The $100 Trillion Opportunity in Marketplaces

The Digital Native piece that sizes the B2B opportunity against the consumer one everybody was already looking at.

The asymmetry: consumer marketplace painpoints are obvious and well-funded. B2B is the bigger prize — roughly $100 trillion flows between businesses, four to five times consumer transaction volume — and it is far less penetrated. Only 5–10% of B2B transactions happen online, and in 2022 about half were still running through phone calls, fax and in-person reps.

The counterintuitive datapoint worth keeping: the number of independent US bookstores rose 49% from 1,600 in 2009. The long-tail small business isn’t dying; it’s under-served by software.

Why these go vertical: B2B marketplaces tend to be tailored to the painpoints of a single, often deceptively large, industry — the global chemicals market alone is $3.8 trillion in revenue. Which is the same argument Vertical Market SaaS makes from the software side, arriving from commerce.

Notes

• The $100 Trillion Opportunity in Marketplaces by Rex Woodbury
• much of the hype (and ensuing venture capital investment) in new technologies and vaunted ‘platform shifts’ today—virtual reality, augmented reality, web3, and so on—derives from anxiety around mobile and cloud being…old. AWS launched in 2006; the iPhone came out in 2007.
• Less obvious, though, are the painpoints in business-to-business (B2B) commerce. But B2B is an even bigger prize: an estimated $100 trillion flows between businesses each year, a 4-5x multiple of transaction volume between businesses and consumers.
• Only about 5-10% of B2B transactions happen online and—in the year 2022!—about 50% of transactions are still done over the phone, over fax, or via in-person meetings with sales reps.
• Every year, U.S. consumers spend about $3.5 trillion buying stuff. Independent retailers (small businesses with only a handful of employees and often just a single location) make up $750 billion of that spend, or about 25%.
• As one datapoint, the number of independent bookstores in the U.S. increased 49% from 1,600 bookstores in 2009 to 2,500 in 2018. Bookstore Economics
• Key Learnings
  • High fragmentation on both sides of the marketplace
    • Both the demand-side (retailers) and supply-side (brands) of Faire’s marketplace are highly-fragmented. This makes the marketplace a crucial intermediary, and reduces the risk of disintermediation (a retailer and a brand taking their relationship off the marketplace).
    • Aerospace parts, for instance, may be a large market—but if Boeing and Airbus only have a handful of relationships with suppliers, the marketplace provides little value to justify its take-rate Take Rate Take Rate
  • Discovery is mission-critical and data-driven
    • Retailers need to be constantly on the lookout for new brands that might boost sales; brands, meanwhile, need to be discoverable by retailers.
    • Faire amasses an enormous dataset from its 600,000 retailers and 85,000 brands in 15,000 cities, then wields that dataset to equip boutiques with personalized recommendations and insights that help them compete with Amazon.
  • Bringing existing relationships online
    • Faire allows retailers and brands to bring these relationships online, with heavy incentives to do so.

    • One of the key pieces of Faire is its growth loop. Faire is built on referrals. Here’s a graphic from Anu Hariharan at YC Continuity that captures it well

    • The platform is designed so that everyone wins. Brands want all their retailers on the marketplace, because they benefit from managing their entire business all in one place. Retailers benefit because they get access to free returns, net-60 payment terms, and better shipping rates #Flywheel
  • Bonus: Financial Services
    • “Every company is a fintech.”
    • Embedding payments into the marketplace removes a huge painpoint while also preventing disintermediation.
    • Best-in-class vertical SaaS companies tend to integrate payments over time 1) to lock in customers, and 2) to better monetize transaction volume. Check out this piece from my partners Nina and Paris for more detail. Vertical Market SaaS
• B2B marketplaces tend to be vertical in nature—tailored specifically to the painpoints in a single (yet often deceptively-large) market.
• B2B marketplaces go beyond food, of course. The global chemicals industry is $3.8 trillion in revenue, powering industries as diverse as pharmaceuticals, cleaning supplies, and beauty.
  • Knowde is a B2B chemicals marketplace for ingredients and raw materials #Knowde
  • Moov, meanwhile, is a marketplace for used semiconductor equipment, a $105B market growing to $168B by 2026.