The B2B Marketplace Stack
By: Julia Morrongiello
Tags: Startup, B2B, Marketplace, VC

When people think about marketplaces, they usually assume it’s all about matching the demand and supply side. The reality is that it involves so much more than that, particularly when it comes to B2B.

In the following post, which we’ve written (in collaboration with our friends at Hokodo) off the back of working with several B2B marketplaces and interviewing many more, we’ll try to unpack the building blocks of these businesses. Hopefully, it will be useful to entrepreneurs that are in the process of building a B2B marketplace.

The B2B marketplace stack usually consists of the following 4 functions:

Curating the suppliers Facilitating the transaction Supporting the fulfilment of the orders Providing value-added services

Before I dive into it, it’s worth noting that not every B2B marketplaces offers every component included in this diagram. A service marketplace, for instance, will most likely not need to offer logistics or leveraged purchasing. Many of these functions are also key to B2C marketplaces and not exclusive to B2B.

1. Curating the suppliers

1.1 Credentialing

Ever ordered something online only to realise its some cheap knock off and you’ve been massively ripped off? Well that’s where credentialing comes into play by ensuring the trustworthiness of suppliers on the platform.

Why it matters: Whilst it might sound basic, credentialing is paramount in B2B transactions where buyers might in some cases be taking a significant business risk in trying out a new supplier and need to be certain that all parties on the platform can deliver to a certain standard.

Who does it well: Metalshub*, a marketplace for trading metals, only allows suppliers onto its platform that meet certain compliance requirements and continuously checks that they have the relevant and up to date quality certificates. This not only builds trust but also saves purchasing departments from having to run their usual Total Quality Management (TQM) procedures, which in turn encourages them to keep using the platform.

1.2 Cataloguing and Searchability

This is all about making it as easy as possible for a buyer to find exactly what he or she is looking for in as few clicks as possible.

Why it matters: Unlike B2C customers that might enjoy scrolling endlessly to find their dream purchase, most B2B customers are strapped for time and and speed of transaction is vital.

Who does it well: Rekki*, a marketplace which connects restaurants to their suppliers, has developed a translation engine that allows chefs to search for inventory using different abbreviations and kitchen slang, significantly speeding up the ordering process. ManoMano, a marketplace for construction materials, allows its busy construction workers to order using voice enabling them to purchase on the go.

1.3 Leverage Purchasing

Once marketplaces reach a certain scale they can use their market power to secure better prices for their buyers, because who doesn’t love a good discount? This is especially true for marketplaces that are able to pool multiple small orders from buyers into a single large order.

Why it matters: When going up against the status quo, you ideally want to build something which is both 10x better and 10x cheaper than what’s out there already, particularly when going after business buyers who tend to be price sensitive. Guaranteeing customers competitive prices solves one part of the 10x equation.

Who does it well: Shippo, a logistics marketplace, pools demand for shipping services amongst small businesses and, in turn, is able to get up to 60% discounts with carriers such as UPs and Fedex, amongst others. Similarly, Famitoo, a marketplace for agricultural supplies, enables small farmers that were traditionally ripped off by large suppliers, to purchase at similar rates to much larger farmers.

2. Organising the transaction

2.1 Matchmaking and price discovery

Connecting demand and supply and helping them transact act the right price is at the core of any marketplace. As I’ve written about in a previous blog, the matching between the demand and supply sides can be done in three different ways depending on marketplace dynamics: double commit (both buyers and sellers opt-in), buyer-pick (sellers input their availability and buyers select a supplier) and marketplace-picks (a buyer is automatically matched with a seller).

Why it matters: Matchmaking and price discovery can be particularly hard to crack in B2B marketplaces where in some cases you might have complex RFP or bidding based transactions and in others, might have established buyer-supplier relationships leading to a reluctance to try out new suppliers.

Who does it well: This is table stakes for marketplaces and there are many ways of doing it well depending on which matching style you opt for. Laserhub, a marketplace for custom metal sheets, takes a marketplace-picks approach. They abstract away the identity of the supplier and standardise pricing so that the buyer always feels like he or she is transacting with a single party (Laserhub), removing the pressure of having to choose which supplier they should interact with and figuring out what should be the best price. Others, like Rekki, accept the fact that established relationships are a key part of the restaurant/supplier industry and focus on facilitating the connection between these parties, before pushing them to match with new ones.

2.2 Payment

Sounds simple, but it’s far easier said than done.

Why it matters: Enabling payments on your marketplaces is one of the key ways to reduce the risk of leakage. That being said, when it comes to B2B transactions it is a real challenge. Large transaction sizes often mean that credit card payments online are not an option. On top of that, buyers expect to be offered payment on credit terms (e.g. net 30 days). As a result, many B2B marketplaces need to give their customers the option to pay via invoice and manage the related collection process which tends to be complex. Due to the longer payment times, they often need to find ways of helping manage the credit risk and liquidity strain for suppliers that are not paid out immediately.

Who does it well: Marketplaces such as Rigup, Faire and Ankorstore make it part of their core proposition to grant 30 to 90 days of credit to (eligible) buyers whilst also allowing their suppliers to get paid right after the order. In doing so, they take on the credit risk of a buyer not paying in time in exchange for greater supplier loyalty. They also provide buyers with the flexibility to pay via invoice. Hokodo, who we collaborated with on this blog, is one of the key providers of these solutions — if payments are a pain, check them out.

2.3 Transaction Admin

This refers to any tasks which need to be done once an order is placed, from confirming the availability of the goods in stock, sending an invoice to the buyer, organising the last compliance checks (if applicable) and orchestrating the various ancillary services (logistics, cargo and credit insurance, financing etc.).

