidity and 

capturing value), provides detailed analysis of this 

challenge, and suggests ways by which it can be 

overcome. Furthermore, it identifies and clearly 

explains the considerations that should go into deciding 

how to set up the strategy of an e-marketplace, 

and the implications. 

The theoretical background for this framework is our 

synthesis of contemporary research and literature on 

the topic of e-marketplaces (mainly the works of 

Sculley and Woods, 2000; Ramsdell, 2000; Means and 

Schneider, 2000; Skinner, 2000; Goolsbee, 2000 and 

Andrew et al., 2000). 

Empirically, the Temple Framework is supported 

broadly by numerous observations and examples 

from existing e-marketplaces as well as by the sparse 

statistical material part of the works mentioned 

above. Most noticeably however, the empirical inputs 

to our research originate from an in-depth case study 

conducted with the Danish e-marketplace gatetrade.net. 

The case study at gatetrade.net has enabled 

us to refine the framework as well as to validate its 

value to e-marketplace managers. 

The Temple Framework has three main parts, as 

illustrated in: The Objective, The Challenge, and The 

Setup. While the objective is largely self-explanatory, 

the setup and challenge parts and their elements 

require a more detailed and thorough description, 

which is given in the following sections. However, 

before going into detail a few pointers on our intention 

with the Temple Framework are appropriate. 

First of all, it is important to understand that the 

Temple Framework is based on one central hypothesis 

that clearly describes how the framework should 

be interpreted: In order to achieve the objective of e- 

marketplace success one must create a powerful setup 

(thus creating a strong strategic position) and meet 

the challenge of building liquidity and capturing 

value. Second, it should be noted that the Temple 

Framework refers to e-marketplace success as seen 

strictly from the perspective of the e-marketplace as 

an independent entity, i.e. an e-marketplace is successful 

only if it is profitable. This is important, as 

incumbents that launch a private e-marketplace or 

take equity in a public e-marketplace are likely to 

define the initiative as a success as long as it provides 

them with significant value (for example defending 

288 



Figure 2 

The Temple Framework 

market share or through cost savings), even if the e- 

marketplace itself does not make a profit. By having 

defined success in this way we wish to make it clear 

that the primary concern of the Temple Framework 

is public e-marketplaces. However, the Temple 

Framework is also valuable for private e-marketplaces, 

as it is useful for understanding and analysing 

their strategic issues as long as their special traits are 

kept in mind when using the framework. Third, with 

respect to the word ‘setup’ it should be stressed that 

nothing static is implied. The setup is actually of a 

rather dynamic nature, as it is our hypothesis that 

the setup of an e-marketplace should be changed continuously 

as the environment of the e-marketplace 

changes and the e-marketplace grows and matures. 

This is equivalent to how strategy and business plans 

should be revised as conditions change. Fourth, the 

framework describes building liquidity and capturing 

value as the challenge. This is to illustrate that 

although there are two elements they need to be considered 

together due to their tight linkage. That is, e- 

marketplaces must always keep in mind that 

decisions on how to capture value influence the 

building of liquidity – and the other way around. 

Lastly, it should be made clear that because most e- 

marketplaces are still in their infancy, the discussion 

(of both the setup and the challenge) below emphasises 

the issues related to getting the e-marketplace 

off the ground, while less attention has been given 

to issues concerned with the later phases in the life 

of e-marketplaces. 

The Setup of e-Marketplaces 

The e-marketplace setup is the foundation for e-marketplace 

success and consists of five elements: focus, 

governance, functionality, technology, and partnerships. 

Taken together the five elements make up the 

strategic position of the e-marketplace and as such 

can be seen as the position from where to meet the 

challenge of building liquidity and capturing value. 

The reason for using these and only these five 

elements in the setup is that taken together they accurately 

describe the most important, the least understood 

and the unique strategic issues inherent in the 

setup of the e-marketplace business model. Furthermore, 

each of these elements is core to current 

research on e-marketplaces. Other aspects of e-marketplaces 

(e.g. organisation, marketing, financing, 

and management team) are not part of the setup, as 

they are neither core to current research on the topic, 

nor unique for the setup of the e-marketplace business 

model or amongst the most important or least 

understood strategic issues concerning e-marketplaces. 

In order for the e-marketplace to succeed, careful 

consideration must go into the design of and continuous 

change of each of the five elements of the setup. 

Furthermore, taken together the five elements must 

be in alignment to create a strong strategic position 

for the e-marketplace. The many issues that e-marketplaces 

should take into consideration when 

designing or making changes to each of the five 

elements of the setup are described below. 

Focus 

Deciding on an appropriate focus for the e-marketplace 

involves identifying what specific buyer and 

seller segments to target as well as deciding what 

type of products should be available on the e-marketplace. 

Without a clear focus the e-marketplace runs 

the risk of trying to sell everything to everybody. 

