Economic and Social Analysis of the Adoption of B2B Electronic Markets


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A Case Study in the Australian Beef Industry about the adoption of a B2B electronic market.

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Economic and Social Analysis of the Adoption of B2B Electronic Markets

  1. 1. Economic and Social Analysis of the Adoption of B2B Electronic Marketplaces: A Case Study in the Australian Beef Industry Caroline Driedonks, Shirley Gregor, Arjen Wassenaar, and Eric van Heck ABSTRACT: The factors that affect the adoption of B2B electronic marketplaces as inno- vations are investigated through a case study of AuctionsPlus, an electronic marketplace in the Australian beef industry. Two theories help to explain the relatively slow adoption of this system. Kambil and van Heck’s model of exchange processes offers a primarily economic view at the level of key stakeholder groups. Rogers’s diffusion theory gives a more social view, at the level of the individual stakeholder. Key stakeholder groups do not appear to be substantially worse off with AuctionsPlus from an economic exchange pro- cess standpoint. Consideration of the social and political dimensions of electronic market- places adds further insight. Loss of social capital, the nature of communication channels, time taken to reach critical mass, and the power of one group originally not recognized as a key player (the stock and station agent intermediaries) all appear to be important influ- ences. Based on these factors, testable propositions are developed and discussed, pro- ducing a set of critical issues for the design of electronic B2B markets. : KEY WORDS AND PHRASES: Adoption of innovations, AuctionsPlus, B2B marketplaces, electronic markets. The research presented in this paper focuses on the adoption of business-to- business (B2B) electronic marketplaces, and more specifically, on the factors that lead to the success of an electronic marketplace in opposition to existing exchange mechanisms. The study was motivated by questions concerning the relatively low rate of use of an electronic marketplace in the Australian beef industry and is discussed in detail by Driedonks [9]. There are several exchange methods in this industry. The major ones are the traditional saleyard auction and the over-the-hooks method. AuctionsPlus, an electronic marketplace, is an alternative to these traditional methods. Adop- tion of AuctionsPlus, however, has not been as widespread as originally en- visaged, even after a relatively long period. The case of AuctionsPlus offers an opportunity to gain insights into the reasons for the success or otherwise of B2B marketplaces. The question that gave rise to the research presented in this paper was whether the adoption of B2B electronic marketplaces could be explained pri- marily in terms of the relative advantage offered by the innovation (an eco- nomic explanation) or whether other factors, such as perceptions of the The authors thank Rolf Wigand, Yao-Hua Tan, and the two anonymous review- ers for the International Journal of Electronic Commerce for their comments and suggestions on earlier versions of this manuscript. International Journal of Electronic Commerce / Spring 2005, Vol. 9, No. 3, pp. 49–72. Copyright © 2005 M.E. Sharpe, Inc. All rights reserved. 1086-4415/2005 $9.50 + 0.00.
  2. 2. 50 DRIEDONKS ET AL. innovation, play an important role (a social explanation). Thus, the aim of the paper is to investigate the economic and social factors that affect the rate of adoption of B2B electronic marketplaces as innovations. A B2B electronic marketplace is defined as an Internet-based institution us- ing market mechanisms to mediate transactions between businesses [17]. An innovation is an idea, practice, or object that is perceived as new by an indi- vidual or other unit of adoption [27]. The rate of adoption is the relative speed with which an innovation is adopted by members of a social system, which is generally measured as the number of individuals who adopt a new idea in a specified period, such as each year [27]. In this paper, adoption means the range of behaviors from the decision to use an innovation to full and regular use of it, and rejection means the decision not to use the innovation at all. The research considers both economic and social explanations for individual and group use of B2B electronic marketplaces, which are perceived as a new way of trading (an innovation). The study is significant and reflects the con- siderable research interest in e-commerce adoption, and especially in elec- tronic markets adoption. A notable contribution in the electronic markets stream of research is the study by Kambil and van Heck [15]. These authors called for further empirical investigation of the framework they proposed. The present study responds to their suggestion by applying their framework in the context of a different industry and supplementing their framework with an analysis that includes social processes. Therefore, the research in the present study is a single-case test of the Kambil and van Heck model supplemented with elements of Rogers’s adoption model. Theoretical Background There are many different definitions of markets in the literature. Koppius clas- sifies market theories by distinguishing them along two separate dimensions: (1) whether a market is viewed as a state or a process, and (2) whether markets are viewed as economic allocation mechanisms or as social structures [19]. Concerning the latter distinction, many definitions of markets focus on their role as an allocation mechanism rather than a social mechanism. Wigand, Pi- cot, and Reichwald, for example, define a market as “an economic location on which the supply and demand for goods meet, enabling exchange processes” [31]. Kambil and van Heck also focus on the economic allocation aspect of markets [15]. Koppius notes that the social aspect of markets is often underex- posed. He views markets as “social institutions that facilitate exchange by means of competition. The primary goal of a market is to solve the problems of resource allocation (who gets what) and price determination (at which price)” [19, p. 1]. Charles Smith shows the complex social processes in auctions: Auctions do many things: They resolve ambiguities and uncertainties; they establish the value, identity, and ownership of items; they enter- tain; they shape social relationships; and they reallocate vast sums of money. They also tell us a great deal about economic life and social be- havior. It is in this latter capacity, as a paradigm of human behavior, that they have had their greatest impact not only on how we think about the
  3. 3. INTERNATIONAL JOURNAL OF ELECTRONIC COMMERCE 51 determinants of economic value and behavior but rational behavior in general [28, p. 162]. Research on electronic markets can be divided into four streams of research, adding to Koppius’s classification [19]. The first stream analyzes electronic markets in comparison to other electronic coordination mechanisms. It focuses on how information technology (IT) influences the choice of a coordination mechanism. The work of Malone, Yates, and Benjamin with regard to elec- tronic markets versus electronic hierarchies is the starting point for this type of research [23]; see, for example, [8, 14]. The second stream analyzes elec- tronic markets in comparison to nonelectronic markets. It focuses on the dif- ferences between the market processes in electronic markets and traditional markets—for instance, the reduced price hypothesis [2, 21]. The third stream of research looks at electronic markets from an institu- tional point of view, sometimes studied in isolation, sometimes studied in comparison to other electronic markets. This type of research can focus on the roles and business functions (the business models) in electronic markets [6], or on how electronic markets differ from each other (e.g., [17]), or on how these differences can explain the success or failure of a new institution (e.g., [15]). The evolution of electronic marketplaces as institutions has also been studied. Giaglis, Klein, and O’Keefe developed a contingency model for the role of intermediaries in electronic marketplaces [11]. The dynamics of inter- mediation and reintermediation depend on contingency factors like