European Management Journal Vol. 20, No. 3, pp.
286–298, 2002
Pergamon
PII: S0263-2373(02)00045-2
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 Frame-
work, 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 build-
ing 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 compa-
nies 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, Col-
laboration, Business-to-Business, e-Commerce, e-
Business
Introduction
Lately there have been many articles in business per-
iodicals 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-com-
merce 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-
286
 2002 Elsevier Science Ltd. All rights reserved.
Printed in Great Britain
0263-2373/02 $22.00 + 0.00
gation and extending the Business and Consumer
combinations (B2C, C2B and C2C) into the prosper-
ous Business-to-Business (B2B) area. In our under-
standing 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 pen-
etration have made the e-marketplace business
model feasible and attractive. As a consequence we
have seen the establishment of quite a few e-market-
places 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 Market-
place and Junebox. Typically the public e-market-
place has high initial investments and also high oper-
ational 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 out-
side the control of the e-marketplace. Together these
European Management Journal Vol. 20, No. 3, pp. 286–298, June 2002

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 sim-
pler 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 cre-
ate e-marketplaces are very high, and that the tech-
nology 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-market-
place.
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 man-
agers 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-market-
places has been to develop and test a holistic theoreti-
cal 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-mar-
ketplaces create value the chances of crafting a strat-
egy that will lead to sustainable competitive advan-
tage are slim.
The core service of e-marketplaces is to provide a
central market space, where e-commerce can be con-
ducted. However, although e-commerce is a very
European Management Journal Vol. 20, No. 3, pp. 286–298, June 2002
E-MARKETPLACES: CRAFTING A WINNING STRATEGY
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 fore-
casting and inventory management.
These types of activities allow e-marketplaces to
build their value proposition upon three fundamen-
tal 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 intensi-
fied competition and the increased transparency of
the Internet go hand in hand with the emergence of
e-marketplaces and push prices closer to the theoreti-
cal 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. Success-
ful e-marketplaces build on the same thoughts as
they bring a standard for collaboration and interac-
tion 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-
287
E-MARKETPLACES: CRAFTING A WINNING STRATEGY
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 transform-
ational 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-market-
places 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-market-
places are based on functions and/or products com-
mon 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 manufac-
turing 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 busi-
ness model however, is not enough. For e-market-
place 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 compre-
hensive framework (see Figure 2) called the Temple
Framework. It identifies the main challenge of achiev-
ing e-marketplace success (building liquidity and
capturing value), provides detailed analysis of this
challenge, and suggests ways by which it can be
288
overcome. Furthermore, it identifies and clearly
explains the considerations that should go into decid-
ing 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 gate-
trade.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 inten-
tion with the Temple Framework are appropriate.
First of all, it is important to understand that the
Temple Framework is based on one central hypoth-
esis 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 suc-
cessful 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
European Management Journal Vol. 20, No. 3, pp. 286–298, June 2002