This is likely to result in selling nothing to anybody, 

as buyers and sellers are likely to prefer e-marketplaces 

that are able to cater more directly to their specific 

needs as a company – and these needs are often 

very industry specific. Therefore, while it is possible 

that an e-marketplace can evolve into the B2B Wal- 

Mart of the Internet 1 over time, setting up as such 

from the beginning is not likely to be feasible due to 

the differences between the players of different markets 

and industries. Focusing enables an e-market- 



place to dominate its chosen market space quickly, 

which creates mind share and liquidity, and in turn 

helps the e-marketplace scale up quickly. It also 

enables the e-marketplace to tailor its business model 

to match the target market’s distinct characteristics. 

These are critical success factors from the start 

(Sculley and Woods, 2000). Also, in order to get a 

good start it makes sense to focus on key players in 

a given industry. This can be done in terms of what 

sellers have the most complete product portfolios or, 

what buyers are likely to benefit the most from using 

the e-marketplace. Naturally, variables such as purchasing 

power, market coverage, technological 

sophistication, etc., can also be taken into consideration 

when trying to focus on the key buyers and 

sellers to target. e-Marketplace managers also need 

to have a clear focus when it comes to geographic 

coverage, horizontal vs vertical focus and specific 

product categories and product types. For example, 

with respect to geography it made sense for gatetrade.net 

to initially focus on the Danish market, as 

this way the partners behind gatetrade.net could 

make the best use of their relationships with key 

players in the industry and of their extensive knowledge 

of the Danish market. When choosing which 

products to focus on it is very important also to consider 

what is required in order to facilitate the purchasing 

process, e.g. selling automobile parts to a car 

manufacturer will require advanced forecasting techniques 

and just-in-time implementation, while an 

easy-to-use buyer interface and ease of administration 

might be the most important requirements for 

selling office supplies to the same car manufacturer. 

Governance 

Choosing an appropriate form of governance can 

help ensure a rapid adoption of the e-marketplace by 

both sellers and buyers. With respect to governance 

at the broadest level, an e-marketplace can either be 

biased or neutral (Kaplan and Sawhney, 2000). A 

private e-marketplace will naturally always hold 

some amount of bias towards its owner(s) whereas a 

public e-marketplace may be biased towards either 

buyers or sellers or be neutral. Strongly biased e-marketplaces 

run the risk of deterring the non-biased 

party from using the e-marketplace. Therefore it is 

in most cases advantageous for the e-marketplace to 

choose a neutral form of governance equally attractive 

to buyers and sellers (Sculley and Woods, 2000). 

Some of the benefits of a neutral form of governance 

are: 

❖ A perception of fairness and the trust of trading 

participants: 

– Making it easier to agree on standards for product 

specifications and collaboration functionality 

– Making it easier to carry out regulatory tasks 

such as supplier qualification, evaluation of credit 

worthiness, resolution of disputes, etc. 

❖ Fewer channel conflict issues: 

– Leading to increased transparency 

– Leading to better exploitation of potential market 

and supply chain efficiencies. 

Against these positive aspects of neutrality should be 

weighed the control and bargaining power that one 

gives up when choosing neutral governance. Furthermore, 

it should be taken into consideration that neutral 

e-marketplaces commonly face a chicken and egg 

problem (Kaplan and Sawhney, 2000). This is because 

buyers do not want to commit to using a neutral e- 

marketplace before the sell-side is well developed, 

while sellers do not want to commit before the buyside 

is well developed. By nature it is hard for incumbent 

sellers or buyers to create neutral e-marketplaces, 

which is the reason that independent startups 

dominate this field. However, for inherently 

biased e-marketplaces steps can be taken to increase 

the degree of neutrality. One way to do this is by 

making the governance reflect the composition of 

participants on the e-marketplace. For example, 

when gatetrade.net contracted with the Danish State 

they found that establishing an official forum 

enabling representatives from the Danish State to 

have a say in the decisions was needed. 

Functionality 

For e-marketplace managers it is important to have 

a good understanding of the different elements that 

must be designed and combined in the optimal way 

in order for an e-marketplace to create a powerful 

value proposition towards its target market. A.T. 

Kearney (2000) has developed a useful framework 

called the 3 C’s of B2B, where e-marketplaces are 

described with respect to three core elements: Commerce, 

Content and Connection. This framework provides 

a logical way of categorising the functionality 

of e-marketplaces. However, we have chosen to 

replace the term ‘Connection’ with ‘Collaboration’, as 

we believe that it is a more adequate word for what 

is actually offered by e-marketplaces today (see Figure 

3). 

Figure 3 The 3 Cs of B2B e-Marketplaces. Adapted 

from A.T. Kearney (2000) 

290 



The commerce part of e-marketplaces is the part that 

people can most often relate to. However, in much 

the same way as e-commerce is a subset of e-business, 

there is much more to e-marketplaces than 

merely commerce. As illustrated in Figure 3, the commerce, 

the content and the collaboration functionality 

are inter-linked and all three are important elements 

of an e-marketplace. While these three concepts separately 

are simple, the challenge is to apply them in 

the best possible way in a specific context and to keep 

pace with the development. 

