By Jayson Humphrey, Global Commercial Lead, B2B Marketplaces, Tradeshift
Horizontal marketplaces, such as Amazon Business, are disrupting procurement from the bottom up. But there remains an abundance of opportunity for businesses with existing expertise and relationships in specialized purchasing segments. Read on to learn why operators are flocking to Tradeshift’s ‘network of marketplaces’ to unlock lucrative new revenue streams in a B2B e-commerce market that is projected to reach a value of USD $18.97 Trillion by 2028.
If you were working in procurement in the mid-90s, then there’s a chance you may have heard of CommerceOne, an online auction site focused on B2B e-commerce. At the height of its powers, CommerceOne was valued at over USD $21bn. But by 2004, it had filed for bankruptcy.
Like many of its peers, CommerceOne was a victim of being ahead of its time. It wasn’t until 2006 that Amazon, itself a survivor of the dot-com boom, first opened its marketplace. Only in 2012 did Amazon launch AmazonSupply, its business-to-business marketplace, which later became AmazonBusiness.
Generalists like Amazon Business, Alibaba, and JD.com have disrupted the B2B e-commerce landscape from the bottom up. Single-player e-procurement solutions, with their standardized catalog items and limited customization opportunities built on 30-year-old infrastructure, have come up short compared to the simpler interface, lower prices, and faster shipping that consumer-style marketplaces can deliver.
Wall St. analysts, including Justin Post at Bank of America Securities and Colin Sebastian at R.W. Baird and Co, have predicted that Amazon Business will surpass $80 billion in sales by 2025. As impressive as these numbers may sound, however, it’s unlikely that Amazon or any of its consumer-style marketplace peers will claim anything like a truly dominant position in the B2B space.
The B2B e-commerce market is roughly five times the size of the entire B2C market.
Amazon and its peers will likely continue to occupy a significant and growing portion of corporate spend, but we’re still talking about a pretty thin slice of a very large pie. Even if they wanted to, no single marketplace can cover anything like the entire demand for B2B e-commerce activity.
Consumer-style marketplaces have done a pretty effective job of hoovering up the low-hanging fruit in highly commoditized ‘spot purchasing’ categories. But that still leaves an abundance of opportunity further up the tree in more specialized B2B purchasing segments.
Operators that have the right blend of expertise and buyer/supplier relationships have a significant head-start when it comes to building marketplaces bespoke to specific verticals, geographies, and sub-categories. There are already a growing number of very successful B2B marketplaces in almost every vertical. Platforms like Tradeshift Marketplace provide a ready-made infrastructure for prospective operators to fully embrace the marketplace model.
Arguably the most compelling reason why specialized B2B e-commerce marketplaces will flourish alongside the generalists comes down to sensitivity. Procurement professionals might not be too concerned about allowing employees to go off and buy a new notepad on Amazon, but many Fortune 500 companies are understandably wary of sharing commercially-sensitive data with an organization they increasingly see as the competition.
Suppliers are also nervous about making product and pricing information available on public marketplaces where the operator may well also be the seller. In a true B2B marketplace, the operator cannot simultaneously be the seller. Think about it, and it’s obvious: if the operator is interested in selling their own goods and services, the platform is hardly likely to be buyer- and supplier-agnostic or to be geared around connecting people to the broadest range of alternative partners.
An increasing number of specialized marketplaces are now springing up with the promise of putting control back into the hands of buyers and sellers. Julia Morrongiello, an investor at Point Nine Capital, estimates there are now over 300 B2B marketplaces in Europe, up from a mere 20 back in 2010.
The demand for specialist and region-specific marketplaces is certainly apparent, but a growing proliferation of specialized marketplaces presents a potential headache for enterprise buyers, who typically need to access and manage a variety of different marketplaces to satisfy their needs. In such a fragmented environment, portal fatigue and a siloed, uneven purchasing experience are almost inevitable.
The next generation of B2B marketplaces needs to reflect the multi-faceted needs of enterprise buyers. That means offering a seamless and consistent buying experience across an entire network of marketplaces covering everything from direct materials to services and everything in between.
That blend of access, convenience, and control is now becoming a reality thanks to the likes of Tradeshift’s B2B marketplace platform, which gives procurement teams the freedom and flexibility to tap into different specialized marketplaces through a single platform.
Tradeshift’s ‘networked marketplace’ model is similar to the way television has evolved over the past decade. Streaming platforms like Roku provide access to an almost limitless number of specialist content providers. From Marvel fans to reality TV junkies, there’s an app to suit every need.
In a networked marketplace, Tradeshift provides the platform. Operators act as qualified “curated content providers,” delivering economies of scale in a specific niche, region, or vertical that could never be achieved through old, one-to-one relationship models.
For buyers, access to a networked marketplace environment provides choice, transparency, and competitive pricing. If a buyer is in the automotive sector, for example, they will benefit from group buying on a dedicated marketplace for direct materials, and they can also access other marketplaces for indirect spend, such as office supplies. Crucially, this can all take place on a single platform and through a single user interface.
The ability to access a large number of pre-vetted suppliers through trusted operators can simplify negotiation and contract management. This has potentially significant implications in key areas of the traditional source-to-pay process. In many cases, buyers can effectively outsource due diligence requirements to the marketplace operator, who is then responsible for serving up suppliers that check the right boxes.
Sellers also benefit from a far broader prospect base than traditional, one-dimensional marketplaces can offer at a very limited customer acquisition cost. Everyone wins.
A B2B land grab is already underway, and while the opportunity is abundant, the window to take advantage is finite. Whether you’re a category leader, BPO, franchiser, distributor, or indeed any large enterprise with access to a significant number of buyers and suppliers, then partnering with Tradeshift can help you to unlock new revenue streams by monetizing your existing relationships and expertise.
In the next blog in this series, we’ll be taking a closer look at Dooka, one of a growing number of operators who are helping to build the future of B2B e-commerce on the Tradeshift platform.
In the meantime, if you want more information on how to become a marketplace operator, the different operator's models to consider, and the essentials that your marketplace needs to deliver to buyers and suppliers, then dive into our whitepaper here.