The Marketplace Revolution: Transformation of a B2B eCommerce Landscape

Few can deny that marketplaces are red hot. Although the trend has been cooking for years, there’s still little understanding of how to succeed in this highly competitive area. While many marketplaces succeed, a lot more flounder and disappear. It’s important to recognize what drives and hinders the growth of marketplaces, and how to use marketplace models to address specific business challenges and pursue new opportunities.

This highly detailed account of marketplace trends gives a bird’s-eye view of a transforming B2B ecommerce landscape. Whether you want to create a marketplace of your own or connect to a third-party marketplace, you’ll find important information to help you get started: business models, monetization options, and possible pitfalls to expect and avoid.

1. MARKETPLACE STATISTICS AND PROJECTIONS
2. WHAT IS A MARKETPLACE?
3. MARKETPLACE MODELS
4. MARKETPLACE REVENUE MODELS
5. BENEFITS OF CREATING A MARKETPLACE
6. CHALLENGES ASSOCIATED WITH BUILDING A MARKETPLACE
7. STRATEGIC RECOMMENDATIONS TO OVERCOME STANDARD CHALLENGES
8. A NOTE ON VIRTO MARKETPLACE
9. CONCLUSION

While conflicting studies are trying to determine the percentage of millennials in the workforce by 2025 (with numbers ranging from 40% to 75%), it’s clear that millennials will soon make up the bulk of the workforce and decision-makers in business. Although it’s really Gen Z who were born with technology at their fingertips, millennials are generally considered more tech-literate than previous generations, and it’s important to keep that in mind.

Since millennials have “survived” the birth and rise of the internet, followed by the sweeping expansion of mobile technology, they are inherently unhappy with the status quo of internet technology (IT) in the workforce. 

Because millennials expect the familiar B2C-like digital experiences at work, they are left with no choice but to drive digital transformation in their organizations and transform traditional business processes.

Interestingly enough, the millennial generation also shows a stronger preference for marketplaces. The research by MIRAKL and Oracle indicates that while 70% of 200 surveyed B2B buyers value fewer interactions and efficiency of sales processes associated with marketplaces, only millennials are likely to prefer marketplaces (than either Gen-X or baby boomers).

Thus, 97% of millennials report buying through marketplaces, which is 14% more likely than baby boomers and 16% more likely than Gen-X.

As the number of millennials in the workforce continues to grow, so does the interest in digital channels, including marketplaces. 

Of course, there are obviously other factors that contribute to the growth of marketplaces. After all, it’s a sensible business model: it empowers buyers, engages partners, improves efficiency and unlocks new revenue streams. 

According to Gartner, 15% of medium- to high-gross merchandise value ecommerce companies will have deployed their own marketplaces by 2023.

Even prior to 2020 (which witnessed the biggest digital “burst” in a few years), B2B marketplaces had been springing up across geographies and industries at an unprecedented pace.

The recent pandemic has significantly hastened the pace of marketplace growth. According to Digital Commerce 360, sales on marketplaces ($2.67 trillion) accounted for 62% of global web sales in 2020. And although the top three—Taobao, Tmall, and Amazon—accounted for two-thirds of the global sales, a few other marketplaces experienced astronomical growth. For example, the US alcohol delivery marketplace Drizly saw a 300% increase in sales.

Compared to the US  and China, Europe was lagging in embracing marketplace commerce. Nevertheless, for the past few years, and especially in 2020, digital marketplaces have attracted significant traffic in Europe and accounted for 59% of the €143 billion spent on cross-border ecommerce by Europeans in 2019 (Source: Cross-Border Commerce Europe).

However, a closer look reveals that the significant growth in times of the pandemic (and even before 2020) was primarily achieved by the generalist foreign leading marketplaces, such as Amazon and Alibaba.

