In March, Andreessen Horowitz released the Marketplace 100 list for 2023, their annual ranking of the largest marketplace startups. This list is a great way to get a sense of the trends impacting the marketplace space, even though today, the ranking is largely dominated by consumer-facing companies.
The list includes everything, from platforms for buying refurbished electronics to eco-friendly meat and second-hand car parts. We couldn't help but notice that this year, a good portion of the featured companies had both B2C AND B2B businesses, EverWash, AptDeco and ezCater, to name a few. However, when it came to pure B2B, Faire, a wholesale marketplace, was the only marketplace that made the list.
A word about the significant impact Instacart has had on the grocery industry: For the past two years, no other company in the groceries category ranked in the top 50 marketplaces. The two grocery marketplaces that did rank saw a meager 0.1% of Instacart's marketplace activity. Experts say that Faire is well-positioned to be the next marketplace giant that could be a "winner-takes-all" company at the top of the Marketplace 100.
Why? B2B marketplaces are digital platforms shaking up the traditional and offering a much more seamless and sophisticated online buying experience that up until now, B2B merchants have just had to do without. The impact that the marketplace model has had on B2B ecommerce is all-encompassing, it’s touched everything from determining pricing to sharing product information, procurement, inventory management and payments.
In this article, we'll explain just how influential the impact of a B2B marketplace model is and how payments are an essential value-add.
All eyes are on B2B ecommerce marketplaces
A recent McKinsey survey of 3,700 B2B executives in 13 countries reported that 48% of companies who describe themselves as “winning at B2B ecommerce’ are using industry marketplaces. 50% of companies have either already built or have plans to build their own marketplace. The marketplace model seems to be more effective than just employing a typical, one-company ecommerce site.
Further, McKinsey stated that B2B companies winning the most market share are employing five major modern sales and marketing tactics, including tailoring strategies on third-party B2B marketplaces.
“They’re increasingly facilitating a greater share of their sales efforts through third parties and owned marketplaces,” McKinsey says.
Third-party marketplaces like Amazon Business are seeing great success as a result. According to Statista, Amazon Business' market share is forecast to grow to 2.4% of all B2B sales by 2025. But Amazon is not the only one getting in on the B2B marketplace trend. B2B marketplaces are rapidly growing in popularity. Three years ago, Digital Commerce 360 was following about 75 B2B marketplaces. Today, that number has grown to over 400, across 18 industries.
The sheer volume and value of B2B transactions alone makes it a huge elephant in the proverbial ecommerce room that no supplier, integration tool, designer, or even retailer can ignore— ultimately, it’s affecting all of us in several different ways.
This hasn’t always been the case, though. B2B marketplaces have a long history of failed promise, mixed results and lackluster interest from buyers and sellers - until now.
B2B marketplaces first appeared on the ecommerce ecosystem years ago (over 20 years ago, actually). While the concept of a universal platform where buyers and sellers can meet, view available products and services, and make purchases sounded good at first, multiple B2B marketplaces launched over time but ultimately failed.
The major issues ranged from inadequate functionality for buyers and sellers to complete complex transactions easily and quickly, and a lack of interest from big companies with a substantial market share. After all, an “API-first” platform was unheard of at that time, and why would larger businesses fix what wasn’t seemingly broken? At that time, the B2B industry as a whole was so far behind the pace of B2C marketplaces that many businesses felt the purchasing processes they had in place were sufficient.
Back then, B2B marketplaces appeared destined to occupy only a minor niche in the U.S. So what changed?
In the last two years, a series of events has literally transformed the future of B2B marketplaces on a global scale. Boosted by major ecommerce online platforms like Amazon business, eWorldTrade and Alibaba, among others, plus the rapid launch of dozens of vertical industry marketplaces, online marketplaces are by now the fastest-growing B2B online sales channel.
If businesses once thought that customers wouldn't buy into the marketplace model, that's all changing. According to McKinsey, 60% of B2B customers are comfortable purchasing on a marketplace.
Take Flexport, which raised $935 million led by Andreessen Horowitz and MSD Partners. Flexport has seen immense success through their business-to-business marketplace—they moved $19 billion of merchandise across 112 countries in 2021.
And it all makes sense, doesn’t it? At the end of the day, if there's one thing that any seller wants, no matter the industry, whether consumer or B2B, it’s a smoother supply chain and optimized distribution. Marketplaces offer a channel for manufacturers to explore different ways to sell to buyers and reach new customers in new ways they themselves couldn’t beforehand. Plus, 60% of B2B buyers are millennials, who have no problem spending their money with new businesses if it means more convenience. In that sense, the nature of a B2B industry based on customer relationships is being transformed with the marketplace model.
