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.
This article will cover the following topics:
Marketplace Statistics and Projections
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.
expand from shabby rooms with little furniture to powerful corporations.
And it’s the millennials who first tried and reaped the benefits
of one-click payments and same-day deliveries.
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.
(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 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.
What Is a Marketplace?
There are different taxonomies that attempt to categorize marketplaces and marketplace models. We’ll look at a few of them below.
Marketplace Models
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.
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 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)
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
Financial services
Change management
Digital maturity of sellers
Regulation
Assaults and acquisitions
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.
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:
- 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.
Gartner recognizes the 11 imperatives for developing a marketplace, which we have briefly summarized below.
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.
- 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.
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.
A Note on Virto Marketplace
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.
virtually any first-party ecommerce solution
to a third-party marketplace without replatforming.
Conclusion
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
Technical author and eCommerce advocate
