B2B Marketplaces Will Be the Next Billion-Dollar E-Commerce Startups

The TechCrunch companion to the Digital Native piece — read the same day, and stronger on how these businesses actually make money.

Scale: B2B marketplaces were projected to generate $3.6 trillion in sales by 2024, and the pandemic accelerated buyer willingness to purchase online rather than through a rep.

The load-bearing warning: to make that shift permanent, a B2B marketplace cannot simply remain a storefront. Matching buyers to sellers is table stakes; the business is in everything wrapped around the transaction — which is why the monetization section is the most useful part of the piece and why Factor.io embedding working-capital lending into the purchase order is the pattern rather than the exception.

Notes

• The B2B e-commerce industry has broad reach, encompassing everything from commerce infrastructure and payments technology to procurement and supply-chain solutions.
• These venues for buyers and sellers of business-related products are exploding in popularity, fueled by better infrastructure, payments and security on the back-end and companies’ increased need to conduct business online during the pandemic.
• Even before the pandemic, B2B marketplaces were expected to generate $3.6 trillion in sales by 2024, up from an estimated $680 billion in 2018, according to payments research firm iBe TSD.
• A survey of business buyers conducted by Digital Commerce 360 found that 20% of purchasing managers spent more on marketplaces, and 22% spent significantly more, during the pandemic.
• Yet to convince businesses to make a permanent shift to online purchasing, B2B marketplaces cannot simply remain stagnant, serving as simple transactional platforms. Those that innovate now to introduce adjacent services will emerge as winners in the next few years, with some inevitably becoming billion-dollar companies.
• Unique Qualities
  • Payment methods: There are four main ways to make a B2B payment: paper check, ACH transfer, electronic fund transfer (wires), and credit/debit cards. Nearly half of B2B payments are still made by paper check, but digital payment solutions are quickly gaining.
  • Financing: It is customary in B2B transactions to pay “with terms,” such as net 30 or net 60, effectively giving a line of credit to the business buyer that enables them to send payment after delivery of the good or service. **Supply-chain financing and **dynamic discounting are two mechanisms business buyers use to settle invoices with suppliers on preferred timelines.
  • Bulk discounts: Business buyers often expect and receive discounts in return for placing high-volume orders. While not a concept unique to B2B, negotiated or custom volume discounts can complicate the checkout process.
  • Contractual pricing: Businesses often enter into enterprise-level pricing agreements with their suppliers. In some B2B verticals, such as the veterinary supplies market, there is little consistency and transparency regarding the market price of any given item; instead, each buyer pays a bespoke price tied to contractual agreements.
  • Delivery method and timing: Unlike consumers, businesses may place orders for goods but delay delivery for weeks or months. This is particularly common in the commodities market, where futures contracts specify a commodity to be delivered on a certain date in the future. B2B transactions typically include a negotiation on delivery method and timing.
  • Insurance: Business buyers frequently purchase insurance as part of their transactions,
  • Compliance: In some verticals, particularly those related to healthcare and chemicals, there is a heavy compliance burden to ensure goods are properly sourced and transported.
• Let’s explore some of the creative ways to monetize a B2B marketplace.
  • Sampling fees: The fee-per-sample model is a unique wedge to aggregate suppliers and buyers, who often sample supplies before placing large orders.
    • Material Bank is a B2B marketplace for construction and interior design materials
  • Data monetization: The best example is the role Nielsen and IRI play in the consumer packaged goods (CPG) industry. These two companies have exclusive point-of-sale integrations with major retailers. They collect, cleanse, package and analyze sales data, which they then sell back to CPG brands and manufacturers via data services portals.
    • BroadJump: an expense management platform for the healthcare industry.
  • Embedded financial services: Embedded financial services is the premise that fintech is an ingredient within a broader product suite as opposed to a standalone business model. An oft-cited example is Shopify, which started as virtual storefront software, subsequently monetized payments volume and later introduced Shopify Capital, a small business financing program
    • Toast: a software platform for restaurants that started as a point-of-sale system and gradually expanded into other financial services over time, including lending and payroll management.
    • LeafLink, a wholesale marketplace for the cannabis industry, is a pioneer of embedded fintech. The company has amassed a significant share of cannabis wholesale buyers (retail stores) and growers on its platform, a marketplace with embedded inventory management and CRM tools, and is now facilitating noncash payments and supply-chain financing.
  • Targeted advertising: Advertising on B2B marketplaces can take several forms, the most common being sponsored listings, similar to Google Adwords.
    • Construct Connect, a bidding platform for construction projects.
  • Subscription fees: In the B2B world, however, monetization through subscription often makes sense. Suppliers are likely to pay for access to high-quality buyers in vertical markets because business buyers tend to be repeat customers making large purchases.
    • Bamboo Rose, a global supply chain management platform
    • Cvent, a platform for event management professionals.
  • Private-label products: But in B2B commerce, the notion of private-label products is less common. It wasn’t until 2019 that Amazon launched its first B2B private-label brand, a product line of bulk toilet paper, tissues and paper towels (and subsequently got in hot water with regulators for leveraging its sales data to develop its own brands). We should expect to see more private-label products from vertical B2B marketplaces.