The pandemic didn’t end in 2021 and the world saw yet more supply chain disruptions. However, as restrictions continued to ease, shoppers willingly returned to familiar offline environments while continuing to shop online whenever necessary. So after an ecommerce boost in 2020, 2021 was more of a recovery year where the ecommerce growth finally slowed down. Rising freight rates and slower imports made sellers rethink manufacturing locations and cargo routes as well as eventually raise prices for both online and offline sales channels. Fast forward to today, supply chain management continues to face disruptions due to unstable geopolitical situations and rising inflation globally. According to various estimates, however, ecommerce, including marketplaces, will continue to grow, more likely at a pre-pandemic pace of 14-15% a year. 

Whether you’re looking to start afresh as a digital-first company or incorporate a marketplace model into your existing business operations, it’s important to look beyond the numbers. Below, we’ll address marketplace opportunities and risks, and discuss approaches to developing your marketplace strategy.
 

An online marketplace is an ecommerce platform where third parties provide product and service information. Having evolved from a traditional business model (where an ecommerce owner is the website’s only seller), a marketplace typically unites three parties: an operator (owner), sellers and buyers. A platform’s owner operates the marketplace platform and may sell/buy products along with other sellers. Sellers are third parties that trade on the marketplace, and buyers are the customers; both buyers and sellers can switch roles.

There are different taxonomies that attempt to categorize marketplaces and marketplace models. We’ll look at a few of them below.

Gartner recognizes two types of marketplaces: online and enterprise marketplaces. Online marketplaces fit the general definition of a marketplace: digital platforms that host products and service offerings from multiple sellers. In a typical online marketplace, owners (or operators) provide technology and tools for business operations, manage seller onboarding, collect and disburse payments, and handle product listings. Examples of typical online marketplaces include Tmall, Amazon, eBay or JD.com.

Enterprise marketplaces are online marketplaces operated by organizations that have primarily worked in the offline mode (as opposed to digital-first marketplaces such as Alibaba and Amazon) and are now undergoing digital transformation and exploring new digital sales channels. Enterprise marketplaces often sell their products alongside third parties.

According to Roland Berger, there are four marketplace models:

• The "One-stop shop" is the most common model among B2B marketplaces because it broadens the company’s activities and allows for a smooth transition from an online shop to a full-fledged marketplace. Expansion can happen either vertically (Chemnet) or horizontally (Amazon). The horizontal model implies expansion by adding long-tail products to categories across different industries that serve a wide range of buyers. In contrast, the vertical model means expansion by adding products specific to a particular sector. One-stop-shop marketplaces typically generate fees through monthly subscriptions, transaction fees on sales and marketing fees for product promotions.
• Business model transformation marketplaces initially started as business-to-consumer (B2C), such as Uber and Airbnb, but expanded their offerings to include the B2B market. To prevent customers from bypassing the platform once the connection between a buyer and a seller is established, operators add different services to retain both parties.
• Procurement networks (Procura+) are closed businesses (the “only members” clubs consisting of a limited number of partners, subsidiaries, branches, and members of a purchasing group) that concentrate the offer so that a marketplace owner can negotiate prices on items sold on the platform. For large corporations, adding a marketplace on top of existing operations allows for greater control of the offering and its homogenization. Theoretically, procurement networks can evolve by adding an open marketplace model.
• B2B after-sales marketplaces (Tuhu, Carzone, Stokarti) are springing up in all industry sectors that require after-sales support (such as transportation and machinery). They gradually expand both horizontally and vertically in hopes of securing the market when it’s still budding.

When developing a marketplace strategy, operators need to consider possible revenue models. It’s important to understand that marketplaces are not necessarily profitable from day one, and monetization can become sensible only after the marketplace achieves considerable traction (by approaching or passing important thresholds). Nevertheless, addressing the financials is critical, even if the business doesn’t expect to profit from it financially for a while.