Each market space is unique, 

and therefore the mix of the 3 

C’s must be carefully thought 

out in order to address the key 

inefficiencies inherent in the 

specific market space that is the 

focus of the e-marketplace – 

and to create new value. First, 

with regard to the commerce 

model, the product complexity, the available liquidity, 

and the maturity of trading participants towards 

e-commerce should be considered before deciding on 

catalogue trading or on one or more of the more 

advanced trading mechanisms such as auctions. 

Second, the content should be designed to attract buyers 

and sellers from the target group and to ensure 

loyalty and website stickiness. Third, the supply chain 

should be streamlined and transformed by connecting 

trading participants and third parties with 

collaboration tools that satisfy their specific needs. 

Fourth, the three elements need to be co-ordinated to 

yield synergistic effects and to create new value for 

the industry. Lastly, it is important to keep in mind 

that the mix of the 3 C’s that make up the functionality 

of the e-marketplace should be dynamic and 

reflect the ongoing changes in the e-marketplace 

environment. 

Technology 

Setting up an e-marketplace with the right technological 

platform is of strategic importance as it has 

direct consequences for the success of the e-marketplace. 

The major criteria for the technological platform 

is that it should be able to support the development 

of advanced market making tools (i.e. different 

catalogue structures and auction types), integrated 

procurement tools (e.g. searchable catalogues and 

administrative tools), and advanced collaboration 

tools. Furthermore, the migration of intimate supplier 

networks (e.g. in the form of supplier extranets) 

present in many industries on the e-marketplace platform 

should also be supported. For example, without 

the possibility of migrating supply chain management 

solutions to the e-marketplace platform a big 

part of the value that e-marketplaces hold, the potential 

for capturing cannot be realised. 

Furthermore, to ensure that the technology does not 

become a major hindrance for the e-marketplace, the 

technological platform must offer the possibility of 

frictionless integration with the ERP-systems of part- 

Without a clear focus the 

e-marketplace runs the risk of 

trying to sell everything to 

everybody 

icipating buyers and sellers. Also, to make the e-marketplace 

as efficient as possible, it should operate 

under open standards. Most technology providers 

(e.g. Oracle, Ariba, i2 Technologies, and Commerce 

One) are committed to open technical standards but 

have yet to agree on them. This means that e-marketplaces 

must choose their technology partners carefully 

in order not to be stuck with a non-standard 

platform. This is especially important with respect to 

future integration between e-marketplaces 2 Although 

translation software that makes 

it possible to communicate 

between different platforms 

exists, this is a far more expensive 

solution than using a standard. 

Furthermore, using a 

non-standard platform can be 

an inhibitor for buyers and sellers 

keeping them from participating 

due to the risks involved 

in backing a non-standard. Finally, the technological 

platform for an e-marketplace must also be scalable, 

flexible and secure. Without scalability and flexibility 

the platform can become a major restriction as the 

focus of the e-marketplace shifts or the demands for 

functionality increase or change, while a secure platform 

is necessary for ensuring the trust of the buyers 

and sellers participating on the e-marketplace. 

Partnerships 

Partnerships are important because as is the case for 

other companies, e-marketplaces cannot do everything 

themselves (Hagel and Singer, 1999). Like other 

types of companies e-marketplaces too need to stick 

to their core competencies and let partners with 

complementary skills carry out non-core activities. 

Furthermore, choosing the right partners is key to 

being able to scale up quickly and to be able to offer 

participants on the e-marketplace a wide array of services 

within the domains of commerce, content, and 

collaboration. Sculley and Woods (2000) argue that 

the potential partners for an e-marketplace include 

investors, buyers in the chosen market space, sellers 

in the chosen market space, existing broker intermediaries, 

new infomediaries, content providers, IT 

vendors, and software developers. It is especially 

important to choose the right technology partner(s), 

as few e-marketplaces have the knowledge and 

resources to develop and maintain a competitive 

technological platform themselves. Partnering with 

key industry suppliers and buyers is useful for getting 

to understand the customers of the e-marketplace 

as well as the industry better. Such partnerships 

can also help secure early liquidity on the e-marketplace 

as well as help gaining the trust of other players 

in the market. Partnering with key industry suppliers 

and buyers is especially important for vertical e-marketplaces, 

for which signing up a few big players 

early can often mean the difference between success 

and failure in consolidated industries. It is also a 

good strategy for e-marketplaces to partner with content 

providers such as news services – especially if 



they are strong on content directly related to a specific 

industry. Providers of services that fit well with 

the needs of the e-marketplace participants (e.g. providers 

of financial or logistics services) are also valuable 

as partners – and so are software developers that 

can help implementing advanced collaboration tools. 

Last, but not least, partnering with other e-marketplaces 

can also be beneficial. For example, horizontal 

e-marketplaces are likely to struggle with delivery of 

industry specific functionality and content. Partnering 

with a vertical e-marketplace can circumvent 

this problem, as the service offering towards a particular 

industry can be extended. 