market structure, products, and services as well as relationships between market par- ticipants. Of particular interest to the current study is their view that reintermediation is likely in markets like the beef auctions, where there is scope for redistribution of price-discovery mechanisms, high distribution of goods, economies of scale, an important role for expertise, nonopportunistic transac- tions (established relationships), and strict government regulation. That is, traditional intermediaries are in a relatively strong position to find opportu- nities to better defend their market position and find new ways in which on- line and off-line activities support each other. Disintermediation and cybermediation are less likely. A fourth stream of research investigates factors that drive or hinder adop- tion of market systems. An example is the paper by Lee and Clark, who iden- tified three types of adoption barriers that prevent successful electronic market systems: lack of an adequate electronic product description, thinness of the market (lack of critical mass), and resistance to change (inertia of old ways of doing business) [22]. Similarly, Fong, Fowler, and Swatman identified some of the success and failure factors of electronic markets, and Reimers identified the preconditions for electronic markets [10, 25]. Damsgaard’s analysis of the Hong Kong air cargo industry showed how key industry stakeholders can block a new market [7]. Finally, there are also analyses of the recent boom and bust of electronic markets in different industries, where failures include SurplusBin (auto parts and electronics), Chemdex (life sciences), Promedix (medical products), (construction), Industrialvortex (industrial products), BizBuyer (office supplies), and Pradium (agricultural commodities), but there
  4. 4. 52 DRIEDONKS ET AL. are also successes, such as eBay (second-hand consumer products), Chemconnect (chemical products), and the Tele Flower Auction (flowers) [15]. The present study offers an integrative perspective on work from the third and fourth streams of research with regard to electronic markets. Two existing theories are drawn upon to explain the adoption of B2B electronic market- places as an innovation. These theories were chosen because they offer comple- mentary perspectives in two respects: (1) an economic view versus a more social view of adoption behavior, and (2) analysis at the group level versus analysis at the individual level of adoption behavior. The first theory is Kambil and van Heck’s process-stakeholder framework [15]. This generalizable model of exchange processes, in which five basic-trade processes and five trade-context processes are distinguished, forms a basis for a process-stakeholder framework. Basic-trade processes include the processes required in all transactions of goods and services: search, valuation, logistics, payment and settlements, and authentication. Trade-context processes facili- tate and enable or reduce the costs of or “frictions” in the basic processes: communication and computing, product representation, legitimating, influ- ence, and dispute resolution. Kambil and van Heck used their generalizable model of exchange processes to build a process-stakeholder analysis framework with the aim of comparing traditional markets and IT-enabled markets in the same market. This catego- rization allows systematic identification of processes affected by a specific administrative or technological innovation and enables systematic examina- tion and representation of the impacts of IT across interdependent processes and stakeholder groups in an electronic market. Kambil and van Heck applied this process-stakeholder framework to ana- lyze a number of information technology initiatives in the Dutch flower mar- kets using cross-case analysis and studying success and failure in the introduction of new IT-based trading mechanisms in these markets. One of the testable propositions formulated as an outcome of this study is as follows: Market organizations are the meeting point for multiple stakeholders: buyers, sellers, and intermediaries with conflicting incentives. Given existing or market alternatives, no new IT-based initiative is likely to succeed if any key stakeholder is worse off after the IT-enabled innova- tion. [15, p. 16] In other words, Kambil and van Heck emphasize that the relative economic advantage of an IT-enabled innovation plays an important role in its adoption. The second theory used here is Rogers’s diffusion of innovations theory [27]. Rogers states: The innovation decision process consists of the series of actions and choices over time through which an individual (or organization) evalu- ates a new idea and decides whether or not to incorporate the innova- tion into ongoing practice. [27, p. 161] This innovation behavior follows from the uncertainty that is inherently in- volved in deciding about a new alternative relative to those already in exist- ence. The perceived newness of an innovation, and the uncertainty associated with its newness, is a distinctive aspect of innovation decision making.
  5. 5. INTERNATIONAL JOURNAL OF ELECTRONIC COMMERCE 53 Rogers distinguishes five steps and stages in the innovation decision pro- cess. The first step, knowledge, occurs when an individual is exposed to an innovation’s existence and gains some understanding of how it functions. At the following stage, persuasion, the individual forms a favorable or unfavor- able attitude toward the innovation. Next, during the decision stage, the indi- vidual engages in activities that lead to a choice to adopt or reject the innovation. The implementation stage occurs when the individual puts the innovation into use. Finally, at the confirmation stage, the individual seeks reinforcement of an innovation decision already made, or reverses a previous decision to adopt or reject the innovation if exposed to conflicting messages about it. Rogers argued that the rate of adoption of an innovation is determined by the innovation’s perceived attributes (relative advantage, compatibility, com- plexity, trialability, and observability), the type of innovation-decision (op- tional, collective, authority), communication channels (mass media or interpersonal), the nature of the social system, and the extent of the promo- tional efforts by change agents. The choice of these two complementary perspectives (the economic view vs. a more social view) is not new in research that aims to explain the adop- tion and use of information technology. For example, social informatics is the body of research that examines the designs, uses, and consequences of infor- mation technologies in ways that take into account their interaction with in- stitutional and cultural contexts [18]. Research in this stream encompasses an array of relevant factors, including social, cultural-organizational, and other contextual components. Processes and practices need to be studied “for how they are actually carried out” [18, p. 270]. From this perspective, information systems and their success or failure are related to or explained by Granovetter’s notion of “social embeddedness” [12]. Kumar, van Dissel, and Bielli devel- oped a “third rationality” of information systems, based on a case study of the failure of an interorganizational system in Prato, Italy [20]. Their study did not focus on politics and conflict as the primary mode of interaction, as in social informatics, but instead saw collaboration and cooperation as the key to understanding interaction processes. The present study continues this thrust toward complementary social and economic perspectives, and it is one of the few examples of research that takes into account both economic and social/contextual aspects with regard to elec- tronic markets. Research Model and Methodology The research model shown in Figure 1 was developed in order to investigate the economic and social factors affecting the rate of adoption of B2B elec- tronic marketplaces. The model integrates elements of both of the theories discussed above. The theories complement each other in that one focuses on the innovation’s net benefit at the level of key stakeholder groups, and the other focuses on the perceptions of individual potential users. Together these theories offer an explanation for the adoption and success of B2B electronic marketplaces.