Below are possible revenue models for consideration:

• Subscription: Either a service- or membership-based offering that gives different levels of access to service functionality of the B2B ecommerce solution
• Commission: Either a fixed fee or percentage from the transaction
• Advertising: An offering of different types of placements in the marketplace
• Data monetization: Selling collected marketing data to third parties
• Add-ons: Advanced functionality and features of the marketplace for a fee
• Technical services: Implementation, customization, integration, ongoing technical support
• Logistics: Warehousing, shipping, returns handling
• Commercial services: Customer support and financial services (including insurance, credit, etc.)
• Application programming interface (API) calls: Fees based on the number of API calls, typically employed by marketplaces with digital assets (data, apps)

Marketplaces offer unique opportunities to discover new, more efficient ways of doing business, expanding existing ecosystems and unlocking new revenue streams. As the enterprise marketplace grows, third parties will increasingly contribute to the sale of products and services on the platform, which has implications for business and operating models. The ecommerce company needs to adapt to recruit and engage third parties and manage the marketplace business. 

The broader ecosystem includes suppliers and distributors beyond the traditional value chain, such as technology vendors, financial service providers, competitors and so on. To stay on top of the market and continue to be relevant, marketplace operators need to develop new operational capabilities to source partners and vendors, improve technical capabilities of the B2B ecommerce platform, and introduce new products (and services).

As mentioned above, new sources of revenue can include proceeds from commissions, fees, gathering, and selling of data or digital advertising space, logistics, financial services and so on. Even if the above implications don’t sound like the obvious marketplace benefits, they genuinely are because change encourages progress and stimulates business growth. Among the obvious marketplace advantages are improvements in efficiency, better control of the buying/selling process, decrease in costs, expansion of partner network and product offering, among others. 

By providing a platform to third parties, the marketplace owners get invaluable insights into both prospective buyers and suppliers (sometimes at a global scale), which allows the company to leverage data assets to its advantage. For example, the marketplace can sell the data to third parties, use it to promote (or even develop) specific products, negotiate better prices and capture important leads. Moreover, by strategically seeking third parties that offer complementary offerings to the company’s main product portfolio, marketplaces can boost assortment quickly and increase overall marketplace sales. 

In turn, by joining a marketplace, sellers get access to a great number of buyers across different geographies and the marketplace technology. Sellers can use the marketplace B2B ecommerce platform as a single point of collecting, tracking and managing orders, gathering feedback from users on products and deliveries, all of which significantly simplify their operations and lower operational costs. What benefits all (including customers) is the transparency that the marketplaces allow with their clear, competitive pricing and service costs.

Marketplaces are not without challenges and pitfalls, which require cautious navigation and a well-orchestrated plan of action.

One of the biggest challenges in building a marketplace starts with choosing a technology or upgrading an existing solution (provided it’s capable of scaling up and extending). However, if the existing B2B ecommerce platform cannot accommodate the marketplace business model, the company needs to re-platform first. The choice of a platform is critical because the business’s ability to grow depends on technology. Operators should pay special attention to the platform's ability to extend vertically and horizontally, and seamlessly handle integrations with internal systems and third parties.

The B2B market complexity (such as the high value of an average purchasing basket) demands careful consideration of the financial arrangements. Common challenges in this area might include national (and international) legal and financial requirements (such as accreditation from financial institutions, among other things), integration with different payment providers (which can be country-specific), and negotiations of payment terms and conditions with suppliers. Moreover, invoice management is yet another challenge because it requires the standardization of invoices across suppliers (most buyers prefer to receive homogenous invoices).

Some employees (in particular, salespeople) might feel threatened by the addition of new digital channels, resulting in some resistance on their part. To avoid misunderstanding and opposition, marketplace managers need to gather support from the entire company and educate staff on the usefulness and timeliness of the chosen strategy. Moreover, business changes require developing new competencies. Operators need to consider either retraining the existing personnel or hiring new people who can implement the marketplace strategy.

Even with the current proliferation of different marketplaces, there is still a legion of digitally immature sellers. It’s not only necessary to advocate for joining the marketplace but also to educate and advise sellers on investment in relevant technology infrastructure and digitization of some critical operations. Moreover, the big stakes associated with B2B purchasing require seller identification and verification for reliability and solvency. When developing a relationship framework with vendors, the marketplace operators need to think through the onboarding process, permissions, controls and limitations to impose on new sellers.

