The advent of the internet brought the world-changing advantages of distributed, scaled communication and digital experience (data-led personalisation, content management, and presentation orchestration) to commerce. The B2C marketplace giants of today were built on the back of the resulting price transparency, demand aggregation, and breadth of product diversity enabled by the new infrastructure.
As communications technology could now handle millions of nodes with quasi-simultaneous interactions, eBay and Craigslist could enable myriads of sellers to reach myriads of buyers. As limitations on product placement and discovery, engendered by physical stores, melted before advancing search algorithms and burgeoning compute, Amazon could build a bookstore (and then an “everything store”) with infinite shelves.
Although B2B marketplaces are not a new phenomenon – in 1999, Alibaba built an enormously successful business connecting Chinese SMBs to suppliers and customers globally – B2B supply chains have been slower to seize this opportunity. Vested interests in existing supplier relationships, the high stakes inherent in upgrading mission-critical supply chains, and multiple tiers of approvals in procurement have all contributed to the slower pace of evolution. As a result, low transparency of price and product availability, coupled with rigid, complex supply chains, continue to plague many industries.
However, these barriers to development are eroding. Experience expectations are set by the B2C giants. Those self-same procurement officers who struggle with entrenched supplier relationships during the workweek are enjoying inexhaustible product diversity, one-click purchasing, and next-day delivery on the weekends. Proliferating API connections are smoothing the flow between marketplaces and buyers’ ERP systems, taking steps toward automated supply chains, whilst integrated fintech (payments, insurance, credit) is streamlining the transaction itself. Opportunities to build B2B marketplaces are proliferating.
Whilst it may be facile to point to the market opportunity for innovation horizontally across enterprise supply chains, nevertheless it is the case that enormous marketplace businesses can be built in sometimes slim, but resoundingly deep, niches. In the US, Faire has connected thousands of local wholesale vendors with both established and emerging retailers. In Europe, Ankorstore, Mano Mano, TravelPerk and our own Collectiv Food are dominating their respective supply chains. Enterprise supply chains are a land of many, deep verticals, but what, then, are the defining industry characteristics that we are looking for?
The value of transparency is felt most keenly in industries with a broad supplier base, diverse in terms of size, quality, and product focus. A buyer for whom there are only two supplier options, would not gain additional benefit from marketplace transparency. For example, take the private space cargo transport industry. At present, if you are planning to send a payload into orbit, there are only two private operators to choose from – SpaceX and Northrup Grumman. As a result, its fairly simple to engage with these suppliers individually and directly, to compare price and quality of service. However, a marketplace in a highly fragmented industry stands to empower businesses by aggregating suppliers, facilitating easy comparison, and granting buyers ready access to the highest quality – and most reliable – operators in the sector.
Rather than bilateral deals, where huge suppliers meet the needs of their business counterparts and lock smaller outfits out of enterprise contracts, we look for situations in which the economic potential of more, smaller operators can be unlocked. Hard-negotiated bilateral deals may confer long-established advantages in cost and terms, but a successful B2B marketplace will more than make up for those through the supplier diversity and price transparency.
Market benefits of supply diversity and price transparency are wasted on buyers who are committed to their pre-chosen suppliers. For a dynamic and efficient marketplace, buyers must be prepared to test and trial as-yet-unknown suppliers. For some sectors, this promiscuous approach is more challenging. Law firms, for example, develop institutional knowledge of their clients’ overtime and continually sharpen the delivery of their product, the quality of which can be tracked across outcomes. Shopping around would undermine the standard of legal support a business should expect over the long term. Raw materials for builders, or ingredients for restaurants, however, are a different story.
While promiscuity is about not being afraid to chop and change suppliers, frequency describes the volume of transactions. Rather than conducting a single transaction with one supplier annually, a B2B marketplace works best for businesses looking to make multiple transactions per month. In this way, the marketplace demonstrates its value in streamlining the transaction consistently and repeatedly, and in doing so mitigates platform leakage.
A market of a size capable of sustaining a £1bn business is always a target for us, but it’s especially salient in this case. When revenue tends to be derived from a take on total transaction value, we’d like to see supply chains worth multiple £bns annually, or an opportunity for the marketplace offering to be logically expanded into structurally similar, adjacent verticals. The good news is that in B2B, where global businesses are operating at scale, niches are deep.
Some markets operate at margins that are simply too low to support meaningful value extraction. As a result, buyers would be reticent about giving up additional margin to a marketplace solution, in lieu of preferential rates with long-established supply partners. It is critical that marketplace businesses can build an effective, well-accepted means of capturing the value it’s providing. Alongside a typical take on the transaction, value capture can increasingly be derived from associated SaaS and integrated finance products.
The B2B marketplace opportunity persists and spreads; from payment gateways to seafood, from home installation services to farms and agriculture, buyers around the world recognise the value in a marketplace with suppliers, workflows, and finance options that are tailored to their specific needs. As buyer infrastructure becomes more sophisticated (API integrations), data-analytics personalise purchasing experiences, and entrenched supplier relationships are deprecated, we are increasingly excited at the greenfield opportunity for the marketplace approach to enterprise supply chains.
- Gartner: 11 Imperatives when building an Enterprise Marketplace
- Bill Gurley: A Rake Too Far: Optimal Platform Pricing Strategy
- Version One: A Guide to Marketplaces – Third Edition
- NFX: Enterprise Gateway Marketplaces Will Turn Large Organisations Inside-Out
- NFX: 24 Ways B2B Marketplaces Win
- Bessemer Venture Partners: ACV Auctions: The value of bringing trust to used cars sales
- Bessemer Venture Partners: Roadmap: B2B Marketplaces
- Andrew Chen on marketplaces
- Bowery Capital: A Field Guide to B2B Marketplaces
- Sarah Tavel: The Hierarchy of Marketplaces
- McKinsey: How B2B online marketplaces could transform indirect procurement
- Julia Morrongiello, Point 9: A Primer on B2B Marketplaces
- Roland Berger Focus: B2B Marketplaces are blossoming, June 2018.