Thanks to the global health crisis, online shopping has grown massively. That momentum will only continue as we move into a post-COVID, digitally-transformed world—but is there an appetite for replicating the success of this model of purchasing in business-to-business, and not just supplier to consumer?
Gartner believes so. It has predicted that, by 2023, at least 70% of enterprise marketplaces launched will support B2B transactions. If that’s the case, then B2B businesses can increasingly look to marketplaces to supercharge their way of doing business—creating wider ecosystems and tap into new ways of generating revenue.
Expect competition from B2B marketplace innovators and pure-plays mirroring the development of the B2C marketplace sector. Ten years ago, people said, “Amazon is just a book retailer from Seattle, it poses no threat to us.” Then when Amazon grew bigger, people argued it was a Ponzi scheme and the whole scheme would fail. How wrong they were, so do not make the same mistake.
Removing inventory risk
The evolution of the online marketplace in B2C shows a path forward here. In B2C ecommerce 1.0, businesses owned the whole inventory, stored it in their warehouse, and sold it to customers. In ecommerce 2.0, there is a mixed model. Amazon Marketplace and its German competitor OTTO are perfect examples, selling around half their inventory directly to customers while making 50% of revenue from commissions taken from vendors selling out of the marketplace.
Now, we have the next step: ecommerce 3.0, typified in B2C by etsy.com or Alibaba. These are marketplaces that do not own any merchandise, and simply offer a platform for other people to use. By doing so, inventory risk is removed, and these marketplace owners make money by taking a percentage commission from each sale.
No country can support too many multi-category B2C marketplaces such as Amazon or Otto. But there is scope for a much larger number of specialist B2B marketplaces. B2B buying behavior is very different from B2C. In B2B, there is no single dominant vendor, there’s no Amazon. There is room for hundreds of smaller Amazons, each serving vertical and niche markets.
There’s another lesson to be drawn here. Historic ecommerce models worked best for high turnover products, where companies sold thousands of products a day from their own inventory. High value, low demand, products (so-called long-tail items) were less commonly sold online. Now, these long-tail items are seeing increasing online demand. Previously-niche markets are seeing huge growth, creating opportunities to build marketplaces that tap into a critical mass of interest for vertical markets.
A good example is Thomann, a 60-year-old European professional audio equipment supplier that made the shift from a traditional business model, where they were buying product from vendors and selling it to customers. Now it is a billion-dollar business prepared for a jump to a totally new retail model. They can now become a marketplace themselves, adding vendors onto their platform without getting into the inventory-risk game.
Only some years ago, this niche was ‘online’ and too small to offer ecommerce 2.0 potential. But when we’re all online, including businesses, the game changes. Plus, a B2B marketplace is not just an opportunity to sell more products, as the key is to offer associated services and subscriptions. Compared with their consumer cousins, B2B marketplaces can offer a more sophisticated approach to providing product data, addressing security issues or offering insurance. The offer might include integrated services, because when businesses are buying 1,000 printers, they want to buy support services, not just the product, from installation to ongoing ink and paper supply.
Technology and culture transformation
The transition to a setup where businesses sell services or products that they don’t own brings with it technical and cultural issues. For one, a B2B space introduces lots of variables that the ERP systems usually cannot handle. B2B marketplace systems also need to be able to check availability, update pricing, factor in currency exchange rates, and handle many other real-time inputs.
On the internal company side, many B2B businesses are sales-driven, and they may have a hard time getting their sales force to accept that there might be components in a deal that they do not control. Or there might be a sale made over the marketplace, where the sales team did not have a call with the customer, so they don’t earn a commission. Dealing with these cultural issues may be harder to manage than the tech shift.
Creating an enterprise marketplace strategy
Nonetheless, the promise of B2B marketplace-driven ecommerce 3.0 is too great not to adopt. Here are five ways to get started:
A coalition of the willing. Search for the 10 customers that are already having a problem that you want to solve. At the same time, search for the 10 people in the company that are willing to create something new. When asked, customers often say it’s not just about the price, but that they need more products, a more just-in-time approach, and more integration into their materials requirement planning (MRP) order management system. Based on those interests, build something that solves these issues for them and creates such a force that attracts customers or employees to it.
Never start with cultural transformation. A successful project, doing something different, will lead to more cultural transformation than diktats from on high, because people start to understand when we do it this way, it creates happy customers and a much better work environment.
Break down the roadmap. If you spend two years creating a marketplace, too much will change. Maybe the project manager will change jobs, maybe the customer who was initially receptive to the change will put a new person in charge of procurement. So, aim to create results within weeks, not months or years, via a Minimum Viable Product (MVP) approach you can control. Plan to have four to five sprints, where you can really get things done.
Empower your existing workforce. Look internally for people that want to create something new, be progressive and focus on customer needs. Most companies have been through such a huge amount of change in the past 12 months, and now is a really good time to use this adaptability to secure the future of the business.
Balance the offer and demand-side. Nobel Prize winner in economics Alvin Roth says successful marketplaces must be “thick, uncongested, and safe.” “Thick” here means there needs to be enough participants in the market to make it thrive. Avoiding congestion is about balancing the offer and the demand side, so there are not too many merchants selling, that increasing demand is being fulfilled, that the customer is seeing a wide enough selection of products. Safety is when all parties feel secure enough to make decisions based on their best interests.
Get in pole position
Even in very small niche markets, a marketplace can drive hundreds of orders a day with associated services and subscriptions. Getting ready now to benefit from the next stage in ecommerce’s evolution should be high on the priority list for enterprises in all verticals.
Alexander Graf is co-founder and co-CEO of marketplace software provider Spryker and author of The E-Commerce Book.Favorite