Consistency of Setup Elements 

Focus, governance, functionality, technology, and 

partnerships are the five elements constituting the 

setup of e-marketplaces. Careful consideration must 

go into the design of and continuous change of each 

of the five elements of the setup. Furthermore, taken 

together the five elements must be in alignment to 

create a strong strategic position for the e-marketplace. 

However, creating a powerful setup is not 

enough to ensure the success of the e-marketplace. 

The challenge of building liquidity and capturing 

value must also be met, as building liquidity and capturing 

value are the pillars of e-marketplace success 

(see Figure 2 ). Both pillars must be in place in order 

for the e-marketplace to succeed. 

Building Liquidity 

The first pillar of e-marketplace success is building 

liquidity. The reason for liquidity being so important 

is simple: having the greatest liquidity – that is, having 

the most transactions done on your e-marketplace 

– translates into market domination (Sculley 

and Woods, 2000). Furthermore, liquidity contributes 

to a positive loop by supporting the economies of 

scale and scope, which are important drivers of the 

e-marketplace business model. The main service an 

e-marketplace provides is a centralised market space, 

and the more likely a buyer or seller is to make a 

satisfactory transaction using the e-marketplace, the 

more likely they are to join that e-marketplace 

instead of its rivals. Therefore, not only liquidity in 

terms of transaction volume, but also liquidity of 

information is needed in order for the e-marketplace 

to be attractive to buyers and sellers. 

In order to best build liquidity e-marketplace managers 

need to decide on a strategy for driving liquidity 

onto the e-marketplace. A good strategy for building 

liquidity should encompass a plan for solving the 

chicken and egg problem of attracting buyers and sellers 

faced by most e-marketplaces and exploit the 

network externalities inherent in the e-marketplace 

business model. Furthermore, the strategy should 

also consider how to protect and continuously build 

liquidity, as the scope of the e-marketplace evolves. 

Liquidity attracts more liquidity in the e-marketplace 

business. Therefore, one of the most important challenges 

of e-marketplaces is to get the initial liquidity 

needed to get this positive feedback loop started. This 

initial liquidity can be thought of as being the critical 

mass needed for the e-marketplace to really take off. 

As soon as critical mass is achieved the powerful network 

externalities inherent in the e-marketplace business 

model are released and so is the potential for a 

rapid increase in liquidity. However, first the chicken 

and egg problem of attracting the initial buyers and 

sellers and making them use the e-marketplace must 

be solved. 

Solving the Chicken and Egg Problem 

Without sellers, no buyers are interested in joining 

the e-marketplaces. And without buyers, no sellers 

are interested. So how do e-marketplaces go about 

solving the chicken and egg problem and getting the 

positive feedback loop started? Sculley and Woods 

(2000) argue that building the transaction volume is 

more important than the number of members at the 

start. Therefore e-marketplaces should target key 

players who are likely to trade the most and get them 

to join early, rather than focusing on signing up most 

number of players. To speed up the adoption process 

e-marketplaces should actively help these key customers 

migrate transactions to the e-marketplace. 

Contracting with key buyers and sellers or perhaps 

offering equity in the e-marketplace in exchange for 

participation is a common way for e-marketplaces to 

get off the ground and secure initial liquidity. A good 

example of how initial liquidity can be secured is 

provided by gatetrade.net, as it managed to form a 

contract with the Danish State. According to this contract 

public purchasing for potentially EUR 27 billion 

over a five-year period is to go through gatetrade.net. 

For e-marketplaces that are formed by existing industry 

players (e.g. Covisint in the US Automobile 

Industry) the chicken and egg problem often solves 

itself, as the existing industry players bring their own 

transactions on-line to get the positive feedback loop 

started. However, for this type of e-marketplace, bias 

problems are often present and can be as big a challenge 

as the chicken and egg problem. Dealing with 

these problems early therefore is very important in 

order to secure a critical mass of transactions. 

Exploiting Network Externalities 

Apart from the particular effort of solving the 

chicken and egg problem an e-marketplace strategy 

also needs to address the more general issue of 

exploiting the network externalities inherent in the 

e-marketplace business model. The main difference 

between network industries 3 and other industries is 

that the former is much more likely to be dominated 

by a single company or standard. This is so because 

when there are positive network externalities present, 

there is a positive feedback that makes current winners 

more likely to keep winning in the future. The 

company with the largest base of users therefore has 

a great advantage, which is why you do not want to 

292 



be playing catch-up in a network industry (Shapiro 

and Varian, 1999). 

For e-marketplaces network externalities are present 

because the value of the e-marketplace to its participants 

increases with the more participants it has 

(e.g., the value of collaboration tools is greater if more 

companies are present to collaborate with). Goolsbee 

(2000) argues that in industries where strong network 

externalities are present some general strategies for 

achieving market dominance exist. First, and most 

importantly, first mover advantages should be 

exploited. The reason speed is so important is that e- 

marketplaces that can build liquidity fast will have 

significant advantages over other e-marketplaces as 

the value of their service will be much higher for 

potential participants. Naturally, it is important to 

understand the trade-off between quality and speed. 

