The internet has seen successive waves of digital gold rushes since Tim Berners-Lee creates the World Wide Web in 1990. There were the browser wars and dot-com bubble of the 1990s, the social media explosion of the mid-2000s, digital ads becoming the dominant marketing channel in the 2010s, and of course B2C ecommerce growing to 20% of total retail in 2023. However, the biggest online gold rush may still be ahead in the shape of B2B marketplaces.
B2B marketplaces are not a new concept, but they have been gaining momentum in recent years, thanks to new technologies, increased adoption and specialised development services. In this blog post, we will explore what B2B marketplaces are, how they work, what are their advantages, what are the most popular and promising segments, and what are the challenges and opportunities for building and scaling them.
What is a B2B marketplace?
A B2B marketplace is an online platform that connects buyers and sellers of business-related products or services. Unlike B2C marketplaces, which cater to individual consumers, B2B marketplaces target organisations that have specific needs and requirements. For example, a B2B marketplace for industrial equipment might connect manufacturers with distributors, wholesalers or retailers. A B2B marketplace for software development might connect clients with freelancers, agencies or consultants.
Components of a B2B marketplace
According to Forbes, a B2B marketplace stack consists of four main components:
The core marketplace: This is the platform that enables the matching, discovery and transaction of products or services between buyers and sellers. It also provides features such as ratings, reviews, messaging, payments and dispute resolution.
The procurement tools: These are the tools that help buyers manage their purchasing process, such as sourcing, ordering, invoicing, budgeting and reporting. They also help sellers manage their sales process, such as quoting, invoicing, shipping and tracking.
Value-added services: These are the services that enhance the value proposition of the marketplace, such as financing, insurance, logistics, quality control or marketing. They can be provided by the marketplace itself or by third-party partners.
Network effects: These are the benefits that accrue to the users of the marketplace as more users join and interact on the platform. They can be direct (more buyers attract more sellers and vice versa) or indirect (more data enables better recommendations, pricing or personalization).
B2B marketplace types
There are different types of B2B marketplaces depending on the nature of the products or services they offer and the way they operate. Some of the common types are:
Product-focused marketplaces: These are marketplaces that sell physical goods such as raw materials, components, equipment or supplies. They can be horizontal (offering a wide range of products across different categories) or vertical (focusing on a specific niche or industry). Examples include Alibaba.com (horizontal), Faire (wholesale retail) and Flexport (freight forwarding).
Time-and-materials marketplaces: These are marketplaces that sell services based on the time and resources spent by the providers. They can be horizontal (offering a wide range of services across different categories) or vertical (focusing on a specific niche or industry). Examples include Upwork (horizontal), Toptal (software development) and Axiom (legal services).
Scope-of-work marketplaces: These are marketplaces that sell services based on the deliverables or outcomes agreed by the buyers and sellers. They can be horizontal (offering a wide range of services across different categories) or vertical (focusing on a specific niche or industry). Examples include Fiverr (horizontal), 99designs (graphic design) and Catalant (business consulting).
Corporate-spinoff marketplaces: These are marketplaces that leverage the existing assets or capabilities of a large corporation to create a new revenue stream. They can be internal (offering products or services to other divisions within the same corporation) or external (offering products or services to other businesses outside the corporation). Examples include Amazon Business (internal), GE Digital Marketplace (external) and Siemens Advanta Solutions (external).
SaaS enabled marketplaces: These are marketplaces that combine software as a service (SaaS) with marketplace functionality to create a hybrid model. They can offer SaaS solutions to either buyers or sellers or both to enhance their experience and value proposition on the platform. Examples include Shopify (e-commerce), Stripe (payments) and HubSpot (marketing).
Advantages of B2B marketplaces
B2B marketplaces offer several advantages to both buyers and sellers compared to traditional methods of doing business. Some of these advantages are:
Transparency & less corruption: B2B marketplaces provide more information and visibility into the products or services offered by different vendors, such as quality, price, availability and reputation. This reduces information asymmetry and enables buyers to make more informed decisions. It also reduces the risk of fraud, bribery or favouritism that might occur in offline transactions.
Less wastage: B2B marketplaces enable buyers to find exactly what they need from a large pool of suppliers, reducing the need for intermediaries, inventory or overstocking. They also enable sellers to reach a larger and more diverse customer base, reducing the need for marketing, sales or distribution channels. This leads to lower costs, higher efficiency and less environmental impact.
Better management of spending and compliance: B2B marketplaces provide tools and features that help buyers manage their purchasing process more effectively, such as sourcing, ordering, invoicing, budgeting and reporting. They also help sellers manage their sales process more efficiently, such as quoting, invoicing, shipping and tracking. This leads to better control, accountability and compliance of the transactions.
Better quality control: B2B marketplaces provide mechanisms that ensure the quality and reliability of the products or services delivered by the sellers, such as ratings, reviews, verification, certification or escrow. They also provide services that enhance the quality and value of the products or services, such as financing, insurance, logistics or quality control. This leads to higher satisfaction and loyalty of the buyers.
The market opportunity for B2B marketplaces
B2B marketplaces have a huge potential to disrupt and transform various industries and sectors. Some of the factors that indicate the market opportunity for B2B marketplaces are:
Size of B2B vs B2C: According to Statista, the global B2B e-commerce market was valued at $17.9 trillion in 2021, more than four times larger than the global B2C e-commerce market ($3.86 trillion). However, only a fraction of this market is served by online platforms, leaving a lot of room for growth and innovation.
