The marketplace effect: A deep dive into the what, when and why of B2B’s obsession with marketplaces
When we think of digital commerce, and the digitization of commerce, our minds naturally turn to images of B2C innovations of the recent years: Amazon one-click, Instagram shopping, virtual try-ons, BNPL and 2-day free shipping. For good reason, too: The global B2C ecommerce market will reach $9.6B by the end of this decade.
There has been an explosion of growth of online marketplaces– upwards of 24 million operating in every consumer sector under the sun– while it is close to impossible to stay in business without an online store. This growth is warranted, and good for the global economy–giving consumers options like never before while enabling new players to enter the market.
Exciting as it may be, the astronomically larger growth opportunity at hand, the $17.5T B2B global trade industry, is still quite underserved, requiring a creative solution to propel innovation and ease-of-use to match that of B2C. And if the past few years have been any indication, that creative solution is none other than the B2B marketplace.
The Amazon effect takes B2B marketplaces
The effects of the B2B marketplace obsession are already being felt—In Amazon CEO Andy Jassy's 2022 letter to shareholders, he remarks that Amazon Business “drives roughly $35 billion in annualized gross sales,” including third-party sellers’ as well as Amazon’s own sales transactions on the dominant B2B marketplace.
“We believe that we’ve only scratched the surface of what’s possible to date," Jassy continues, "we plan to keep building the features our business customers tell us they need and want." Wall Street projections agree—some predicting that by 2025, Amazon Business will reach $80 billion in gross sales.
Even with the king of the commerce game, Amazon, finding B2B marketplace success, there's still plenty of room for other players to join the game. That's what makes this space so exciting right now.
In this article, we’ll touch on the history of online marketplaces and why B2B is only catching on now. We’ll talk about how the move to marketplaces is changing B2B for the long run. Finally, we’ll touch on howthe marketplace effect is being felt in the food and beverage industry.
B2C vs. B2B marketplaces: the hare vs. the tortoise
At the turn of the century, marketplace giants like Amazon and AliBaba made their debut, disrupting the conventional channels of commerce. Coined the “Amazon effect”, these marketplaces eliminated supply chain middle mans and forever changed consumer’s expectations when it comes to price, availability, user experience, and delivery speed.
Brands understood the value of developing a robust ecommerce channel as the preferred purchasing experience became the one online, instead of brick-and-mortar.
The impact that ecommerce has had for consumers and the world at large cannot be understated, but it begs the question: what was the deal with B2B, why didn’t it blow up alongside B2C and why is it only having its moment now?
For one, the business models of B2C and B2B greatly differ. Some unique challenges of B2B are the following:
- B2B transactions have historically happened in an offline, relational setting. Pricing is not standardized across customers, but rather negotiated on a case-by-case basis.
- The B2B purchasing journey involves several stakeholders, including those researching the solutions, those whose buy-in is needed to move forward, and those in financial positions to approve spending.
- The entire journey, from beginning to end, can often take several months or even a year to complete–very different from the one-click, 2-day delivery experience associated with B2C marketplaces. This timeframe is heavily influenced by a number of factors, including the types of goods required by the company, the availability of materials, where they come from, the location of the suppliers, and even the time of year.
- For cash flow purposes, business buyers expect flexible payment options and financing, especially since B2B purchases are often high-volume.
Twenty years ago, when ecommerce marketplaces were emerging, the technology that existed was not robust enough to relieve the specific pain points of B2B.
Additionally, there were limited avenues to go digital, and companies had the choice between building an expensive, high-maintenance system, using several different fragmented systems, or doing nothing. For many merchants, it made sense to remain doing business as usual.
B2B marketplaces take the mainstage
Fast forward to 2023, and the world looks drastically different. For one, 73% of today’s B2B buyers are millennials, aka digital natives. These new business customers have grown up with the flexibility and convenience of online consumer marketplaces, and their expectations for the B2B purchase experience is largely changing.
On top of that, the impact of the 2020 pandemic on entire business processes, supply chains, sales funnels, and more cannot be overstated: almost overnight, businesses needed new technology to meaningfully engage with customers and automate/transform processes. These demands needed to be met, fast, in order to stay alive. Agility became a business necessity that no one, not even larger companies, were immune to.
The momentum generated in 2020 has accelerated the digital transformation of entire industries until today. The past couple years have seen new innovations across the B2B purchasing journey, including digitized invoicing and reconciliation, a widely remote sales funnel, online inventory systems, powerful CRMs, and of course, a consumer-grade payments experience.
