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B2B marketplace: why all the buzz?
24 / 07 / 2017
Some people fail to realise that the biggest money in the global e-commerce industry is not generated by retail sales (B2C) but by transactions between business entities (B2B). According to Forrester Research, by 2020 in the Unites States alone this e-commerce segment will have a turnover of one billion dollars, twice that of retail turnover for the same period.
Another research firm, Frost&Sullivan, estimates that global B2B e-commerce sales will reach 6.7 billion dollars, accounting for 27% of all B2B sales. Half of the companies surveyed by Forrester in 2015 were of the opinion that some or all of their customers would move their purchasing processes online in the next 3 years.
Since the 1990s B2B e-commerce has been centred around seller-controlled portals. Large companies with long-term business relationships with thousands of institutional partners had no difficulty moving their sales and customer service processes to their B2B portals, usually integrated directly with their internal systems, such as ERP, CRM and WMS.
These investments were driven by the willingness to save on transaction conclusion and handling costs. Benefits for B2B customers included transparency, and continuous access to product information, information availability and order status. For a long time they did not mind that they were limited to a single seller, and thus B2B portals served as loyalty tools that gave a competitive edge over those competitors that did not offer such options.
B2C and C2C transactions and their impact on B2B marketplaces
Transaction and auction portals, such as Ebay or Allegro, focused on B2C and C2C transactions. Later on, a growing number of professional sellers arrived, initially only small businesses but then the big players realised the potential as well. The availability of a wide range of products, combined with the professional services provided by the portal operators and the sellers, began to attract business buyers. With companies such as Alibaba and Amazon realizing this potential, the era of B2B marketplaces began.
The recipe for a successful business marketplace seems as easy as it is with B2C: there is a wide selection of products in continuous supply, at attractive prices, and with quality customer service. Institutional clients require more than this, however, as it has long been standard practice in B2B to offer deferred payment options (trade credit), individual price lists and price negotiations.
B2B marketplaces also enable users to create multiple user accounts with various rights and the ability to conclude transactions on behalf of the company, as well as to support integration with the buyer’s internal systems (e.g. importing orders from CSV files).
What are the challenges?
This seems simple, but so far few players have implemented it successfully. The greatest challenge for any marketplace is to build the right traffic volume to ensure balance between supply and demand. Attracting sellers is impossible if there are no buyers, and vice versa. This is why today most professional marketplaces are created as a result of transforming or expanding existing e-business models with stable positions, such as:
- large retail sellers (e.g. NewEgg Business)
- global B2C marketplaces (e.g. Amazon Business)
- global distributors (e.g. Grainger, Farnell)
There are examples where marketplaces were built from scratch, however, as was the case with ManoMano and Mercateo.
Logic model of a B2B marketplace
The logic model involves three primary actors: Client, Seller and Operator. Sellers are sometimes divided into Manufacturers and Suppliers to differentiate distributors from OEMs. Secondary players operate around these roles, including logistics service providers, payment service providers, business intelligence services and offer aggregators, and help Sellers to introduce their products into various marketplaces.
Financial settlements are carried via the operator in most cases. This allows the operator to secure their own interests (by charging commissions), as well as those of the buyer’s by enforcing quality service delivery from the seller. The operator also handles returns and provides dispute mediation.
Type of B2B marketplaces
There are two primary criteria used to classify B2B marketplaces: scope of product range and the Operator’s role.
In the first case, two types of marketplaces can be identified: vertical (specialist) or industry-specific marketplaces (e.g. Agriconomie, a French marketplace for agricultural products), and horizontal (generalist) marketplaces without any specific area of specialisation (e.g. Amazon Business, Alibaba).
The other classification distinguishes between neutral and hybrid marketplaces. In a neutral marketplace the Operator’s only roles are to match the transaction parties and to develop the market by attracting new Sellers and Clients. The Operator itself is not involved in any trade operations and is not a Seller. Typical examples include Alibaba and ManoMano.
Figure 2. Neutral marketplace
A special case of a neutral marketplace is one where the platform Operator is also a Seller (transaction party) and rather than holding the inventory they act as a go-between, with the order shipped to the Client directly by the Manufacturer or Supplier (drop shipping).
An example of such a marketplace is Mercateo.
In a hybrid marketplace the platform Operator is at the same time a Seller, usually the primary one. One example is Amazon Business, where Amazon completes more than 50% of the transactions using their own inventory stocks, the rest being fulfilled by other small (compared to Amazon) sellers operating on the platform. Other examples include the specialist marketplaces Grainger and Farnell.
Figure 3. Selling party model in a hybrid B2B marketplace
How to create our own marketplace
If we are a distributor or manufacturer with a significant share of the market and have our own B2B portal, then we have a good chance of creating our own hybrid B2B marketplace in stages: starting by opening our existing B2B portal to other sellers, e.g. to complement our range and then to add more sellers with a competitive range later on.
Note, however, that our B2B portal technology may not yet be ready to handle a considerably larger product catalogue or to be integrated with multiple seller/supplier systems to retrieve product details and availability, and to submit orders.
If our current technological solution has significant limitations in terms of the data model architecture or performance, one approach would be to decompose it to a form that is based on microservices and an enterprise service bus (e.g. Mule ESB), and then to expand it or to replace the components responsible for the product catalogue, inventory levels and order management.
In some cases the current B2B portal may be so limited that it is easier to switch to a platform with native support of the marketplace model. Some of the popular e-commerce platforms, such as Magento, offer relevant multi-vendor extensions. There are also specialised IT solutions that offer a set of components to enable rapid deployment and management of a professional marketplace, such as Mirakl.com.
Marketplace models have had a relatively short history on the market and involve non-standard IT architecture challenges (due to a large product data set, complex data categorisation and a large number of external integrations). This is why, regardless of our scenario, it is recommended that we use the services of an experienced deployment company, both for consulting in terms of the strategy, and for implementing and integrating the target solution.