Recommendations:
Horizontal vs. Vertical Expansion
FreeMarkets current target market is one where competitive markets between suppliers already existed. FreeMarkets did not see success in creating a market for products that were traditionally manufactured through tight partnerships between suppliers and buyers. They also did not want to focus on commodity products that had prices freely available and were high volume and low commission. FreeMarkets was successful in finding the middle of these two markets: buyers who wanted large bids from suppliers with prices that weren’t freely available.
The target market also has substantial grow potential, the company plans to generate $6 million revenue in 1998, with over $200 million of new business being awarded to suppliers. By the year 2000, the suppliers will win over $500 million per year worth of purchase contracts through FreeMarkets biding system.
Given this, FreeMarkets should specialize in the same market and focus on vertical market dominance in selected supply industries. FreeMarkets will need to create a marketing plan which improves their brand identity and revises their sales and pricing strategies.
Technology Licensing
FreeMarkets should not license the bidding technology to buyers and third parties. Although the opportunity for profit and new customers could be very great, it would also be very costly to implement and support. FreeMarkets would need to brand this service separately from their core services. FreeMarkets would also need to invest heavily in support services for the licenses and would need to ensure high quality control. Furthermore, FreeMarkets’ competitive advantage is that it excels at providing service before and after the bid and award. Techno ...