With B2B marketplaces providing the infrastructure for all of these solutions to come together in one place, never before has business buying (and selling) been so straightforward— or pleasant.
Mirakl, a leading B2B marketplace platform, reported that their clients’ B2B platforms grew by 76% in 2022, far outpacing the overall B2B market.
Meanwhile, Forrester reports that spending on B2B marketplace platforms is expected to grow from $1.7 trillion in 2021 to exceed $2 trillion in 2023. And everyone, from steel to chemicals to ketchup, is hopping on the marketplace trend.
For good reason too—owning a marketplace is widely agreed as a smart strategy. According to CEO of McFadyen, Tom McFadyen, “companies seeking to become the destination, either capitalizing on existing traffic or building a new brand, should strongly consider operating their own marketplace as a way to gain market leadership and build true scale.”
But building a B2B marketplace is no small feat.
In Digital Commerce 360's “Building Better B2B Marketplaces” report, Bay Supply, one of our long-time customers explained, “The value proposition of a marketplace has to be more than just bringing buyers and sellers together. It has to help them work more efficiently.” And the BaySupply.com marketplace, launched in December 2021, aims to do just that.
However, there are expected complexities along the way. The greatest one? Breaking habits. Michael Eichinger, COO of Bay Supply, explains:
You cannot take a traditional legacy business model, digitally transform and ask your entire customer base to change the way they do business instantly.
Over the last two years, Bay Supply and Balance have worked together to tackle each new challenge, “working in concert with the Balance product development team to create a custom marketplace financed solution [that] enables us to provide credit terms in minutes,” says Eichinger.
B2B marketplace sector highlight: The food and beverage industry
Online grocery sales erupted in the wake of stay-at-home orders and lockdowns, and have remained popular for consumers until today, primarily due to their convenience. Now, B2B is following suit as buyers prefer online channels and grocery sellers are finding that marketplaces offer new business opportunities, with even consumer king Instacart joining the B2B game.
According to Mirakl, they are seeing momentum in food and beverage wholesale. Why?
In these industries, companies are using marketplaces as a way to respond to growing demand by expanding inventory beyond their warehouse walls.”
--Marc Teulières, EVP Customer Success B2B at Mirakl
For many businesses, selling on a third-party marketplace is a low-barrier way to expand into new markets and to test new products. With 44% of buyers in the industry preferring online channels to place daily business-critical orders,
The marketplace model is also the simplest way to offer a seamless customer experience: With the ability to leverage technology solutions through a marketplace platform, sellers can offer flexible payment methods, personalization and faster fulfillment to their buyers.
This shouldn’t be overlooked, considering that more than ever, buyers expect and demand more from their purchasing experience.
What’s more, they have no problem switching suppliers if those demands are not met, with 40% of business buyers reporting switching vendors in the last 12 months and 50% of buyers in the food and beverage industry reporting dissatisfaction with the websites that they purchase from.
No longer are the days of “lowest price mentality”—DC360 reports that more often than not, business buyers prioritize convenience over price. And picking up the phone to read off a SKU of a product you saw online is far from convenient.
Marketplace convenience also extends to the seller side: Amazon’s “Business Membership” facilitates components of the business like bulk supply stores, recurring deliveries, quantity discounts, and simplified purchasing.
This is a huge value proposition to sellers who can now provide all of the offerings of larger companies without the cost and logistics nightmare. It’s becoming clear that relying on the technology offerings and built-in-audiences of B2B marketplaces is propelling this sector forward.
Marketplaces are the fastest-growing B2B channel–with sales skyrocketing 131% in the past year. But as Nautical CEO, Ryan Lee, says “marketplaces are hard to build. You can find yourself spending years and millions on your marketplace infrastructure only to miss the market and the opportunity to be an early mover.”
That's why it's vital to validate quickly. And that's why technology offerings that can be implemented and integrated right on the digital platform are so powerful in helping propel marketplace growth in all B2B industries.
From our side, we’ve seen first-hand the impact for businesses which have leveraged marketplace integrations to streamline business payments, while offering all of the requirements like financing and net terms in a user-friendly experience.
By making the marketplace payment touchpoint exceptional, businesses can reap the benefits of repeat purchases and higher order values that will directly affect the bottom line.