  6. 6. 54 DRIEDONKS ET AL. Figure 1. Initial Research Model The research model explains behavior at two levels: • Level 1: Net benefits for key stakeholder groups. At this level, Kambil and van Heck’s economic-political process-stakeholder theory shows how relative advantage within basic-trade and trade-context pro- cesses for key stakeholder groups when using the IT-enabled innova- tion (a B2B electronic marketplace) influence adoption and use. • Level 2: Perception of individual potential users. At this level, Rogers’s social-political diffusion of innovations theory gives an understand- ing of how the actions and perceptions of individuals and organiza- tions interact in a social process over time to influence the uptake of a B2B electronic marketplace. Analysis at these two levels is expected to contribute to an explanation of a B2B electronic marketplace’s rate of adoption and therefore, in part, its suc- cess. This research model was used as an initial guide for the case study. The type of research question asked can be seen as a “why question.” Ex- ploring “what factors affect the rate of adoption of B2B electronic market- places as innovations” can be translated into “why potential users decide to use or not use B2B electronic marketplaces.” A case study strategy was indi- cated to explore the answers to this question [32]. Data were gathered from interviews, direct observation of auctions (both electronic and saleyard), Web sites, reports, and other archival sources. Interviewees were given the oppor- tunity to check and amend the transcripts of their interviews. The data were analyzed using the guidelines suggested by Miles and Huberman for qualita- tive data analysis [24]. Interview transcripts were analyzed for themes and patterns that concerned the primary research question, using the research model as a framework.
  7. 7. INTERNATIONAL JOURNAL OF ELECTRONIC COMMERCE 55 Analysis occurred at two levels. At Level 1, the net benefits of competing exchange mechanisms for key stakeholder groups were analyzed in terms of the Kambil and van Heck framework [15]. Twelve people were interviewed, including two saleyard managers, three industry experts, five cattle produc- ers who used AuctionsPlus, and two AuctionsPlus managers. At Level 2, the perceptions of the innovation and the innovation process by individuals and organizations were analyzed. Seventeen people were inter- viewed, including five cattle producers who had adopted AuctionsPlus, five cattle producers who had rejected AuctionsPlus, one meat processor who had adopted AuctionsPlus and one meat processor who had rejected AuctionsPlus, and five industry experts. Case Study: AuctionsPlus AuctionsPlus is a computer-based auction system that combines the advan- tages of the major traditional exchange methods [1]. The Australian Meat and Livestock Cooperation (AMLC) launched this system under the name of Com- puter Aided Livestock Marketing (CALM) in 1987. CALM claimed to: provide a system for buying and selling cattle, sheep, lambs and pigs, on the basis of an objective description, while the stock remains on the property or feedlot. Buyers can bid from anywhere in Australia. CALM combines the advantages of auction selling with the efficiency of sale by description. [5] In 1995 the major stock-agent companies, WesFarmers, Elders Landmark, and Roberts, together took over CALM for a nominal amount, centralized the organization, and changed its name to AuctionsPlus. It is remarkable that this marketplace has never really burgeoned in terms of adoption. The number of registrations has increased over the years, but the number of users is still not much higher than in 1988, shortly after the system was launched. Registrations went from none to approximately 26,000 in the years 1987 to 1991, but then increased only gradually to about 34,000 between 1991 and 2002 [9]. CALM suffered losses during the whole of the period 1987– 1995, with the greatest loss, in 1989/1990, being more than A$3 million (cur- rently US$2.29 million) (figures from AMLC reported in [9]). The cattle producers and meat processors who are potential users have tended to con- tinue with the major traditional methods for trading cattle—saleyard auctions and over-the-hooks (see Figure 2). Research on the system in its CALM form includes papers by Clarke and Jenkins, Fong, Fowler, and Swatman, and Lee and Clark [5, 10, 22]. It seemed time to carry out a further investigation of this system. Traditional saleyard auctions are still the most common method of selling cattle in Australia, accounting for 48 percent of the sales in 1999–2000 [26]. Much of the livestock is sold on behalf of the cattle producers by agents work- ing for a commission. Producers pay a yard fee, industry and government levies, and freight costs. The traditional strengths of saleyards are that buyers can view the animals they are purchasing, and the pricing is usually very competitive, with “lots” of animals being sold to the highest bidder. The sale
  8. 8. 56 DRIEDONKS ET AL. CATTLE PRODUCERS ‘Store cattle’ AGENTS EXCHANGE METHODS SALEYARD OVER-THE-HOOKS AUCTIONSPLUS OTHER METHODS ‘Prime cattle’ MEAT PROCESSORS EXPORT DOMESTIC RETAILER WHOLESALER CONSUMER Figure 2. Australia’s Beef Supply Chain price may be on a per-head or live-weight basis. There are negatives associ- ated with saleyards, though. Animals can be stressed during and after trans- port, and this may affect meat quality. Saleyards can be quality-assurance accredited with the National Saleyard Quality Assurance scheme (NSQA). This quality assurance, aimed at improving animal welfare and reducing the stresses that might affect meat quality, takes into account many factors, in- cluding livestock reception procedures, and yard construction. The second most common method of exchange is over-the-hooks market- ing, with 26 percent of sales in 1999–2000 [26]. This method involves direct selling from the cattle producer to a meat processor. Payment is based on the Hot Standard Carcase Weight (HSCW) after slaughtering and various other measurements, such as fat percentage, plus the value of the skin or hide. Over- the-hooks marketing is market specific and ensures that producers are paid for exactly what they produce. Producers choose which market specifications they will meet and negotiate a price. The actual price paid depends on whether specifications are met after slaughter in terms of weight, fat scores, skin qual- ity, and so on. The system emphasizes guidelines regarding transport (load- ing, unloading, time, and cleanliness), handling, lairage, watering, feed, and stress, and ensures constructive communication and feedback. The penetration of AuctionsPlus is difficult to ascertain precisely. Figures on its usage are not available publicly or directly from the company. Industry experts estimated that about 40–70 people joined in a sale every month. Al-