All of this is further supported by the fact that:
- In terms of collections going through B2B marketplace platforms, we’re looking at 130% growth YoY in 2021, accounting for 3.5% of all business ecommerce sales.
- Amazon Business is moving quickly to become a more dominant company in B2B ecommerce, according to a new research brief from Bank of America Securities internet analyst Justin Post. He predicts that Amazon Business could generate $31 billion in gross merchandise volume this year, a figure that could accelerate to as high as $83 billion as soon as 2025.
- B2B marketplaces are diverse and not one-size-fits-all. Much like their consumer counterparts, hundreds of new vertical industry marketplaces are now designed to bring together digital buyers and sellers in a specific industry.
- Here’s where it gets most interesting - Covid changed many aspects of B2B ecommerce, to a point where 40% (!) of business buyers now purchase at least 50% of their organization’s goods and services on marketplaces.
- AND - they’re going public. ACV Auctions inc. raised more than $400M on the NASDAQ last quarter, and more are about to follow suit.
B2B marketplaces are not only here to stay—they’re growing at a massive pace.
They’re industry specific, with major manufacturers or distributors playing a prominent role in their rapid expansion in the U.S and worldwide. They’re uniquely built and fitting their category’s specific needs—yet the technology and infrastructure that can help them create a better experience and business is still not yet widely adopted. One example of that is payments.
B2B payments as the lever to growth
Outdated or inefficient payment infrastructure can be a huge business blocker. Paper checks are just not going to cut it. For marketplaces to really work online, they need to provide their customers with all of the traditional needs they're used to from the offline world (net terms, milestone payments, invoicing, payment methods) but in a seamless, digital way.
And it's not just about convenience for buyers and sellers. Marketplaces can't monetize if they don't have a way charge a take rate, and one that their customers are going to want to pay.
By owning the transaction, approving for net terms in real-time, and paying vendors out upon delivery of goods, marketplaces maximize the kind of value they can add to the transaction. Through automation, those workflows become scalable. And that's critical in order to build a solid and successful business model.
Most importantly, payments are not something that only later-stage marketplaces need to think about. They can be the starting point for helping buyers and sellers move online. Ultimately, B2B ecommerce is seeing a massive shift to how merchants have done business for the last 20 or 30 years.
That transition online needs to be as easy as possible. If B2B marketplace payments feel as seamless as a business-to-consumer checkout, if they integrate with ERPs and maintain workflows on the back end, then there is no reason merchants won't be inclined to take their offline selling and purchasing, online.
One of our customers, notch, a leading B2B marketplace that simplifies wholesale food and beverage ordering for restaurants and distributors, worked with Balance to create a truly sophisticated payment stack.
In their partnership with Balance, notch eliminated the inefficiencies of the traditional, manual ordering process and replaced it with a more convenient online model, which made the ordering process faster and more accessible for both them and their clients from the time of checkout to invoicing and collections.
The next phase of B2B trade: The B2B marketplace
B2B marketplaces are quickly gaining traction among businesses, with experts predicting that these platforms will play a significant role in the future of B2B trade. As more and more companies look to sell and buy online, it is expected that vertical trade will consolidate under these marketplaces.
That's where Balance comes in, as a leading provider of transaction power across the B2B sector. In fact, almost 20% of the marketplaces on Applico's Top 50 Marketplace ranking list leveraged the Balance platform in 2022.
The growth of B2B marketplaces has been significant, with B2B marketplace sales exploding to $112.0 billion in 2022, up 100% from the previous year. This growth rate is 5x faster than B2B ecommerce platform revenue overall, according to Digital Commerce 360, even faster than individual storefronts. Furthermore, B2B marketplaces have been attracting significant investor attention, with $6.4 billion invested in these platforms during the first six months of 2022.
This is a significant increase from the $1.4 billion invested in 2017, highlighting both the growing importance and potential of the B2B marketplace model for the industry. So the message is clear: B2B marketplaces are a key area to watch in the upcoming years.
At Balance, we're excited to be at the forefront of this transformation. Learn more today about how our platform provides better tools for marketplace players to transact, enabling businesses of all sizes to effectively go to market.
Subscribe to the blog. The best source of information for B2B ecommerce tips, guides, and industry best practices. Join us.