While it is preferable to be able to offer a high-quality 

e-marketplace in terms of a wide product and service 

portfolio, rapid execution to some extent wins priority 

over quality in industries with network externalities. 

Therefore an e-marketplace should not spend 

too much time refining its product 

and service offerings, as 

competitors are likely to achieve 

critical mass with an 

inferior offering before it can 

get its high-quality offering off 

the ground. Second, using buzz 

to create expectations about the 

future is important for companies 

in network industries. Therefore, if an e-marketplace 

can convince customers that its service will be 

the most widely accepted, this will tend to be selffulfilling. 

Third, it makes good sense for e-marketplaces 

to target specific early adopters aggressively 

because it requires less effort to convince those companies 

of the benefits and the opportunities that e- 

marketplaces bring about. Especially valuable early 

adopters are those high-profile companies that due 

to their reputation alone can help the e-marketplace 

convince others that it is worthwhile to participate. 

Fourth, with respect to pricing there is a standard 

strategy in an industry with network externalities 

that is similar to that in an industry with large economies 

of scale: penetration pricing. Because every 

early adopter is a beachhead that will bring in others, 

companies want to subsidise early use through low 

prices (Goolsbee, 2000). For e-marketplaces it therefore 

makes sense to charge early adopters less. However, 

because pricing has such a direct influence on 

the bottom line of the e-marketplace’s results careful 

consideration should always go into the impact such 

pricing decisions are likely to have on the long-term 

profitability of the e-marketplace. Lastly, companies 

in industries that have powerful network externalities 

should understand the importance of strategic 

alliances. Since e-marketplaces are trying to 

become the de-facto standard within their chosen 

focus segment, it helps to have powerful allies that 

can help make that happen. As already mentioned, it 

The challenge is to 

maximise the combination of 

cake size and cake share 

makes good sense to have alliances with technology 

providers and key buyers and sellers. Forging 

alliances with strong producers of complementary 

products is helpful too. For e-marketplaces this could 

be with providers of logistic or financial services or 

even with complementary e-marketplaces. For 

example, horizontal gatetrade.net has benefited from 

partnerships with vertical e-marketplaces specialising 

in ticketing services and in IT hardware. 

Continuously Extending the Liquidity 

So far this discussion of building liquidity has mainly 

focused on how to reach critical mass. However, the 

importance of building liquidity does not end when 

critical mass is achieved and the e-marketplace has 

a solid grip in its target market. The importance of 

continuously building liquidity remains because as 

the e-marketplace builds liquidity beyond critical 

mass a new set of liquidity related issues will find its 

way to the management agenda. e-Marketplace managers 

need to work out strategies for how their service 

offering should develop as well as how to cope 

with the prevailing inter-marketplace competition. 

The sooner e-marketplace managers 

start thinking about these 

long term challenges the more 

effective their building liquidity 

effort will be. Paradoxically, 

being successful in the building 

of liquidity in the first place is 

a big part of the solution to 

meeting these long-term challenges. 

With respect to the service offering, strategies 

must be closely tied to the creation of value. The 

value proposition of the e-marketplace is based on 

improving market and supply chain efficiencies and 

creating new value. The best way for e-marketplaces 

to do this is by building liquidity. Increasing liquidity 

makes it possible to rely on more dynamic commerce 

models offering e-marketplace participants increasingly 

greater market efficiency. Increasing liquidity 

also makes it possible to improve supply chain 

efficiency. For example, as liquidity increases and 

more buyers and sellers join the e-marketplace it 

allows for participants always to be able to hook up 

to best-practice suppliers. This makes collaborating 

on the e-marketplace more dynamic and more 

efficient. Lastly, liquidity is also helpful for creating 

new value. The more liquidity an e-marketplace can 

attract the more it can take advantage of economies 

of scale and scope in creating new value-added services. 

For example, liquidity of transaction information 

makes it possible for the e-marketplace to create 

new information based services such as product 

and inventory tracking services and data mining services. 

The product scope is another parameter of the e-marketplace 

service offering which management needs 

to think into their strategies. The ultimate goal of e- 

marketplaces is to evolve into one-stop shops where 

e-marketplace participants can take care of all their 



needs – with respect to commerce, content, and collaboration. 

For e-marketplaces moving towards a 

one-stop shop is a natural move towards making the 

most of the relationship with the e-marketplace participants. 

e-Marketplaces should therefore try to 

expand their product offering aggressively as soon as 

they have built a stronghold within their particular 

focus segment. 