Some specific industries (typically belonging to a strategic sector, such as defence and nuclear power) are heavily regulated, making them difficult for marketplaces to penetrate and establish themselves as trustworthy partners. Moreover, customers tend to have reservations about purchasing on third-party marketplaces if products don’t come with guarantees/warranties and need to comply with safety and quality standards.

Increasing competition, especially from the marketplace heavyweights, creates difficulties for new players entering the market and surviving later. The European market is especially illustrative of the above phenomenon, with leading foreign marketplaces having a significant presence in European verticals. The overwhelming presence of heavyweights can be either a threat or an opportunity, depending on the further actions of European incumbents. To survive or maintain their positions, European players can grow in closed industries (such as defence), increase the trustworthiness of their brands (through guarantees and returns), invest in technology and marketing, or partner with the giants to launch and test new products.

The success of a marketplace depends on technology and the company’s ability to provide third parties (buyers and sellers) with the right tools and experience.

Every business model starts with a clear-cut and well-defined strategy, which shall include the following components:

• Definition of a company’s digital ambition, goals, and expected benefits from creating (or connecting to) a marketplace.
• Identification, description and a thorough analysis of the right market segment (its size, dynamics, barriers for entry, competitors’ and customers’ profiles, etc.). Before defining technological requirements, it’s important to explore the expectations of future customers and incorporate them into the marketplace.
• Comprehensive analysis of successful marketplaces.
• Exploration of possible monetization options and a definition of a revenue model.
• Careful budgeting that ensures enough financial and labour resources for (at least) the next two years.
• Design of a unified buying experience, premeditation of rules for sellers and buyers.
• Procedures to source, educate and assist vendors with onboarding.
• Methods to source and engage new partners.
• Strategy to evolve and include new capabilities, product and service offerings.

After defining a business strategy, it’s crucial to start securing one’s territory as soon as possible. The best way is to set up a first viable product quickly, then test and improve regularly through iterations.

Gartner recognizes the 11 imperatives for developing a marketplace, which we have briefly summarized below.

Under the “Organizational Structure,” Gartner describes the importance of assigning or obtaining an “active” executive sponsor who will drive cross-functional collaboration in building the marketplace: spread awareness about business changes, communicate key messages, and get everyone on board, happy and prepared to do the hard work.

As the next logical step, Gartner proposes to consider monetization options, such as

• Basic fees (commission on transactions or membership fees)
• Value-added services (advertising, financing, data insights)
• Paid-for tools (advanced marketing tools, customer service, technical support, an app market with extensions to improve operational efficiency within the marketplace

One reason enterprises launch marketplaces is to increase product and service offerings as part of a comprehensive growth strategy. Gartner advises thinking through what product categories and selling options the marketplace will support because the assortment choice will have specific implications on the marketplace infrastructure, such as

• Brand implications

Add new products to an existing product line or diversify the range of services that might alter an established public perception of the brand. Therefore, it’s vital to get customer feedback before launching any new products to find out their expectations regarding the product assortment. Customers might want certain complementary products and accessories to existing products, so it might be worthwhile to concentrate on those products first. 

• B2B ecommerce platform functionality

Some product categories require extra functionality on the B2B ecommerce platform. For example, adding services means adding such features as scheduling or resource allocation; adding digital products means having functionality to account for trials, rents, digital rights management, downloads, etc.

• Customer service implications

Customer service agents must be familiar with all products, so companies should train the personnel accordingly before displaying new products on the platform. 

By “unified customer experience,” Gartner refers to the consistency and continuity of the buyer experience that spans across channels and “multiple phases of the buying journey, including searching, browsing, transacting, acquiring and consuming a product or service.” To achieve that level of continuity, marketplace operators need to carefully map the customer journey to identify gaps in customer expectations and perceptions of that unified experience. According to Gartner, special attention must be given to fulfillment and delivery, return policies, and product syndication to ensure all sellers provide a consistent and unified experience by adhering to marketplace procedures and policies.