Potential to add more value via procurement tools (managed marketplaces) = higher take rate: According to McKinsey, the average take rate (the percentage of revenue that a marketplace charges from its transactions) for B2B marketplaces is 5%, compared to 10% for B2C marketplaces. However, this gap can be narrowed by offering more value-added services and features to the buyers and sellers, such as procurement tools, financing solutions or quality control. These services can increase the stickiness and loyalty of the users and justify higher fees or commissions.
Verticalization of B2B Marketplaces: According to Dealroom, there are over 300 B2B marketplace startups in Europe alone, covering various segments and niches. These startups are leveraging their domain expertise and network effects to address complex value chains and markets that are underserved or inefficient by horizontal platforms. They are also creating new opportunities and business models that are unique to their verticals.
Integration with financing solutions: According to CB Insights, one of the key trends in B2B marketplaces is the integration of financing solutions into their platforms. These solutions can include invoice factoring, trade credit, supply chain finance or working capital loans. They can help buyers overcome cash flow challenges and access more products or services. They can also help sellers increase their sales volume and reduce their payment risk.
Ease of implementation: New technology, increased adoption of MP model and MP development specialists have made it easier to create B2B marketplaces: According to TechCrunch, new technologies such as cloud computing, artificial intelligence, blockchain or 5G have enabled new capabilities and functionalities for B2B marketplaces, such as real-time data analysis, smart contracts or IoT integration. Moreover, the increased adoption of the marketplace model by both buyers and sellers has created more demand and supply for online platforms.
Furthermore, the emergence of specialised development services such as Sharetribe or Arcadier has made it easier and cheaper to create and launch B2B marketplaces.
Popular B2B market segments
There are many segments and niches that are ripe for disruption by B2B marketplaces. Some of the most popular and promising ones are:
Consumer Goods: This segment includes marketplaces that sell products such as apparel, accessories, beauty products or home goods to businesses such as retailers, wholesalers or distributors. Examples include Faire (wholesale retail), Zilingo (fashion supply chain) and Spocket (dropshipping).
Logistics & Lending: This segment includes marketplaces that offer services such as transportation, warehousing or delivery to businesses such as manufacturers, exporters or importers. Examples include Flexport (freight forwarding), ShipBob (fulfillment) and Cargomatic (trucking).
Travel & Healthcare: This segment includes marketplaces that sell products or services such as flights, hotels or medical supplies to businesses such as travel agencies, hospitals or clinics. Examples include TravelPerk (corporate travel), Doctolib (medical appointments) and Medinas (medical equipment).
Growth trajectory of B2B marketplace sector
Online business-to-business (B2B) marketplaces have been booming in recent years, as more buyers and sellers connect and transact through digital platforms. According to a report by McKinsey, the online B2B marketplaces have grown 8.6 times since 2015 and have a combined enterprise value of $214 billion. The B2B e-commerce market is expected to grow to $26 trillion, surpassing the B2C e-commerce market by a factor of six.
The growth of B2B marketplaces is driven by several factors, such as the increasing demand for convenience, transparency, and efficiency in B2B transactions, the emergence of new technologies and business models, and the changing expectations of B2B buyers who are influenced by their B2C experiences. Moreover, the COVID-19 pandemic has accelerated the digital transformation of many industries and sectors, creating new opportunities for online B2B platforms.
Challenges of B2B marketplace development
However, building and scaling a successful B2B marketplace is not easy. There are many challenges and complexities that B2B marketplace operators have to overcome, such as:
Integration with complex procurement systems. Unlike B2C transactions, which are usually simple and straightforward, B2B transactions involve multiple stakeholders, such as buyers, sellers, procurement managers, finance teams, and logistics providers. B2B marketplaces have to integrate with various systems and processes to facilitate seamless and secure transactions.
Legal and regulatory hurdles. B2B transactions are subject to more legal and regulatory requirements than B2C transactions, such as compliance, tax, contracts, data protection, and dispute resolution. B2B marketplaces have to comply with different laws and regulations in different markets and jurisdictions, which can be costly and time-consuming.
Friction in onboarding. B2B buyers and sellers are often reluctant to switch from their existing relationships and processes to a new platform. They may have concerns about trust, quality, reliability, and security. B2B marketplaces have to provide value propositions that can overcome these barriers and convince them to join and use the platform.
Despite these challenges, there are also many opportunities for innovation and differentiation in the B2B marketplace sector. One of the trends that is emerging is the verticalization of B2B marketplaces, which means focusing on specific industries or segments that have complex value chains and markets. For example, some of the recent B2B marketplace unicorns (startups valued at over $1 billion) include Faire (wholesale marketplace for independent retailers), RigUp (energy workforce marketplace), and Flexport (freight forwarding marketplace). These startups have leveraged their domain expertise, technology capabilities, and network effects to create value for their customers and stakeholders.
The future of B2B marketplaces is bright and promising. As more industries and sectors embrace digitalisation, there will be more demand for online platforms that can connect and facilitate B2B transactions. However, B2B marketplace operators have to be aware of the challenges and complexities that they face and find ways to overcome them. By doing so, they can create sustainable competitive advantages and capture the huge potential of the B2B e-commerce market.