Making Use of Protection Barriers 

With respect to defensive measures such as raising 

entry barriers for competing e-marketplaces and raising 

switching costs for e-marketplace participants in 

order to protect first mover advantages, building 

liquidity is the ultimate defensive weapon. Obviously 

high liquidity on an e-marketplace is a barrier 

to entry for other e-marketplaces, especially when 

considering the network externalities 

described above. However, 

liquidity also helps raise 

switching costs for e-marketplace 

participants. This is best 

illustrated by looking at two 

opposites. If a given company 

only uses the e-marketplace 

occasionally switching costs are 

low, because both the e-marketplace’s share of mind 

and share of wallet are relatively low for this company. 

However, if the company uses the e-marketplace 

for almost all its transactions it becomes much 

harder to switch – both out of fear of revenue loss 

and resistance to change. Systems integration with 

the e-marketplace, contractual obligations, and equity 

stakes also help increase switching costs. Finally, 

security and trust issues may be equally important. 

The past two years or so a proliferation of e-marketplaces 

has been launched. Because only one or two 

winners are likely to emerge in each distinct market 

space, consolidation is something that any e-marketplace 

should make contingency plans for. A good 

way to increase the chances for survival in the elimination 

race is to build liquidity as fast as possible. 

Liquidity translates directly into bargaining power in 

a merger situation and into firepower in any battle 

for market share. 

Capturing Value 

The second pillar of e-marketplace success is capturing 

value – in other words to make money by claiming 

a share of the value being created. The reason for 

the importance of capturing value naturally is that 

without the ability to capture a share of the value it 

creates for its participants the e-marketplace will be 

unable to create a profit despite whatever liquidity it 

attracts. To use the analogy of a cake: liquidity determines 

the size of the cake itself, while how much 

value the e-marketplace captures determines how the 

cake is divided. The challenge is to maximise the 

combination of cake size and cake share. Maximising 

Liquidity translates 

directly into bargaining 

power 

this is not a straightforward task, however, as both 

pillars represent very complex problems. Furthermore, 

a trade-off exists between building liquidity 

and capturing value, which further complicates the 

situation. Claiming too large a share of the cake will 

prevent making the cake big, as potential participants 

are not likely to join the e-marketplace if it keeps too 

much of the value it creates for itself. Deciding where 

exactly to make this trade-off can be difficult. The e- 

marketplace that decides on giving priority to building 

liquidity runs the risk of not being able to generate 

a profit. On the other hand, the e-marketplace that 

gives priority to capturing value runs the risk of 

delaying the penetration of its target market as well 

as losing market share to competitors. In the competitive 

landscape that most e-marketplaces experience 

today the preferred solution in most cases has been 

to emphasise building liquidity 

over capturing value. 

Returning to the cake analogy 

this translates into doing everything 

possible to make the cake 

big, while prioritising the cutting 

of a big slice comes second. 

However, it is important to 

keep in mind that setting the 

price too low can sometimes be irreversible and lead 

to a situation where it is impossible to make a profit 

(Marn, 2000). The recent development in many dotcom’s 

around the world has displayed this so as to 

leave no room for doubt. 

In order for the e-marketplace to capture value it first 

needs to put together a value proposition that is compelling 

to its target customers – both buyers and sellers. 

Second, it needs to turn this value proposition 

into a steady income. The key to doing this lies in 

understanding the advantages and limitations of the 

various revenue sources available and turn these revenue 

sources into a complete revenue model that as 

accurately as possible reflects the value proposition 

as it is perceived by the various target customers. 

Making the value proposition compelling 

As mentioned above, e-marketplaces create value for 

their participants through (1) increased market 

efficiency, (2) increased supply chain efficiency and 

(3) creation of new value. In order to make the value 

proposition compelling to both buyers and sellers it 

is however necessary for e-marketplace managers to 

have a detailed understanding of the benefits as buyers 

and sellers perceive them (Figure 4). With respect 

to the first source of value, increased market 

efficiency, it can be argued that value is transferred 

rather than created. For example, the increased price 

transparency imposed by e-marketplaces through 

reverse auctions and aggregation of supplier catalogues 

will benefit the buyers while the margins of 

suppliers are reduced. On the other hand an auction 

initiated by a seller (e.g. of excess inventory) is likely 

to derive a higher and more perfect price implying a 

transfer of value from the buyer to the seller. The fact 

294 



Figure 4 Key Elements of Value Proposition Towards Buyers and Sellers plus the Prospects of the e-Marketplace 

to Capture Value. Sources: Andrew et al. (2000); Means and Schneider (2000); own analysis 

that increased market efficiency often results in value 

transfer impacts the prospects for e-marketplaces to 

capture value. That is, it will be much easier to 

impose fees on the party that benefits from the market 

efficiencies that the e-marketplace creates than on 

the party that does not benefit. This is important to 

keep in mind when deciding on what functionality 

to offer the e-marketplace participants. The e-marketplace 

should make sure to verify that it does not 

solely offer functionality that benefits only one party 

as this might deter the other party from participating. 

