Home Truths for Business-To-Business Exchanges

KOH, Tat Koon | FICHMAN, Mark

Buyers are spoiled for choice when it comes to platforms to post their buying requests to sellers – think Alibaba.com, ECEurope.com and ECPlaza.com. Users may select one site to be their preferred place, or “home”, for posting requests, but they can also use multiple homes. What does that mean for the platforms, and also for users?

Most researchers have looked at platforms from a single-home perspective, but Tat Koon Koh and Mark Fichman argue that “multi-homing” deserves attention because it is easy for buyers to do this, and beneficial. Buyers do not have to pay to participate on most platforms and visiting more than one platform lets them check out a wider range of options. Nonetheless, buyers would not face uniform conditions across different platforms. The authors were interested in how buyers might perceive platforms with high or low levels of activity, and how they reacted to these over time.

Intuitively, buyers are expected to prefer platforms with higher levels of selling activity because they would have more bargaining power and receive more competitive quotations. However, the effects of buying activity levels on buyers’ preference are less straightforward. Specifically, the authors expected that an exchange with higher levels of buying activity could be perceived as both safer and riskier, depending on how and when the buyer approached it. If buying activity level is too low, the buyer may initially be unsure whether the exchange is trustworthy and reliable. But if the buyer observed more and more buyers using the exchange, he or she might take a more positive view of its safety. However, as more buyers come onto the exchange and buying activity increases, this also increases competition from a buyer’s peers, which could lead to higher prices and reduce bargaining power. This would tend to reduce a buyer’s preference for that exchange. Over time, though, these affects could all be attenuated because the buyer’s continued experience with a particular exchange would reduce his or her uncertainty about that platform, and their reliance on observing other buyers would be lessened.

These ideas were tested on 118 buyers across two B2B exchanges over seven months between July 2009 and February 2010. The results not only supported the hypotheses, but also highlighted the value of looking at multi-homing strategies across platform users.

Summarising the effects, the authors said: “As buying activities on an exchange increase, buyers’ preferences for this exchange would initially increase and then decrease. This result is both new and surprising. Furthermore, there is evidence the impacts of selling and buying activities on multi-homing buyers’ preferences change as buyers’ experience on the exchanges increase.”

They suggested B2B platform operators should try to gauge the extent to which their users are participating on other platforms, such as through surveys. Operators could also observe how other industries monitor users multi-homing behaviours, such as balance transfer services that allow credit card companies to observe cardholders’ usage of other credit cards.

“Online exchanges should also strategically manage users’ perceptions of activity levels on both sides of their platforms. High buying activity levels benefit the suppliers but not necessarily the buyers. Contrary to what many B2B exchanges are doing, being perceived as the largest exchange may not be the best strategy to influence users’ preferences. It is therefore necessary to consider what information to provide, such as whether to present information about buying and/or selling, and when to provide the information based on the activity levels,” they said.

KOH, Tat Koon

Program Director, Global Business Program, Associate Professor
Information Systems, Business Statistics & Operations Management