  9. 9. INTERNATIONAL JOURNAL OF ELECTRONIC COMMERCE 57 though the aim of CALM was to cover 20–30 percent of available turnover, the actual maximum achieved was closer to 7–8 percent [9]. AuctionsPlus was still operating as of mid-2004, and auction activity could be observed on its Web site [1]. Meanwhile, a new form of auction has been introduced. An on-line “interface auction” interfaces with a physical auction controlled by an auctioneer. A handheld wireless device transmits the on-site prices to the remotely connected bidders. The remote bidders enter bids on their own computers and transmit them to the person on site with the wire- less device, who raises the bid with the auctioneer. It remains to be seen how this new development will influence the level of usage of AuctionsPlus. Case Study Findings An overview of the findings is presented for both levels of analysis. Level 1: Net Benefits for Key Stakeholder Groups The Level 1 comparison of AuctionsPlus with saleyard exchange in Table 1 presents in summary Kambil and van Heck’s process-stakeholder framework [15]. The framework depicts 10 processes involved in a marketplace exchange. Analysis of the costs and benefits related to each process in different market- places allows for systematic comparison of the advantages and disadvan- tages accruing to different stakeholders. This analysis has a primarily economic focus. Table 1 shows that selling cattle producers have overall positive net benefits from the AuctionsPlus system compared with the traditional saleyard auc- tion. The ability to keep cattle on property until sale and possibly to set a re- serve price improves their negotiating position considerably. Selling cattle producers do not need to freight cattle into the saleyard, which lowers costs depending on the distance to the nearest saleyard. In return, assessment has to be arranged and paid by the selling party. These costs generally turn out lower than freight costs and saleyard fees together. The assessment of cattle gives cattle producers feedback on their production. Additionally, the AuctionsPlus system potentially gives access to a greater number of buyers all over Austra- lia, and because there is more competition, higher prices can be generated through this auction system. The realization of these advantages, however, depends on the number of buyers participating in the on-line auctions. Buyers also benefit from using the AuctionsPlus system. Buying cattle through the system is less time-consuming and less expensive than going to the saleyard. In return, buyers pay freight costs and have Internet learning and connection costs. The AuctionsPlus system gives access to a wider range of sellers and their cattle all over Australia. More competition among buyers, however, may cause higher prices. A major benefit is that cattle are less stressed and bruised, and the chance of diseases being passed on to the cattle in sale- yard holding pens is lower. Purchasers buy based on detailed descriptions instead of seeing the cattle. This method provides more objective, uniform
  10. 10. 58 Exchange processes Cattle producers AuctionsPlus Meat processors 1. Search Benefit: Potential access to more buyers. Benefit: Efficient cattle and auction Benefit: Search costs are reduced. No saleyard commission payable. database. Potential access to more sellers. Cost: Listing cost about $4 per head. DRIEDONKS ET AL. 2. Valuation Benefit: Higher prices due to more buyers Cost: Lack of cues in face-to-face bidding. Benefit: Less time-consuming. and better negotiating position. No visual pictures of stock during sale. Cost: Higher prices but better quality. Slower bidding. 3. Logistics Benefit: No transportation costs. Benefit: No saleyard holding costs. Cost: Greater freight costs. Need to aggregate lots purchased. 4. Payments and settlements No change. Managed by AuctionsPlus. No change. 5. Authentication Managed by AuctionsPlus. Managed by AuctionsPlus. Managed by AuctionsPlus. 6. Communication and computing Cost: Internet-enabled communication. Define and set up new auction system. Cost: Internet-enabled communication. 7. Product representation Cost: Payment to trained assessors. Standardized grading system. Neutral: Based on standard grading system Assessment takes time. and not visual inspection. 8. Legitimation Producers undergo assessment entry. AuctionsPlus is primary authority. Buyers excluded if misbehaved in past. 9. Influence Producers have little influence on market AuctionsPlus defines the rules. Processors have little influence on market rules. rules. 10. Dispute resolution Through intermediary. AuctionsPlus is intermediary. Through intermediary. Arbitration panel provided if needed. Net Benefit Positive: Improved negotiating position Positive: Low cost, fair price-discovery Neutral–positive: Remote buying, greater and market insight, no freight costs. mechanism. freight costs, better-quality cattle. Table 1. Process-Stakeholder Impacts of AuctionsPlus Compared with Saleyard Exchange.
  11. 11. INTERNATIONAL JOURNAL OF ELECTRONIC COMMERCE 59 information, but may yield less information than can be obtained by an expe- rienced buyer who sights the cattle. On balance, the outcome for buyers is neutral–positive net benefits. Table 2 compares AuctionsPlus with the over-the-hooks method. AuctionsPlus is more similar to over-the-hooks than to saleyard exchange. With both AuctionsPlus and over-the-hooks, the sale is arranged while the animals are still on property and are not physically sighted by the buyer. The comparison shows that cattle producers have overall net positive ben- efit from the AuctionsPlus system compared with using the over-the-hooks method, mainly because the system generates access to more meat processors all over Australia and there is competition among them. Otherwise, the pro- ducers are restricted to processors that can be contacted by phone to negotiate a sale. When using AuctionsPlus, the sellers do not pay freight but do pay the AuctionsPlus listing fees and assessment. Prices are based on an assessment before the animal is sold. Such assess- ments are less accurate than the quality grid used by meat processors to as- sess an animal’s yield after slaughter. This pricing method may or may not be an advantage. The meat processors’ overall net benefit from AuctionsPlus is neutral. Meat processors benefit from the AuctionsPlus system in having another purchas- ing method connecting them with producers all over Australia. Because meat processors are suppliers to retailers in a demand-driven chain, the opportu- nity to plan supply in advance is of great importance. Another advantage is that meat processors get a full description of the offered cattle before the sale. This gives them the possibility of bidding on the cattle that they consider most appropriate. Usage of AuctionsPlus, however, costs meat processors a considerable amount: They pay Internet connection fees and may have learning costs. The prices paid may rise because of competition. The processors also pay trans- port costs. In neither case do the meat processors see the cattle before they buy, and the quality of the cattle may change after the assessment. However, with over-the-hooks, the processors pay on the standard of the animal after slaughtering, which gives them the most benefit of any valuation method. One may conclude from the process-stakeholder (economic) analysis that none of the key stakeholder groups (cattle producers and processors) defined in this research is worse off using AuctionsPlus as compared with traditional cattle exchange methods. Level 2: Perception of Individual Potential Users Table 3 shows issues relating to the use of AuctionsPlus at Level 2 that were identified in the analysis of the adoption and usage behavior of individual companies using Rogers’s diffusion theory to guide analysis. These issues emerged from qualitative analysis of interviews with industry participants. The factors that could lead to adoption and rejection were identified for each issue. These issues are both economic and social. They have been grouped according to the perspective from which they arose.