Whereas market efficiency often leads to value transfer 

the second source of value, supply chain efficiency, 

per definition leads to value creation as it impacts the 

e-marketplace participants’ processes leading directly 

to cost savings. As such, supply chain efficiency represents 

a very strong value proposition towards both 

buyers and sellers. For example, sellers who are often 

squeezed on margins due to the more efficient market 

created by the e-marketplaces can find compensation 

in lower marketing and sales costs. Furthermore, 

by committing themselves to an e-marketplace 

as their new channel both buyers and sellers have the 

chance to streamline internal processes and coordinate 

inter-organisational processes. Experiences from 

gatetrade.net show that the potential for reductions 

in these process costs is as much as 30–70 per cent 

for both buyers and sellers, and for most companies 

these savings in aggregate are large enough to significantly 

impact bottom line performance. Taken as 

a whole, supply chain efficiencies therefore represent 

a very compelling value proposition to both buyers 

and sellers leaving room for the e-marketplace to capture 

value (see Figure 4). In order to make sure that 

buyers and sellers exploit the full potential of the 

functionality offered it might be a good strategy for 

the e-marketplace to offer advice (e.g. in the form of 

consulting services) on the optimal use of its services. 

Furthermore, offering consulting services on 

implementation issues is an additional potential revenue 

source for the e-marketplace. 

Finally the third source of value, new value creation, 

represents a huge potential for powerful value propositions 

to e-marketplace participants as they per 

definition provide the participants with new value 

they cannot get anywhere else. For the same reason 

innovative services that create new value can be a 

very strong source of profit for the e-marketplace 

itself as well as a powerful differentiator. Furthermore, 

if the e-marketplace can leverage its aggregation 

of transaction information into developing 



new information-based services this can be a strong 

way to capture additional value. 

Configuring the Revenue Model 

After having put together a value proposition that 

appeals to the target customers the e-marketplace 

needs to figure out how to charge its customers for 

the value it provides. The most common ways for e- 

marketplaces to do this is through various types of 

fees. In order to capture as much value as possible 

the e-marketplace needs to carefully evaluate the 

pro’s and con’s of each type of fee (see Figure 5) and 

then put together and configure a revenue model that 

allows it to capture value. While the revenue model 

of an e-marketplace can be based solely on a single 

fee type, it is most often preferable that the revenue 

model rests on a combination of fees. This ensures 

that the e-marketplace becomes less vulnerable to 

competition as well as allowing the e-marketplace to 

tie its revenue model more accurately to the value 

being created. Central to the configuration of the revenue 

model is the value that the e-marketplace creates 

as perceived by the customer. This perception 

of value often differs significantly amongst different 

types of customers. Knowing the customer therefore 

is key to deciding upon an appropriate revenue 

model. It is preferable that the revenue model takes 

into account the different customer types and where 

possible uses prices that are tailored to specific customer 

segments. 

A well-planned revenue model also needs to take 

into consideration any competitors the e-marketplace 

might have – both in terms of other e-marketplaces 

and other substitute services. Both types of competition 

can severely limit the interval available for 

price setting. 

Adding to the complexity of the task of developing 

an appropriate revenue model is the dynamic nature 

of the e-marketplace. This makes configuring the revenue 

model an ongoing task as the revenue model at 

all points in time should preferably reflect as accurately 

as possible the value being created by the e- 

marketplace as it is perceived by the various customer 

segments. Furthermore, the revenue model 

should continuously be adjusted to reflect the 

dynamic setup, the stage of the lifecycle and the specific 

competitive situation of the e-marketplace. 

Conclusion 

The Temple Framework presented in this article provides 

e-marketplace managers with a holistic mindset 

useful for understanding, analysing, crafting, and 

communicating e-marketplace strategy. As such the 

Temple Framework provides a tool for e-marketplace 

managers that can be used to logically structure strategic 

issues and look at them holistically regardless 

Figure 5 

The Advantages and Limitations of Various Revenue Sources 

296 



of whether it is the overall strategy or a specific problem 

that is addressed. The structure that the Temple 

Framework provides, helps e-marketplace managers 

to move faster from diffuse problem identification 

into constructive problem solving and to craft more 

consistent strategies. This is supported by the case 

study of gatetrade.net, where both senior managers 

and employees have greatly benefitted from the use 

of the Temple Framework. 

However, what remains to be seen is whether or not 

the ambitous strategy that gatetrade.net has crafted 

will turn out to be feasible in practice. No matter how 

good a strategy is crafted, e-marketplaces in general 

and gatetrade.net in particular still has to overcome 

the significant hurdle of changing people’s purchasing 

behaviours as well as influence the way companies 

in a given market space conduct business with 

each other. This is at best a slow process. For this 

reason we foresee that only the e-marketplaces with 

a solid strategy, deep pockets, and near-endless patience 

will be left standing when the e-marketplace 

consolidation crunch is over. Behind them their path 

to success will be littered with also-rans that did not 

quite get it right. 

