The Rise of B2B Marketplaces
February 20, 2020
In the world of B2B eCommerce, Amazon Business is a genuine phenomenon. It grew from $1 billion to $10 billion in sales in just three years. And more than 70 percent of business buyers use it to research products and prices.
Understandably, a growing number of B2B businesses are choosing to sell their marketplaces on Amazon. But what is more surprising is that a growing number of businesses are opting to build their own B2B marketplaces. According to Gartner, at least 70 percent of enterprise marketplaces launched will serve B2B transactions by 2023.
What’s behind this trend? Is Amazon’s example that compelling? (Hint: It is!) Is customer demand for B2B marketplaces really that high? Are marketplace technologies becoming more accessible? Or is it all this and more?
This blog post will consider these questions and identify key reasons why merchants are building B2B marketplaces — and why you might consider it, too.
What Is A Marketplace?
A marketplace is an eCommerce site where customers can choose from many products from multiple third-party sellers. Iconic B2B examples include Amazon Business and Alibaba.
What do today’s emerging B2B marketplaces look like?
Of course, the new generation of B2B marketplaces is not “one size fits all.” Broadly speaking, new B2B marketplaces fall into one of two main categories — niche players and market leaders. The niche players are businesses that are focused on a particular niche market or community of users. The market leaders are businesses that already have a large customer base, have a lot of organic web traffic, and want to grow even bigger by offering more choices to their existing customers.
Get ahead of the competition
One of the main reasons businesses are creating B2B marketplaces is to get ahead of their competitors. As of early 2019, only 56 percent of B2B companies had an eCommerce site — and only 11 percent had a marketplace. Many companies identified this window of opportunity and took action, hoping to be one of the “first movers” in their industries.
This window still remains, especially in sectors like wholesale distribution and manufacturing, where businesses have been historically slow to adopt new digital strategies. According to research by McKinsey, innovative business strategies tend to deliver higher returns that risk-averse strategies. The three-year revenue growth of companies that move first with digital strategies is nearly twice that of companies that play it safe in response to digital competition.
Give customers what they want
Another important reason businesses are launching their own B2B marketplaces is to retain existing customers and attract new ones by giving them what they want. And what they want, increasingly, is the ability to buy multiple products on nicely designed, highly secure, and easy-to-use marketplaces. According to an August 2019 survey of B2B buyers by B2BECNews, more than 50 percent of B2B business buyers reported they did more than 10 percent of their B2B buying on Amazon Business.
Another reason why B2B buyers often prefer marketplaces is price transparency. Historically, B2B buyers have worked closely with sales reps to get custom quotes from multiple vendors for similar products. Comparing prices was often a big, time-consuming challenge. On many marketplaces, however, comparing prices is as easy as point and click.
Help channel partners sell more
On many B2B manufacturers’ websites, visitors can view detailed product information, including specs, analyst reports, and case studies, but they cannot complete a transaction. Instead, they must leave the site and contact an authorized channel partner via the partner’s website, email, or a phone call. Because of the added friction, many interested buyers do not actually make the leap from “interest” to “purchase.”
When you set up a B2B marketplace and recruit your channel partners to act as sellers, you can more easily turn interested website visitors into actual buyers. Instead of having to contact a channel partner independently, visitors can navigate to your marketplace and compare partners’ offerings. As a result, your channel partners sell more — which also means more demand for your products.
Earn incremental revenues
Your B2B marketplace is also an opportunity to earn additional revenue without adding new products to your portfolio. If you offer a fairly narrow range of products, you can recruit sellers with complementary products that would be convenient for customers to buy along with yours. Then you can charge sellers a commission for every sale — the way Amazon Business does — even through your sellers are typically responsible for their own product listings and fulfillment logistics.
Test the demand for new products
Amazon Business is known for using its market data to understand market trends and identify opportunities to create its own brands. If you build your own B2B marketplace, you can do the same. As your marketplace grows and you analyze sales trends over time, you may keep an eye out for products and product categories that perform especially well. And that information can inform your product development plans over the medium and long term.
Position your business as a market leader
Having your own B2B marketplace is a good way to position your business as a market leader in your niche. When B2B buyers come to your marketplace and stay awhile to browse multiple products in multiple categories and access content, they are continually exposed to your brand. Over time, it can become their “go to” destination for a wide range of products and services beyond your core offering — which can also fuel revenue growth as mentioned above.
Know (and manage) your B2B marketplace risks
While starting your own B2B marketplace has a lot of compelling benefits, it also comes with some well-defined risks. Most importantly, you face seller risk. Incomplete product information, as well as orders that aren’t accurate or delivered on time, can reflect poorly on your marketplace and on your brand. To manage seller risk, you need to provide clear expectations and minimum standards for all sellers, and you need to give customers a way to contact you if they are having difficulty with one of your sellers.
Another risk to keep in mind is compliance risk. When you operate a B2B marketplace — especially if it’s global — you need to keep track of changing local, regional, and national tax and banking regulations that affect marketplace sales. To minimize your compliance risk, you need a trusted tax and accounting expert and the right software.
How hard is it to build a marketplace, anyway?
While B2B marketplaces have become increasingly popular, many businesses are concerned that building a marketplace could be expensive and time-consuming. They often envision lengthy systems integration projects and custom development. However, marketplace technology has matured over the past couple of years. Existing marketplace software means you can start your own marketplace without having to write all the code from scratch.
Generally speaking, to create a marketplace you need a well-developed eCommerce platform and a marketplace solution that works with it. Ideally, your marketplace solution will also connect seamlessly to your ERP.
Questions to ask if you’re thinking about building a B2B marketplace
Of course, running a B2B marketplace is considerably more complex than managing a single-company eCommerce store. If you’re thinking about building a marketplace, it’s important to develop a comprehensive strategy and understand how you’re going to address a range of challenges, from seller onboarding to handling taxes and compliance.
If you’re thinking about building a B2B marketplace, some questions to consider include:
• Who will sell on the marketplace?
• Will your competitors be allowed to sell on the marketplace?
• Will your marketplace allow buyers to compare competing products?
• How will you onboard new sellers? How much of the process will be automated?
• How much control will sellers have over their product listings?
• Will you allow sellers to offer varying shipping and return policies? What sorts of minimum standards will they have to meet?
• How will you handle local, national, and cross-border taxes?
• Will you be the merchant of record for marketplace transactions? And, if so, what will that mean for your accounting?
Key takeaway: Now is the time
If you think your business might benefit from building a B2B marketplace, now is the time to get started. As more companies launch new marketplaces, it will become more difficult to attract high-quality sellers and make your marketplace a destination. If you can start a B2B marketplace ahead of your competition, the rewards — in the form of higher earnings and the chance to lead your market — will be rich.
To learn more about getting started with B2B marketplaces, we invite you to take advantage of these new resources:
• Infographic: 5 Reasons to Start Your Own B2B Marketplace
• Infographic: B2B Marketplaces Maturity Model
• Podcast: Should You Start Your Own B2B Marketplace?
• Podcast: Should You Be Selling on Amazon Business?