  12. 12. 60 Exchange processes Cattle producers AuctionsPlus Meat processors 1. Search Benefit: Potential access to more buyers. Benefit: Efficient cattle and auction Benefit: Search costs are reduced. Cost: Listing cost about $4 per head. database. Potential access to more sellers. 2. Valuation Benefit: Higher prices due to more buyers Price discovery through auction rather than Cost: Higher prices. Price based on assessed DRIEDONKS ET AL. and better negotiating position. independent negotiations. value, not actual value of carcass. 3. Logistics Benefit: No transportation costs. No change. Cost: Transportation costs. 4. Payments and settlements No change. Managed by AuctionsPlus. No change. 5. Authentication Managed by AuctionsPlus. Managed by AuctionsPlus. Managed by AuctionsPlus. 6. Communication and computing Benefit: Fewer phone calls. Benefit: Fewer phone calls. Cost: Internet-enabled communication. Define and set up new auction system. Cost: Internet-enabled communication. 7. Product representation Cost: Payment to trained assessors. Standardized grading system. Standardized grading system of live animal, Assessment takes time. not carcass measurements. 8. Legitimation Producers undergo assessment entry. AuctionsPlus is primary authority. No longer processor driven. 9. Influence Producers have little influence on market AuctionsPlus defines rules. Processors have little influence on market rules. rules. 10. Dispute resolution Through intermediary. AuctionsPlus is intermediary. Through intermediary. Arbitration panel provided if needed. Net Benefit Positive: Improved market insight, access Positive: Low cost, fair price discovery Neutral-positive: Access to more suppliers, to more buyers. mechanism. greater freight costs, payment not on carcass yield. Table 2. Process-Stakeholder Impacts of AuctionsPlus Compared with Over-the-Hooks Exchange.
  13. 13. Associated influence factors Perspective Issue Adoption factors Rejection factors Characteristics of cattle producers Geography Long distance to nearest saleyard/abattoir Short distance to nearest saleyard/abattoir Background Involvement in industry politics/CALM — Internet adoption Later Internet adoption Earlier Internet adoption Initial knowledge about AuctionsPlus Communication channels Personal communication Mass communication by media of cattle producers used to gain knowledge Initial opinion — Initial positive opinion Trust Did not influence Did not influence Perceptions of AuctionsPlus held Heterogeneous perceptions All factors influenced adoption and rejection All factors influenced adoption and rejection by cattle producers of costs, negotiating position, competition Perceptions of AuctionsPlus held Heterogeneous perceptions Influenced adoption and rejection Influenced adoption and rejection by meat processors of efficiency Experts’ insights on AuctionsPlus Social system — Social network found in traditional saleyard rejection Critical mass — Not enough users Stock agents — Discouraging Table 3. Issues and Adoption/Rejection Factors for AuctionsPlus at Individual Enterprise Level. INTERNATIONAL JOURNAL OF ELECTRONIC COMMERCE 61
  14. 14. 62 DRIEDONKS ET AL. Several issues arise from the perspective of the distinguishing characteristics of the cattle producers. The producer’s location and the distance to the nearest saleyard or abattoir played a role in the adoption decision process. The greater the distance, the more the cattle producer was inclined to adopt AuctionsPlus. These factors explain why AuctionsPlus has more users in the northern and remote parts of Australia, where distances to saleyards are greater than in the more closely settled southeastern regions. Cattle producers who were person- ally involved in industry politics, or who are or were involved in CALM, for instance as an assessor, were more inclined to adopt the AuctionsPlus system. Although it seems logical that IT innovativeness would stimulate adoption of AuctionsPlus, a negative relationship was observed between IT innovativeness and adoption of the AuctionsPlus system. Cattle producers who used AuctionsPlus started using the Internet much later than those who did not. It is difficult to explain this finding. Perhaps the early adopters of the Internet are located in areas with better telecommunications (less remote areas) and thus are also the enterprises that are closer to traditional market exchanges. An alternative explanation is that the early adopters of both the Internet and AuctionsPlus became disillusioned early on with the failure of the electronic marketplace to grow quickly. Several other issues arise from the perspective of the initial knowledge of the cattle producers. Adoption was stimulated when initial knowledge was gained through personal communication about the system. Cattle producers who were involved in political activities, for instance, were more aware of the system and its uses and were more open to the system. Cattle producers who were informed about the system by mass media were more inclined to reject it. It is remarkable that many rejecters who initially had a positive opinion of AuctionsPlus subsequently rejected the system. Because all the respondents said that they had trusted the AuctionsPlus system from the start, there was apparently no relationship between trusting the system and adopting or re- jecting it. In summary, many cattle producers initially were positive about AuctionsPlus, and the ones who were informed about the AuctionsPlus sys- tem by personal connections were inclined to adopt it. Several other issues arise from the perspective of cattle producers’ percep- tions of AuctionsPlus. The results concerning the perceptions of potential users showed that the potential users group is heterogeneous in many ways. Per- ceptions differed among potential users. Factors that directly stimulated some to accept the AuctionsPlus system stimulated others to reject it. Costs, negoti- ating position, and competition were factors that had both negative and posi- tive influence on adoption. Some cattle producers perceived the system as too expensive to use and stated that there were not enough buyers in the system and thus there was a lack of competition. On the other hand, adopters were initially stimulated to adopt because they perceived lower transaction costs and were attracted by gaining access to more buyers all over Australia, which would increase competition and generate higher prices. The main issue from the perspective of meat processors was efficiency, which had both negative and positive aspects. One meat processor rejected because using the system was perceived as too time-consuming, whereas another meat processor who adopted perceived the system as an efficient supply method.