Case Study – gatetrade.net: Pursuing a Horizontal 

Strategy in the Nordic Market 

gatetrade.net is a public e-marketplace founded in 

October 2000 by a consortium of four large Danish 

corporations: TDC, Post Danmark, Danske Bank, and 

Maersk Data on behalf of the A. P. Møller Group. By 

joining forces the intention was to provide gatetrade.net 

with both the funding and other competencies 

needed to become the leading horizontal e- 

marketplace in the Nordic region. Each of the four 

companies initially invested EUR 3.4 million in equal 

shares of gatetrade.net, and the EUR 13.6 million 

total made gatetrade.net by far the largest e-marketplace 

initiative in Denmark. 

The Initial Challenges: 

gatetrade.net soon discovered that two issues in 

particular were delaying the penetration of the target 

market. The first was technical in nature. In order for 

customers to easily find what they are looking for 

when browsing gatetrade.net’s online catalogue it is 

crucial that the catalogue is logically structured, 

items are accurately described so they can be easily 

compared, and the catalogue is easily searchable. 

Putting together an electronic catalogue containing 

just one type of product (e.g. books or office 

furniture) can be time-consuming enough. However, 

due to its horizontal nature gatetrade.net was faced 

with the task of putting together a catalogue that 

could accurately capture the information of such 

diverse products as office supplies, consulting services, 

and computer hardware. The second issue was 

to change the purchasing behaviour of its target customers 

in order to bring their purchasing online. And 

as has been the case in B2C e-commerce, gatetrade.net 

found that there was a lot of resistance to 

purchasing online. In early 2001 most companies in 

Denmark were simply still not ready for e-marketplaces. 

Furthermore, no company wanted to be the 

guinea pig. 

Government as Volume Driver: 

Under the management of its newly hired CEO, 

Steen Gede, a strategy for how to penetrate the Danish 

market started to take shape. gatetrade.net could 

not count on its owners to be the first companies to 

take care of their purchasing needs using the gatetrade.net 

platform. The owners were simply not 

ready for that yet. Instead another solution had to be 

found to the chicken and egg problem of getting sellers 

and buyers onboard gatetrade.net. For this reason 

gatetrade.net focused its sales effort on a few key 

buyers and sellers in the Danish market, the most 

important of which was the Danish State. By March 

21 2001 the focused sales effort paid off as gatetrade.net 

was awarded the contract for the Danish 

Public Purchasing Portal (DPPP) by the Danish State, 

ensuring that public purchasing for potentially EUR 

27 billion over a five-year period is to go through 

gatetrade.net. For gatetrade.net winning the DPPP 

contract has been a major milestone. However, there 

is still a long way to go before gatetrade.net can 

realise the full potential of the contract. As Steen 

Gede puts it: ‘Our customers purchase a process. It 

is not an IT-system that they purchase. For this reason 

it is much more difficult [to get companies to use 

an e-marketplace] than to supply an IT-system... you 

have to change people’s behaviour, which is why 

getting an e-marketplace off the ground takes much 

longer than IT-companies and consultants say.’ 

Lessons Learned: 

Looking back, it is clear to the management of gatetrade.net 

that they have been on a very steep learning 

curve. When asked what were the major lessons 

learned gatetrade.net CFO, Tage Benjaminsen points 

to three: (1) That an e-marketplace is not an IT-business 

but a service business and should therefore be 

managed as such, (2) that operational issues like catalogue 

management are not to be underestimated, and 

(3) that a clearly defined and focused strategy that is 

shared by all employees is essential. Elaborating on 

lesson number three Tage Benjaminsen emphasises 

the value of a shared mindset in the form of the Temple 

Framework. This ensures the consistency with 

the overall strategy of decisions made at all levels of 

the organisation.. One obvious indication of gatetrade.net 

having got its strategy fairly right is that 

gatetrade.net is still alive and kicking while the Darwinian 

market mechanism of market consolidation 

has taken its toll on most of its competitors in the 

Nordic region. 



The Road Ahead: 

However, looking forward Steen Gede and Tage 

Benjaminsen agree that there is still a lot of work to 

be done before gatetrade.net is where they aim to 

be. Changing people’s behaviours is at best a slow 

process. Despite the challenge ahead gatetrade.net is 

confident that it will succeed. The advantages of 

using e-marketplaces are simply too great to ignore. 

In the long run companies that want to stay competitive 

in their respective market space simply cannot 

afford to pass on the procurement savings and other 

advantages that e-marketplaces offer. 

Notes 

1. A strong parallel to this can be found in the B2C market 

space, where Amazon.com has evolved from being a 

focused player into something approaching a B2C Wal- 

Mart of the Internet. 

2. A dominant trend in the e-marketplace landscape is that e-marketplaces 

start to link to each other, giving rise to marketplaceto-marketplace 

(M2M) integration. M2M commerce refers to 

transactions occurring between two or more e-marketplaces. 

3. Network industries are those industries that exhibit 

inherent network externalities. 

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PETER BRUUN, TEM, MARTIN JENSEN, Bos- 

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Amaliegade 15, 1256 Copen- 

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298

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