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-market-
places, 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 con-
tinuously 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 captur-
ing value as the challenge. This is to illustrate that
although there are two elements they need to be con-
sidered 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 empha-
sises 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-mar-
ketplace success and consists of five elements: focus,
governance, functionality, technology, and partner-
ships. 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.
European Management Journal Vol. 20, No. 3, pp. 286–298, June 2002
E-MARKETPLACES: CRAFTING A WINNING STRATEGY
The reason for using these and only these five
elements in the setup is that taken together they accu-
rately describe the most important, the least under-
stood and the unique strategic issues inherent in the
setup of the e-marketplace business model. Further-
more, each of these elements is core to current
research on e-marketplaces. Other aspects of e-mar-
ketplaces (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 busi-
ness model or amongst the most important or least
understood strategic issues concerning e-market-
places.
In order for the e-marketplace to succeed, careful
consideration must go into the design of and continu-
ous 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-mar-
ketplaces 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-market-
place involves identifying what specific buyer and
seller segments to target as well as deciding what
type of products should be available on the e-market-
place. 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-market-
places that are able to cater more directly to their spe-
cific 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 Internet1 over time, setting up as such
from the beginning is not likely to be feasible due to
the differences between the players of different mar-
kets and industries. Focusing enables an e-market-
289
E-MARKETPLACES: CRAFTING A WINNING STRATEGY
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 pur-
chasing power, market coverage, technological
sophistication, etc., can also be taken into consider-
ation 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 gate-
trade.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 knowl-
edge of the Danish market. When choosing which
products to focus on it is very important also to con-
sider what is required in order to facilitate the pur-
chasing process, e.g. selling automobile parts to a car
manufacturer will require advanced forecasting tech-
niques and just-in-time implementation, while an
easy-to-use buyer interface and ease of adminis-
tration 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-mar-
ketplaces 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 attract-
ive to buyers and sellers (Sculley and Woods, 2000).
Some of the benefits of a neutral form of govern-
ance are:
❖ A perception of fairness and the trust of trading
participants:
– Making it easier to agree on standards for pro-
duct specifications and collaboration func-
tionality
– Making it easier to carry out regulatory tasks
such as supplier qualification, evaluation of cre-
dit worthiness, resolution of disputes, etc.
❖ Fewer channel conflict issues:
– Leading to increased transparency
290
– Leading to better exploitation of potential mar-
ket 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. Further-
more, it should be taken into consideration that neu-
tral 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 buy-
side is well developed. By nature it is hard for incum-
bent sellers or buyers to create neutral e-market-
places, which is the reason that independent start-
ups 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: Com-
merce, Content and Connection. This framework pro-
vides 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 Fig-
ure 3).
Figure 3 The 3 Cs of B2B e-Marketplaces. Adapted
from A.T. Kearney (2000)
European Management Journal Vol. 20, No. 3, pp. 286–298, June 2002
 E-MARKETPLACES: CRAFTING A WINNING STRATEGY