Just as with the assortment of products, marketplace operators need to plan the type of sellers they want to recruit carefully. After selecting the desired sellers, operators need to proactively go after the sellers and pitch the marketplace from both the business and technical viewpoints. Before the marketplace gains considerable traction and new sellers want to join the platform, operators need to establish verification procedures for prospective sellers to select only qualified vendors and ensure the consistency and reliability of the buying experience.

Because of the B2B product complexity, the catalog taxonomy and product search are complicated and require continuous customization and maintenance. Besides investing in a reliable and modern search engine, operators have to normalize products and fit them in existing categories. Or, develop new, more relevant taxonomies, including new facets and product attributes. Operators also need to establish product standardization rules and procedures that sellers will follow.

To help sellers manage their store operations, marketplace owners need to consider offering additional tools, such as 

• Catalog synchronization
• Batch processing 
• Third-party system integrations
• Page builders
• Fulfillment and logistics options
• Additional apps for sellers to manage and consolidate data

Needless to say, the B2B marketplace needs to support functions that cater to B2B customers, such as

• Request for quotation and discount management
• Reorders, quick orders, automated orders
• Punch-out integration
• Account-based pricing

Marketplace payment options need to satisfy the needs of all involved parties, from an operator to sellers and buyers; hence, the marketplace might require complex payment functions that are different from single-vendor digital commerce operators. Gartner advises paying attention to the following financial components:

• Taxation and integration with appropriate tax services (e.g., Vertex or Avalara for the US)
• Currencies (including conversions)
• International payment methods (and support of popular payment processing companies in the local market)
• Payment options (subscriptions, fees, advance payments, pre-booking, etc.)
• B2B specific payments (including supplier credit, wire transfer, invoice payments)

Companies with    existing ecommerce solutions can ask their current vendors to extend it to add a marketplace solution on top, if possible. Otherwise, companies may need to re-platform first or seek marketplace specialist vendors who exclusively offer marketplace solutions. 

When considering a B2B ecommerce platform (either as the platform of choice or for re-platforming), companies need to pay attention to the following criteria:

• The solution is capable of extending both horizontally and vertically.
• The solution is multi-channel out of the box (can translate relevant business logic to the required channel).
• The solution has a modular architecture, which allows building separate modules on top of the main platform (to extend the platform's capabilities, add new features and functionality).

Gartner advises companies to sufficiently budget for integrations between the marketplace and related systems, such as ERP, PIM, CMS, CRM, etc., to ensure seamless and efficient operations across the board.

If you’re looking for a suitable marketplace solution for your business, then look no further – Virto Marketplace is the best marketplace solution on the market: it’s affordable, extensible, composable, modular, and multi-channel.

Virto Marketplace supports both first and third-party marketplace models and connects to virtually any existing ecommerce solution without replatforming. The resulting solution is further adaptable, extensible, and recomposable to accommodate different marketplace requirements and business scenarios. 

Virto Marketplace’s main advantage is that it can be integrated with any ecommerce solution. So if a company wants to extend its business model to include third-party sellers, but is unable to do so because of the limitations of its existing solution, Virto Commerce can help. 

Virto Marketplace can handle millions of products, thousands of vendors, and an unlimited number of buyers. In addition to essential ecommerce out-of-the-box features, Virto Marketplace comes with vendor- and operator-specific functionality. Thanks to its headless and API-driven nature, Virto Marketplace can create truly memorable shopping experiences that scale to grow with you.

The marketplace’s success largely depends on the technological solution and its capabilities and collaboration between teams that ensures both sellers and buyers have all the right tools to trade efficiently.

Stakeholders can no longer afford to turn a blind eye to the marketplace giants surfacing on the horizon. Instead, to avoid the risks of being forced to surrender, companies should explore the possibilities of partnering with the marketplaces or creating a marketplace of their own.