  15. 15. INTERNATIONAL JOURNAL OF ELECTRONIC COMMERCE 63 Interviews with industry experts showed that they identified several issues affecting adoption. The experts included the president of the stock and station agents association, the CEO of the saleyard operators association, two former CALM employees, and a government representative. All of the experts had many years of industry experience and an overview of the different stake- holders involved. The attributes they cited give a good basis for deep insight into the relevant issues. The experts identified the nature of the social system in the Australian cattle industry as a strong influence on rejection of the sys- tem. Many cattle producers do not feel any need to change their ways of doing business. In addition, many producers lead a fairly isolated existence in re- mote locations, with social opportunities restricted by geography and very long working hours. The traditional saleyard auctions, however, contribute to their social life by providing an opportunity to meet and socialize with peers. The experts believed that usage of AuctionsPlus was just below or “on the edge” of critical mass, a figure that varies among different auctions. This ob- servation is significant, because the system has been running for about 16 years. The lack (or perception of a lack) of critical mass no doubt influences adoption of the system. One expert commented that it is “a chicken and egg” problem—most people do not want to use CALM until enough people use it. More than one interviewee commented on the promotion efforts during the start-up of CALM: “The promotional effort when CALM was launched was enormous. It was almost too much because producers’ expectations about the system became too high.” The experts had an interesting view on the influence of stock agents on the adoption of AuctionsPlus. Agents are intermediaries who facilitate sales of cattle through saleyards, earning a commission on the number of cattle sold and the price they reach. The agents advise the producers about the readiness of their cattle for sale and the price they are likely to fetch, and they may assist with rounding up the animals and arranging transport to the market. This tradi- tional role gives agents considerable influence over the producers. They often provide a very important social and commercial link between the relatively isolated cattle producer, his industry group, and the outside world. The ex- perts believed that the agents were discouraging usage of the AuctionsPlus system. In their view, even the company that owns AuctionsPlus, which em- ploys many stock agents, was not strongly stimulating adoption of AuctionsPlus. The following statement by an industry expert is illustrative: When I attended a sale in Inverell it was made quite clear by agents that they saw major problems with authentication of stock description and also the ability to purchase stock to adequately allow for economical transport [with AuctionsPlus]. Obviously, buying one small pen does not make sense if being transported as the only occupant of a semi-trailer! In addition, it was quite obvious to me that the agents were actively white-anting [undermining] the technology to anyone with the time to listen. This was despite several pens of cattle being purchased online for going market rates. Note that the stock agents were not identified as key stakeholders in the analysis carried out at Level 1. Obviously, the agents are worse off economi- cally if cattle are sold through AuctionsPlus because they lose commissions.
  16. 16. 64 DRIEDONKS ET AL. As an industry segment, the stock agents are not regarded as key stakehold- ers because they are intermediaries rather than players with a large economic investment and thus explicit power in the industry. Nevertheless, for social and historical reasons, the stock agents may have more power and influence than is immediately apparent. An attempt has been made to explain the low rate of adoption of AuctionsPlus on two levels. In the economic context of Level 1, no key stake- holder groups are significantly worse off because of using AuctionsPlus, but despite this the rate of adoption has been rather low. Placing the stakeholder groups in a social context on Level 2 contributes much to an explanation of the relatively low take-up rate. Lessons Learned The relevant factors explaining the adoption of AuctionsPlus will now be ana- lyzed and discussed. They will then be generalized to give testable propositions. Conclusions Regarding the Case Study One may conclude from the AuctionsPlus process-stakeholder analysis that economic factors do not fully explain the rate of adoption. Although the net benefits for the key stakeholder groups are positive for sellers and neutral for buyers, most individual potential users have decided not to adopt the AuctionsPlus system. Relative advantage at the level of the stakeholder group does not mean relative advantage for each individual potential user. The cattle producers group in the AuctionsPlus case is heterogeneous—for instance, a producer’s background plays an important role in relative advantage and es- pecially how it is perceived. The social viewpoint at the individual level helps to explain why the innovation has not succeeded in terms of adoption. The first explanation of the low rate of adoption of AuctionsPlus is the nature of the cattle producers’ social system and its characteristic communi- cation channels. The cattle producers tend to stick to their traditional ways of trading. Since an important part of their social life depends on the traditional saleyard auctions, they are not well disposed toward an innovation that takes away a big part of their social network. AuctionsPlus has been more success- ful in the northern parts of Australia, where saleyards are less accessible and over-the-hooks is a more common mode of sale. AuctionsPlus is more compa- rable to the over-the-hooks method, because neither involves social group interaction. The second explanation is the kind of innovation decision to be made and power distribution in the industry. As shown in the AuctionsPlus case, Kambil and van Heck’s process-stakeholder framework does not suit situations in which the adoption decision is optional. Their analysis focuses on an innova- tion decision that is collectively made by an authority and then implemented. Power distribution among stakeholders can have a major impact on an innovation’s rate of adoption. Most stock agents (nonowners) did not encour-
  17. 17. INTERNATIONAL JOURNAL OF ELECTRONIC COMMERCE 65 age adoption of the system. Rogers does not mention the possibility of “nega- tive change agents.” The third explanation is the lack of critical mass. In the AuctionsPlus case, a critical mass of adopters has not been reached—at least not fast enough. No network effects took place when the system was first launched. Adoption did not accelerate, and this led to a chicken-and-egg problem—no potential user would adopt until enough others had adopted. The early adopters, many of whom were involved in CALM or in industry politics, failed to function as opinion leaders. Kambil and van Heck note the need to achieve critical mass quickly, because otherwise the early adopters who expected to benefit from the addition of other participants are likely to abandon the market [15]. The raising of expectations through extensive promotion early on may have added to this disillusionment effect. Propositions The conclusions from the case study make it possible to identify the factors that influence the (un)successful use of IT in markets. This analysis is used to develop a series of observations with regard to how IT enables new market institutions and investigates factors that drive or hinder adoption. These ob- servations are stated as propositions, and the supporting