The difference between horizontal and vertical marketplaces
B2B marketplaces that adopt horizontal models serve a large audience with varying needs, sort of providing a “one-stop shop.” One of the best-known examples of B2B service marketplaces is Upwork, an online platform where companies can find service providers ranging from designers to writers and marketers. Horizontal marketplaces have many obvious advantages: lower market fluctuation, less supply and demand discrepancies, and decreased risk of a dishonest service provider or an insoluble customer. However, horizontal marketplaces have a high attrition rate; they solely concentrate on matching clients with service providers (or suppliers) for a one-off deal, resulting in low-value relationships. In the case of Upwork, service providers face high competition from their peers, a high commission from the platform, and low project rates. At the same time, clients deal with overburdened and underpaid hires that are not very motivated to invest in their projects.
Vertical marketplaces, on the other hand, are more specialized and tailored to a niche industry with a well-defined target audience. Verticalization limits competition and creates more codependent, equal relationships based on trust, experience, and the ability to provide products and services on a continuous basis. Since the high degree of specialization implies more complex products and business scenarios, vertical marketplaces put the stakes on quality rather than speed, and adequate pricing, rather than low costs. The result is higher value on offered products and services, along with collaborative and mutually-beneficial relationships.
The unprecedented popularity of vertical marketplaces in recent years has been mainly driven by the desire to remove the friction from transactions and improve the overall customer experience. Modern B2B buyers expect a comprehensive omnichannel experience and the convenience of B2C shopping with interactive catalogs, personalized offers, and price lists. B2B marketplaces provide exactly that – a streamlined shopping experience and automation of collaborative business processes between customers and suppliers. By joining B2B exchanges, companies of varying calibers can receive manifold benefits and advantages, such as access to new markets and customers at minimal cost, diffusion of technological and marketing costs of operating an individual ecommerce store, and automation of some of their business processes. Moreover, within the B2B marketplace, manufacturers and wholesalers can complement their in-house products and services from their partner ecosystems, while adding other services like installation or training.