Public and private exchanges have subtle differences, but they both serve important functions Still not sure what exchanges are all about? You're not alone. "The definition is debated in the market by participants and owners and analysts and vendors," says Joan Harbin, research director with Boston-based AMR Research. She offers a simple way to think about exchanges websites that let you trade information with your customers and suppliers.

Private exchanges are owned and operated by a single company. The owner uses the exchange to trade data exclusively with established suppliers and customers.

Those exchanges let buyers centralize and manage purchasing from preferred suppliers. Companies also use them to trade proprietary data, such as product designs and demand forecasts, to improve planning and reduce inventory costs. The investment required to participate in a private exchange depends on the extent to which trading partners need to integrate their systems to share data. The exchange owner generally chooses the technology for the exchange and sets policies for its operation.

Public exchanges are owned by industry consortia or independent investors and have their own board of directors. Though each exchange sets its own rules, they are generally open, for a fee, to any company that wants to use them. One selling point for public exchanges is that they provide services and a common technology platform. The services offered by many public exchanges include auctions, spot buying and ordering from participants' catalogs. They may also offer payment services and industrywide demand forecasts for products or supplies.