The commerce part of e-marketplaces is the part that icipating buyers and sellers. Also, to make the e-mar-
people can most often relate to. However, in much ketplace as efficient as possible, it should operate
the same way as e-commerce is a subset of e-busi- under open standards. Most technology providers
ness, there is much more to e-marketplaces than (e.g. Oracle, Ariba, i2 Technologies, and Commerce
merely commerce. As illustrated in Figure 3, the com- One) are committed to open technical standards but
merce, the content and the collaboration functionality have yet to agree on them. This means that e-market-
are inter-linked and all three are important elements places must choose their technology partners care-
of an e-marketplace. While these three concepts sep- fully in order not to be stuck with a non-standard
arately are simple, the challenge is to apply them in platform. This is especially important with respect to
the best possible way in a specific context and to keep future integration between e-marketplaces2 Although
pace with the development. translation software that makes
Each market space is unique,
and therefore the mix of the 3
Without a clear focus the itbetween possible to communicate
different platforms
C’s must be carefully thought exists, this is a far more expens-
out in order to address the key
e-marketplace runs the risk of ive solution than using a stan-
inefficiencies inherent in the
specific market space that is the trying to sell everything to dard. Furthermore, using a
non-standard platform can be
focus of the e-marketplace – an inhibitor for buyers and sel-
and to create new value. First, everybody lers keeping them from partici-
with regard to the commerce pating due to the risks involved
model, the product complexity, the available liquid- in backing a non-standard. Finally, the technological
ity, and the maturity of trading participants towards platform for an e-marketplace must also be scalable,
e-commerce should be considered before deciding on flexible and secure. Without scalability and flexibility
catalogue trading or on one or more of the more the platform can become a major restriction as the
advanced trading mechanisms such as auctions. focus of the e-marketplace shifts or the demands for
Second, the content should be designed to attract buy- functionality increase or change, while a secure plat-
ers and sellers from the target group and to ensure form is necessary for ensuring the trust of the buyers
loyalty and website stickiness. Third, the supply chain and sellers participating on the e-marketplace.
should be streamlined and transformed by con-
necting trading participants and third parties with Partnerships
collaboration tools that satisfy their specific needs. Partnerships are important because as is the case for
Fourth, the three elements need to be co-ordinated to other companies, e-marketplaces cannot do every-
yield synergistic effects and to create new value for thing themselves (Hagel and Singer, 1999). Like other
the industry. Lastly, it is important to keep in mind types of companies e-marketplaces too need to stick
that the mix of the 3 C’s that make up the func- to their core competencies and let partners with
tionality of the e-marketplace should be dynamic and complementary skills carry out non-core activities.
reflect the ongoing changes in the e-marketplace Furthermore, choosing the right partners is key to
environment. being able to scale up quickly and to be able to offer
participants on the e-marketplace a wide array of ser-
Technology vices within the domains of commerce, content, and
Setting up an e-marketplace with the right techno- collaboration. Sculley and Woods (2000) argue that
logical platform is of strategic importance as it has the potential partners for an e-marketplace include
direct consequences for the success of the e-market- investors, buyers in the chosen market space, sellers
place. The major criteria for the technological plat- in the chosen market space, existing broker inter-
form is that it should be able to support the develop- mediaries, new infomediaries, content providers, IT
ment of advanced market making tools (i.e. different vendors, and software developers. It is especially
catalogue structures and auction types), integrated important to choose the right technology partner(s),
procurement tools (e.g. searchable catalogues and as few e-marketplaces have the knowledge and
administrative tools), and advanced collaboration resources to develop and maintain a competitive
tools. Furthermore, the migration of intimate sup- technological platform themselves. Partnering with
plier networks (e.g. in the form of supplier extranets) key industry suppliers and buyers is useful for get-
present in many industries on the e-marketplace plat- ting to understand the customers of the e-market-
form should also be supported. For example, without place as well as the industry better. Such partnerships
the possibility of migrating supply chain manage- can also help secure early liquidity on the e-market-
ment solutions to the e-marketplace platform a big place as well as help gaining the trust of other players
part of the value that e-marketplaces hold, the poten- in the market. Partnering with key industry suppliers
tial for capturing cannot be realised. and buyers is especially important for vertical e-mar-
ketplaces, for which signing up a few big players
Furthermore, to ensure that the technology does not early can often mean the difference between success
become a major hindrance for the e-marketplace, the and failure in consolidated industries. It is also a
technological platform must offer the possibility of good strategy for e-marketplaces to partner with con-
frictionless integration with the ERP-systems of part- tent providers such as news services – especially if

European Management Journal Vol. 20, No. 3, pp. 286–298, June 2002 291
E-MARKETPLACES: CRAFTING A WINNING STRATEGY
they are strong on content directly related to a spe-
cific industry. Providers of services that fit well with
the needs of the e-marketplace participants (e.g. pro-
viders of financial or logistics services) are also valu-
able as partners – and so are software developers that
can help implementing advanced collaboration tools.
Last, but not least, partnering with other e-market-
places can also be beneficial. For example, horizontal
e-marketplaces are likely to struggle with delivery of
industry specific functionality and content. Part-
nering with a vertical e-marketplace can circumvent
this problem, as the service offering towards a parti-
cular 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-market-
place. 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 cap-
turing 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, hav-
ing the most transactions done on your e-market-
place – 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 man-
agers need to decide on a strategy for driving liquid-
ity onto the e-marketplace. A good strategy for build-
ing liquidity should encompass a plan for solving the
chicken and egg problem of attracting buyers and sel-
lers 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.
292
Liquidity attracts more liquidity in the e-marketplace
business. Therefore, one of the most important chal-
lenges 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 net-
work externalities inherent in the e-marketplace busi-
ness 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 cus-
tomers 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 con-
tract 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 indus-
try 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 chal-
lenge 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 industries3 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 win-
ners 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
European Management Journal Vol. 20, No. 3, pp. 286–298, June 2002