analysis and discus- sion are given below. Proposition 1: Electronic markets that destroy existing social capital and social information among stakeholders will be less readily adopted by these stakeholders. The nature of a social system plays an important role in the adoption of B2B electronic marketplaces. Electronic commerce is often marketed as making business location irrelevant. Change agents launching B2B electronic market- places should recognize, however, that social networks are of great impor- tance in many industries. Social involvement is often a way to transact effectively. The social aspect of traditional ways of trading is not (easily) ex- changeable with IT-enabled innovations that claim to offer more efficiency. This argument is supported by recently published literature. Steinfield ar- gues that the success of local business clusters depends on the exploitation of “social capital—proximity affords interaction opportunities, common language and culture enhance shared understanding, relationships facilitate knowledge sharing yielding innovation, and trust arising from relationships lubricates commerce and reduces transaction costs” [29, p. 8]. Steinfield further states that most B2B electronic marketplaces are “relatively opaque to—or even worse, attempt to substitute for—social information” and claims this is a rea- son why local business clusters do not widely adopt B2B electronic market- places. Wellman and Bakos also argue for this social network view [2, 30]. However, it may be difficult to identify the social aspects of markets. In the AuctionsPlus case, the traditional saleyard auctions contribute to the social life of the cattle producers, providing an opportunity to meet and socialize
  18. 18. 66 DRIEDONKS ET AL. with peers. Designers of electronic markets, using such methods as focus group discussions that include the main stakeholders, have to find out which impor- tant social information is shared and how crucial it is for the stakeholders in- volved. Two options are possible. The first is that the specified social information cannot be easily codified and automated. In that case, the electronic market has to facilitate basic exchange processes, such as search and payment. The other basic processes, such as pricing and logistics, will be done in the tradi- tional way with social interaction. The second option is that the specified so- cial information can be codified and automated, and a full electronic market covering all basic exchange processes can be designed and implemented. Proposition 2: Knowledge exchange of positive experiences among early adopters, opinion leaders, and potential users will facilitate adoption of B2B electronic markets. Communication channels are of great importance in the adoption of B2B elec- tronic marketplaces, as recognized in Rogers’s diffusion theory [27]. The con- nection between early adopters who “should” function as opinion leaders and potential users is an interesting phenomenon linked to social networks that can be further investigated. Granovetter argued for the importance of “weak ties” in linking sparsely knit communities and providing people with a wider range of information [12]. With regard to IT, the social informatics school of research views the relationships among different stakeholders as complex, negotiated, and multivalent, and holds that knowledge and exper- tise are inherently tacit and implicit [18, p. 220]. In the AuctionsPlus case, the early adopters failed to function as opinion leaders. Further, judging by interviewee reports, the stock and station agent intermediaries are acting as negative change agents who “white-ant” (under- mine) the new system. The agents had more influence than first expected in this study. This finding is congruent with the contingency model of Giaglis, Klein, and O’Keefe, who see that in a context like this one, where the interme- diaries have specialized knowledge and alternative methods of price discov- ery are possible, the chances for pure cybermediation (the electronic auction) are less promising [11]. Their work suggests that market mechanisms that al- low some form of reintermediation and more reward for the stock agents would have more chance of success [11]. In addition, user groups could be formed to facilitate knowledge exchange between early and later adopters. User groups are a mix of early and later adopters or even nonadopters who share knowledge about the pros and cons of an electronic market design. The user group discussions serve as the basis for (re)designing the electronic market. Each phase of the adoption cycle has to be carefully managed in order to exchange knowledge among the different buyers and sellers and to come up with the right system. Proposition 3: Industries that have no leading or forcing stakeholders have more difficulty in adopting and implementing open B2B electronic markets. An industry’s context and the power relations among stakeholders can con- siderably influence adoption of B2B electronic marketplaces. For example, the
  19. 19. INTERNATIONAL JOURNAL OF ELECTRONIC COMMERCE 67 case where one stakeholder has a monopolistic position is different from the case where an industry is competitive. Stakeholders that have a leading or forcing role in an industry can sometimes affect the innovation decisions of other stakeholders. These factors have all been identified in electronic data interchange (EDI) research (e.g., [4, 13]). Environmental factors, such as eco- nomic, socio-cultural, and competitive forces, can also, to a great extent, affect take-up of innovative initiatives in industries. The AuctionsPlus case clearly demonstrates that the system’s owners did not have a leading and forcing role. They could not force users to switch to the electronic markets, thereby allowing different levels of social information be- tween on-line and off-line sellers and buyers. Compare these results, for ex- ample, with the adoption of the Tele Flower Auction in the flower industry [15]. The Tele Flower Auction, which trades African flowers, forced all buyers to switch to the electronic market: no electronic link, then no African flowers! Tele Flower eliminated the information differences between on-line and off- line buyers because now all buyers had to be on-line. As the Tele Flower Auc- tion case shows, the uniqueness of the products traded can provide the owners with considerable market power and therefore can create a forcing role in the adoption of the electronic markets. In general, managers and designers of elec- tronic markets have to identify the unique and sustainable value proposition— in terms of products, services, or processes—that the electronic market will provide, and this can create an enforcing power for the adoption of the elec- tronic market by sellers and buyers. Proposition 4: To succeed, electronic markets must quickly achieve critical mass and liquidity. Finally, a critical mass of marketplace participants has to be reached quickly enough to accelerate adoption. The value of a B2B electronic marketplace is a function of the number of users, also referred to as network externalities. If value is not created quickly enough, the marketplace risks being considered unsuccessful and not worth participating in. This factor is also critical in the adoption of electronic markets in general. Kambil and van Heck found, in a decade-long study of nearly 100 successful and failed electronic markets in the United States, Europe, and Asia, that electronic markets can only succeed if they achieve critical mass and liquidity [15]. Kambil and van Heck sug- gested that two basic strategies are available to reach critical mass: subsidize early users and increase the cost of older transaction options. The current study gives some further insights into the problem of obtain- ing critical mass. Timing may be a key element. The early CALM system was pre-Internet, relying for communications on a Telecom X.25 packet-switching network linked to a central computer. This system was not easy to use, and connection from regional areas of Australia could be extremely difficult. Thus, the system was introduced at a time when many potential users were not able to gain access easily, and in consequence perhaps it is not surprising that criti- cal mass was not obtained quickly. Unanticipated events can also play a role in adoption. A key factor in the success of an electronic market is the existence of a standardized language to
