The Marketplace Revolution: Transformation of a B2B eCommerce Landscape

Few can deny that marketplaces are red hot. After all, the trend has been cooking for years. Unfortunately, there’s still little understanding of how to succeed in this (already) highly competitive market. While many marketplaces succeed, a lot more flounder and disappear.

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, possible pitfalls to expect and avoid, and general recommendations that cover things you need to pay attention to before entering the market.

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. In an attempt to decode the marketplace success formula, we’ll cover the following topics in this article:

  1. Evidence: Marketplace Statistics and Projections
  2. What is a Marketplace?
  3. Different Marketplace and Revenue Models
  4. Benefits of Building a Marketplace
  5. Challenges of Entering a Marketplace Business
  6. Strategic Recommendations to Overcome Standard Challenges
  7. Imperatives for Building a Successful Marketplace

Marketplace Statistics and Projections

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. It’s important to keep that in mind because millennials are generally considered more tech-literate, although it’s really Gen Z who were born with technology at their fingertips. Because millennials have “survived” the birth and rise of the internet, followed by the panoptic expansion of mobile technology, they are inherently unhappy with the status quo of internet technology (IT) in the workforce, which is why they have become the driving force behind mainstream digitization of business processes.

Millennials have witnessed Amazon and Alibaba expand from shabby rooms with little furniture to powerful corporations. It’s them who first tried and reaped the benefits of one-click payments and same-day deliveries. Millennials expect the same kind of digital experience at work.

Research conducted by MIRAKL and Oracle has shown that while 70% of 200 surveyed B2B buyers (Fig. 1) 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.

B2B Buyer Profiles

Figure 1. B2B Buyer Profiles

As the number of millennials in the workforce continues to grow, so will the interest in digital channels, including marketplaces. Of course, there are myriad other factors that contribute to the marketplace growth. After all, it’s a sensible choice of a business model because the marketplace benefits all parties: 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 (Fig. 2).

2023 Gartner’s Projections

Figure 2. 2023 Gartner’s Projections

Even prior to 2020 (that witnessed the biggest digital “burst” in a few years), B2B marketplaces of different complexity had been springing up across geographies and industries at an unprecedented pace (Fig. 3).

B2B marketplaces in gross merchandise value (GMV) worldwide

Figure 3.

The recent pandemic has significantly hastened the quick pace of marketplace growth with a 29% increase in gross merchandise sales last year. According to Digital Commerce 360, sales on marketplaces ($2.67 trillion) accounted for 62% of global web sales in 2020 (Fig 4.). And although the top three—Taobao, Tmall, and Amazon (Fig. 5)—accounted for two-thirds of the global sales, a few other marketplaces experienced an astronomical growth: For example, the US alcohol delivery marketplace Drizly saw an increase in sales of 300%.

Sales on marketplaces accounted for 62% of global web sales in 2020.

Figure 4.

Top 5 marketplaces in the world ranked by GMV.

Figure 5. Top 5 marketplaces in the world ranked by GMV.

Compared to the US (Fig. 6) 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).

Quick post-pandemic facts on the US market

Figure 6. Quick post-pandemic facts on the US market

50 Marketplaces in the US grew sales by 42% (except for Amazon and eBay where growth was by 64%)

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 (Fig. 7) and Alibaba.

 Increase in Amazon’s traffic between March 2020 and August 2020 by percentage (%)

Figure 7.

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.

What Is a Marketplace?

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.

Different taxonomies try to categorize and fit marketplaces into their respective models, and we’ll look at a few of them below.

Marketplace Models

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:

  1. 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. Broadening the offer can happen either vertically (Chemnet) or horizontally (Amazon). The horizontal model implies expansion of offering by adding long-tail products to categories across different industries that serve a wide range of buyers. In contrast, the vertical model means broadening the offer of 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. One-stop shops have also recently begun to expand their offering even further, tapping into adjacent industries, such as financial services (ex. insurance, credit purchases, installment plans).
  2. 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.
  3. Procurement networks (Procura+) are closed businesses (the “only members” clubs consisting of a limited number of partners, subsidiaries, branches, 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.
  4. 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.

The marketplace relationships can be either first-party (1P) or third-party (3P). In a 1P, the marketplace acts as a retailer while the brand is the wholesale supplier. In a 3P relationship, the brand is the retailer, who sells directly to customers via the marketplace.

Marketplace Revenue Models

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/passing the established critical thresholds). Nevertheless, addressing the financials before the marketplace inception 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 platform
  • 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, return 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)

Benefits of Creating a Marketplace

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.

Challenges Associated with Building a Marketplace

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

- Technology

One of the biggest challenges in building a marketplace starts with choosing 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.

- Financial services

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 standardization of invoices across suppliers since most buyers prefer to receive homogenous invoices.

- Change management

Some employees (in particular, salespeople) might feel threatened by the addition of a new digital channel, 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.

- Digital maturity of sellers

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 limits to impose on new sellers.

- Regulation

Some specific industries (typically belonging to a strategic sector, such as defense 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 with purchasing on third-party marketplaces if products don’t come with guarantees/warranties and need to comply with safety and quality standards.

- Assaults and acquisitions

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 defense), increase the trustworthiness of their brands (through guarantees, returns), invest in technology and marketing, or partner with the giants to launch and test new products.

Strategic Recommendations to Overcome Standard Challenges

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.

Marketplace success formula = Modern technological solution + Client-centric approach to ensure the right tools and experience

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

  1. Definition of a company’s digital ambition, goals, expected benefits from creating (or connecting to) a marketplace.
  2. 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.
  3. Comprehensive analysis of successful marketplaces.
  4. Exploration of possible monetization options and a definition of a revenue model.
  5. Careful budgeting that ensures enough financial and labor resources for (at least) the next two years.
  6. Design of a unified buying experience, premeditation of rules for sellers and buyers.
  7. Procedures to source, educate and assist vendors with onboarding.
  8. Methods to source and engage new partners.
  9. Strategy to evolve and include new capabilities, product and service offerings.

After delineating business strategy, it’s crucial to start as soon as possible to secure one’s territory. 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.

Eleven imperatives for companies building an enterprise marketplace.

Figure 8.

1. Organizational Structure

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.

2. Monetization

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

3. Product Diversity

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.

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.

4. Unified Commerce Experience

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.

5. Seller Recruitment and Onboarding

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.

6. Product Taxonomy and Search Management

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.

7. Seller Tools

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

8. B2B Functionality

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

9. Payment and Financial Management

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)

10. Technology Solution

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).

11. Integration

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.

Last word

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

The marketplace revolution is no longer silent. It’s raging in the ecommerce market. Stakeholders can’t 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.

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Marina Vorontsova
Technical author and eCommerce advocate