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 parti-
cipants 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 mass a new set of liquidity related issues will find its
e-marketplace in terms of a wide product and service
portfolio, rapid execution to some extent wins pri-
ority over quality in industries with network exter-
nalities. Therefore an e-marketplace should not spend
too much time refining its pro-
duct and service offerings, as
competitors are likely to achi- The challenge is to
eve critical mass with an
inferior offering before it can maximise the combination of ity effort will be. Paradoxically,
get its high-quality offering off
the ground. Second, using buzz cake size and cake share
to create expectations about the
future is important for compa-
nies in network industries. Therefore, if an e-market-
place can convince customers that its service will be
the most widely accepted, this will tend to be self-
fulfilling. Third, it makes good sense for e-market-
places to target specific early adopters aggressively
because it requires less effort to convince those com-
panies 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 econ-
omies 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 there-
fore makes sense to charge early adopters less. How-
ever, 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 exter-
nalities should understand the importance of stra-
tegic 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
European Management Journal Vol. 20, No. 3, pp. 286–298, June 2002
E-MARKETPLACES: CRAFTING A WINNING STRATEGY
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 specialis-
ing 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
way to the management agenda. e-Marketplace man-
agers need to work out strategies for how their ser-
vice offering should develop as well as how to cope
with the prevailing inter-marketplace competition.
The sooner e-marketplace man-
agers start thinking about these
long term challenges the more
effective their building liquid-
being successful in the building
of liquidity in the first place is
a big part of the solution to
meeting these long-term chal-
lenges. 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 increas-
ingly 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 ser-
vices. For example, liquidity of transaction infor-
mation makes it possible for the e-marketplace to cre-
ate new information based services such as product
and inventory tracking services and data mining ser-
vices.
The product scope is another parameter of the e-mar-
ketplace 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
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E-MARKETPLACES: CRAFTING A WINNING STRATEGY
needs – with respect to commerce, content, and col-
laboration. For e-marketplaces moving towards a
one-stop shop is a natural move towards making the
most of the relationship with the e-marketplace parti-
cipants. 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 rais-
ing switching costs for e-marketplace participants in
order to protect first mover advantages, building
liquidity is the ultimate defensive weapon. Obvi-
ously high liquidity on an e-marketplace is a barrier
to entry for other e-marketplaces, especially when
considering the network exter-
nalities described above. How-
ever, liquidity also helps raise Liquidity translates
switching costs for e-market-
place participants. This is best directly into bargaining
illustrated by looking at two
opposites. If a given company power
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 com-
pany. However, if the company uses the e-market-
place 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 equ-
ity stakes also help increase switching costs. Finally, needs to put together a value proposition that is com-
security and trust issues may be equally important.
The past two years or so a proliferation of e-market-
places has been launched. Because only one or two
winners are likely to emerge in each distinct market
space, consolidation is something that any e-market-
place should make contingency plans for. A good
way to increase the chances for survival in the elimin- as it is perceived by the various target customers.
ation 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 captur-
ing value – in other words to make money by claim-
ing 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 reverse auctions and aggregation of supplier cata-
attracts. To use the analogy of a cake: liquidity deter- logues will benefit the buyers while the margins of
mines 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
294
this is not a straightforward task, however, as both
pillars represent very complex problems. Further-
more, 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 build-
ing liquidity runs the risk of not being able to gener-
ate 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 competi-
tive 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 every-
thing possible to make the cake
big, while prioritising the cut-
ting 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 dot-
com’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
pelling to its target customers – both buyers and sel-
lers. 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 rev-
enue sources into a complete revenue model that as
accurately as possible reflects the value proposition
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 buy-
ers 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
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
European Management Journal Vol. 20, No. 3, pp. 286–298, June 2002