  20. 20. 68 DRIEDONKS ET AL. describe the product [22]. The AMLC addressed this issue by developing the AUS-MEAT language in 1985 for use with CALM. Elements of this language were adopted by the meat processors for use in their payment methods for over-the-hooks sales. In addition, a market intelligence service evolved, now known as the National Livestock Reporting Service, which provides informa- tion each week in newspapers and on the radio about the prices for livestock around Australia in all markets. This service, too, makes use of elements of the standardized description language developed for CALM. Thus, other mechanisms for price information developed at the expense of CALM. The conclusion to be drawn is that if the timing for the introduction of a new mar- ket structure is not right and a critical mass is not obtained quickly, not only is there likely to be disillusionment, but also other, alternative market mecha- nisms may have time to improve their relative positions. Conclusions, Limitations, and Implications This paper addresses the question of what economic and social factors affect the rate of adoption of B2B electronic marketplaces as innovations. It makes three important contributions to the literature on electronic markets. First, factors that combine economic and social exploratory theories are identified. These theories differ mainly in respect to whether they explain the rate of adoption as based on relative advantage at the level of the stakeholder group or on perceptions at the individual (enterprise) level. Second, a single-case test of the proposed framework is analyzed and executed through the AuctionsPlus case in the Australian beef industry. Third, based on the results of the case study, generalizable propositions are derived that address the na- ture of the social system, the use of communication channels, the industry context, and the rapid attainment of critical mass. The results of the study indicate that a combination of the Kambil and Van Heck model and the Rogers model will help managers, designers, and poten- tial users to analyze and design electronic markets. Under complex condi- tions—such as a range of different stakeholder groups, strong social information exchange, limited knowledge exchange between early adopters, opinion leaders, and potential users, and a lack of leading or forcing stake- holders—the two models help to identify the critical issues in the design of an electronic market. Neither of these theoretical models is optimal by itself, but they complement each other. There is need for knowledge and understanding of both the economic exchange advantages that an electronic marketplace can offer and the social and communication processes required for it to be adopted and used. This view is generally congruent with the approaches recommended by Dai and Kauffman and by Lee and Clark [6, 22]. However, the case study suggests that the Kambil and van Heck model may be more applicable when decisions are made at higher, collective levels, rather than as in this case, where they are made at a lower level by individual stakeholders with varying per- ceptions of value propositions.
  21. 21. INTERNATIONAL JOURNAL OF ELECTRONIC COMMERCE 69 Limitations The research presented in this paper has some limitations. The initial depic- tion of the Australian beef industry context was lacking in its representation of stock agents, who turned out to play an important role in the exchange mechanisms discussed. An investigation of their role in these exchange mecha- nisms and their influence on cattle producers would be a useful contribution. The discussion in this paper suggested that stock agents may function as nega- tive change agents. This is an interesting finding that could be studied in fur- ther research. Facts on AuctionsPlus adoption and its distribution over Australia were, unfortunately, difficult to obtain, due to commercial sensitivity. It would be interesting if this information could be gathered in order to confirm the rela- tion between characteristics of cattle producers and adoption of AuctionsPlus. The conclusions drawn from the remainder of the conducted research are thought to be valid because several data-collection methods were used to in- vestigate the factors that affect the rate of adoption of B2B electronic market- places. The absence of quantitative analysis on the economic level is a weakness. The process-stakeholder framework, as developed by Kambil and van Heck, is a suitable method for investigating relative advantage issues but does not provide enough guidance for measuring net benefits [15]. Implications for Managers The paper provides new insights for companies that would like to adopt elec- tronic markets (whether as seller, buyer, or market maker). The proposed frame- work can be used to systematically analyze the relevant factors with regard to the relative advantage within basic-trade and trade-context processes, the net benefits for key stakeholder groups, the perceptions of electronic market in- novations by individual potential users, and the potential users’ characteris- tics. Based on the results of the electronic auction case, managers can identify critical factors with regard to the social context, the communication channels between early and potential adopters, the role of leading or forcing stake- holders in their industry, and finally, the role of critical mass and liquidity. These new insights should help managers to better design electronic markets for the benefit of sellers and buyers. REFERENCES 1. AuctionsPlus. 2. Bakos, J.Y. A strategic analysis of electronic marketplaces. MIS Quarterly, 15, 3 (1991), 295–310. 3. Markus, L.M., and Christiaanse, E. Adoption and impact of collabora- tion electronic marketplaces. Information Systems and e-Business Management, 1, 2 (2003).
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  24. 24. 72 DRIEDONKS ET AL. his academic carrier and developed and taught IS management courses for compa- nies and institutions, including the Dutch Open University. Dr. Wassenaar’s exten- sive research and consulting activities include IS management, IT-based innovation management, virtual network organizations, and electronic business management. He has published in MIS Quarterly and many other IS journals. ERIC VAN HECK ( is a professor of business administration at Erasmus University’s Rotterdam School of Management, where he teaches in the in- ternational M.B.A. program and the Global eManagement (GeM) program. His re- search concentrates on the design of electronic markets and the design of business modularization. In his research he helps companies to develop innovative electronic auctions. He is a member of the Erasmus Research Institute of Management. Before joining Erasmus University, he was a research fellow at Tilburg University, an assis- tant professor at Wageningen University, and a visiting scholar at New York Univer- sity, and he has worked for Cap Gemini. Dr. van Heck has published in California Management Review, Communications of the ACM, Harvard Business Review, Information Systems Research, and WirtschaftsInformatik and has written or edited 12 books. He received his M.Sc. and Ph.D. from Wageningen University.