Ownership Influences on Vertical B2B E-marketplaces’ Survival

Abstract

Introduction An vertical electronic marketplaces (EM) is a virtual hub, enabled by information, decision, and communication technologies, embedded in a single industry network, the objective of which is to bring together multiple buyers and suppliers to exchange information, complete transactions and otherwise interact (Zwass, 1999). B2B e-marketplaces has proliferated through the late 1990s. According to Gartner Research, more than 3,000 electronic marketplaces were launched year 2003. In just about every industry--from automobile manufacturing to chemical production EMs have been created to handle the buying and selling of goods and services between manufacturers and suppliers. However, this explosion of EMs created overcrowded landscapes within many industries. Intensive competition has resulted in roughly 45% of EMs failed to survive up (Day, Fein, & Ruppersberger, 2003), either ceasing operations or being acquired by another EM (White, Daniel, Ward, & Wilson, 2007). While EMs continue to prove their business values to the industries, as evidenced by 2.37 trillion historic high transaction volume generated through EMs on 2004 (eMarketer, 2003), it is increasingly important to investigate the survivor characteristics of EMs in order to understand the underlying competition drivers. Ownership (i.e., the identities of a firm's equity holders and the sizes of their positions) concerns the right to possess and use property to the exclusion of others (Williamson, 1985). EM ownership, often classified by the owners' characteristics such as owner(s)' prior membership within an existing industry network, is a reflective of the controlling stakeholders of EMs who have the right to possess and use EM property to the exclusion of others. Prior literature has found that ownership influences managerial incentives (Jensen & Meckling, 1976), firm performance (Demsetz & Villalonga, 2001; Klein, 1998), legitimacy (Evan & Freeman, 1993; Luoma & Goodstein, 1999), and organizational learning (Helper & Levine, 1992; Mohr & Sengupta, 2002). EM ownership lies at the heart of EM governance because the rights to control or make strategic decisions are provided in board rights and in voting rights, both of which are directly related to ownership (Kaplan & Stromberg 2003). Ownership is thus expected to significantly influence EM competition and EMs' survival (Woods, 2002). Surprisingly, as of today, few studies have empirically tested the influences of ownerships on EM's survival. The goal of this paper is set to investigate the survival status of vertical EMs by their ownerships. The paper, for the first time, provided empirical evidences on the survival prospects of EMs by their ownership characteristics and rationalized industry network impact on EMs' survival by ownership. The paper first identified three major EM ownerships and then reviewed relevant literatures. Hypothesis is then proposed, followed by methodologies and testing results. The conclusion is given at the end. EM Ownership EM ownership represents a significant source of organizational variation. Over the years, three primary EM ownerships have emerged: independent ownership, the consortium ownership and the private ownership (Kambil & Van Heck, 2002). An independent EM is an EM established by third parties distinct from the EM's targeted buyers and sellers. Independent EMs such as Chemdex and Partminer, are owned by industry outsiders and typically commence market development without the buy-in commitment of key market participants. While the EM owners often hire a management team with industry experience and existing relationships with some of these market participants, these relationships tend to be fragile. A consortia EM is established by a group of key market participants, typically buyers or sellers but not both. These consortia offer major industry players the opportunity to obtain the benefits of embedding an EM within the industry network but retaining a substantial portion of the value generated through the EM amongst them rather than allowing it to flow to a third party. …