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 mar-
ket 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-market-
place 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 trans-
fer 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 rep-
resents a very strong value proposition towards both
buyers and sellers. For example, sellers who are often
squeezed on margins due to the more efficient mar-
ket created by the e-marketplaces can find compen-
sation in lower marketing and sales costs. Further-
more, by committing themselves to an e-marketplace
as their new channel both buyers and sellers have the
chance to streamline internal processes and coordi-
nate inter-organisational processes. Experiences from
gatetrade.net show that the potential for reductions
European Management Journal Vol. 20, No. 3, pp. 286–298, June 2002
E-MARKETPLACES: CRAFTING A WINNING STRATEGY
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 sig-
nificantly 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 cap-
ture 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 rev-
enue source for the e-marketplace.
Finally the third source of value, new value creation,
represents a huge potential for powerful value prop-
ositions 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. Further-
more, if the e-marketplace can leverage its aggre-
gation of transaction information into developing
295
E-MARKETPLACES: CRAFTING A WINNING STRATEGY
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 rev-
enue model is the value that the e-marketplace cre-
ates 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 cus-
tomer segments.
Figure 5 The Advantages and Limitations of Various Revenue Sources
296
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 compe-
tition 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 rev-
enue model an ongoing task as the revenue model at
all points in time should preferably reflect as accu-
rately as possible the value being created by the e-
marketplace as it is perceived by the various cus-
tomer segments. Furthermore, the revenue model
should continuously be adjusted to reflect the
dynamic setup, the stage of the lifecycle and the spe-
cific competitive situation of the e-marketplace.
Conclusion
The Temple Framework presented in this article pro-
vides e-marketplace managers with a holistic mind-
set 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 stra-
tegic issues and look at them holistically regardless
European Management Journal Vol. 20, No. 3, pp. 286–298, June 2002

of whether it is the overall strategy or a specific prob-
lem 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 purchas-
ing behaviours as well as influence the way compa-
nies 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 pati-
ence 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 gate-
trade.net with both the funding and other com-
petencies 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-market-
place 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 ser-
vices, and computer hardware. The second issue was
to change the purchasing behaviour of its target cus-
tomers in order to bring their purchasing online. And
European Management Journal Vol. 20, No. 3, pp. 286–298, June 2002
E-MARKETPLACES: CRAFTING A WINNING STRATEGY
as has been the case in B2C e-commerce, gate-
trade.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-market-
places. 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 Dan-
ish 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 gate-
trade.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 sel-
lers and buyers onboard gatetrade.net. For this rea-
son 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 gate-
trade.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 rea-
son 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 gate-
trade.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-busi-
ness but a service business and should therefore be
managed as such, (2) that operational issues like cata-
logue 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 Tem-
ple Framework. This ensures the consistency with
the overall strategy of decisions made at all levels of
the organisation.. One obvious indication of gate-
trade.net having got its strategy fairly right is that
gatetrade.net is still alive and kicking while the Dar-
winian market mechanism of market consolidation
has taken its toll on most of its competitors in the
Nordic region.
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E-MARKETPLACES: CRAFTING A WINNING STRATEGY

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 competi-
tive 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-mar-
ketplaces start to link to each other, giving rise to marketplace-
to-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-

Technical University of ton Consulting Group,
Denmark, Building 421, DK- Amaliegade 15, 1256 Copen-
2800 Kgs, Lyngby, Denmark. hagen K, Denmark. E-mail:
E-mail: pb@tem.dtu.dk jensen.martin@BCG.com

Peter Bruun is Professor of Martin Jensen is a manage-

Industrial Management at
the Centre for Technology,
Economics and Manage-
ment (TEM). His research
interests centre on business
and operations strategy, strategic management includ-
ing e-business and global manufacturing management.
ment consultant at Boston
Consulting’s Copenhagen
office. His research interests
include e-business, corporate
strategy, organisational
theory and project management.

JAKOB SKOVGAARD,
McKinsey and Co., Ved
Stranden 14, 1061 Copen-
hagen K, Denmark. E-mail:
jakob—skovgaard@mck
insey.com

Jakob Skovgaard is a man-

agement consultant with
McKinsey and Company.
His research interests
include strategic manage-
ment, e-business and supply chain management.

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