Why it matters: Let’s face it, nobody likes admin… Done well, this can become a unique selling point for the platform and can even drive suppliers to bring their whole portfolio of buyers onto the platform.

Who does it well: Many good marketplaces integrate with their suppliers ERP systems, which reduces the need to constantly update stocks. Privateaser, a marketplace for events providers, consolidates the invoices from multiple different suppliers into a single invoice — as if the buyers only had one supplier — significantly reducing the admin work which comes with managing multiple invoices.

3. Supporting the fulfilment

3.1 Shipping & logistics

This includes warehousing, packaging, customs handling, inspection services, delivery and returns processing. Many B2B goods marketplaces add this as a feature on top of their platform.

Why it matters: Taking on these additional functions allows marketplaces to entrench themselves in the supply chain of their users, reducing risk of disintermediation and justifying higher take-rates. Several marketplaces are also well positioned to negotiate better shipping rates than a small buyer would be able to.

Who does it well: Amazon’s fulfilment platform is a prime example of this in B2C, with many sellers outsourcing their entire post-sales operation to Amazon, even for goods which are not necessarily sold through Amazon. Another example is Ankorstore, which offers free shipping for orders over €300, even if the transaction is actually made of several orders sourced from various suppliers. This saves costs for buyers and acts as an incentive for them to move their existing suppliers onto the Ankorstore marketplace.

3.2 After-sales

This refers to all of the support offered by a marketplace following the provision of a good or services.

Why it matters: Offering robust after-sales is critical to increasing customers’ satisfaction and stickiness. On top of this, it generates a virtuous cycle of positive customer reviews (reduces the risk of negative reviews), which in turn builds trust and reputation for the platform and attracts future customers.

Who does it well: ManoMano, a construction marketplace, offers a “Garantie Béton” (Concrete Guarantee) which goes above and beyond the industry standard by compensating customers (on their own books) for failed or late deliveries, damaged items or returns that have not yet been refunded. Faire, the B2B wholesale marketplace, is another great example. On top of net 60-day payment terms and bulk shipping, Faire offers free returns on unsold inventory, encouraging retailers to order more and test new products without having to take on inventory risk, you can read more about this here.

3.3 Dispute resolution

Once marketplaces reach a certain scale, disputes inevitably arise. In some cases, this might be because a buyer goes insolvent and can’t pay, goods were damaged or there was an operational mistake. In other cases, it could be due to fraudulent actors e.g. buyers that pretend the goods haven’t arrived or never had the intention of paying back the goods.

Why it matters: The economics of a marketplace can be upset by a very small percentage of dysfunctioning or fraudulent participants. For marketplaces with low margins, a single loss caused by a chargeback could require several additional transactions to be recouped. Unresolved disputes also have a big negative impact on NPS and, in many cases, result in churn.

Who does it well: Hectare, a livestock and agricultural marketplace, introduced an escrow payment facility whereby buyers pay funds into an escrow account prior to delivery, reducing the likelihood of a dispute. They also introduced credit insurance, using Hokodo, to soften the blow in cases of non-payment.

4. Providing value-added services

4.1 Data & Analytics

As they scale, B2B marketplaces accumulate huge amounts of data, which can be repackaged to enable better transparency across marketplace participants or sold to drive additional value.

Why it matters: By opening up access to data on prices, best-selling SKUs and industry dynamics, marketplaces can help their participants make better business decisions and provide them with an additional incentive to keep using the platform. In certain cases, data can even act as an additional revenue stream.

Who does it well: AdQuick, a marketplace that allows buyers to book out-of-home (OOH) advertising, views data as a key part of their value proposition. By gathering individual data points across their marketplace and integrating with various data sources e.g. mobile phones, AdQuick can provide advertisers with accurate attribution analytics, enabling them to measure the effectiveness of an outdoor campaign similarly to how the ROI of online campaigns is measured. This is something which was previously not possible.

Metalshub*, a trading platform for metals and ferroalloys, has leveraged the data they have accumulated on their marketplace to launch the first price indices for certain types of metals. This will not only be a huge differentiator given the opaque market they are operating in, but moving forward will also be a key revenue driver for them.

JOOR is a B2B marketplace in the fashion sector that connects more than 8,000 brands (sellers) with retailers. One of their main value propositions, aside from connecting the demand and supply side is its data exchange which provides brands with a real-time view of the latest transactions allowing them to spot emerging market trends, identify the best-selling styles so as to adjust their offering accordingly.

4.2 Industry-specific tools

Most B2B marketplaces these days offer some form of embedded software that goes beyond the pure matching of demand and supply. They are SaaS-enabled.

Why it matters: As I’ve written about in my Primer on B2B marketplaces, due to a combination of complex workflows, large AOVs and established buyer-supplier relationships in B2B transactions, it tends to be much harder for B2B marketplaces to capture the transaction on their platform compared to B2C marketplaces. As a result, they often need to build workflow tools to either streamline the complexity or get users more comfortable transacting large volumes online.

Who does it well: Faire, the wholesale marketplace, offers a whole suite of tools from invoice management, advance payments and a chat solution which helps suppliers streamline their ordering processes.

Privateaser, a marketplace that brings together event organisers with a community of vetter suppliers, built a booking system for its suppliers, similar to what OpenTable offers restaurants.

Lantum, a marketplace connecting healthcare organisations (clinics, GP practices) with temporary healthcare staff, built a platform which allowed healthcare organisations to not only find and book external staff but, also to manage their internal staff. In parallel, Lantum provides software to freelance doctors to manage their admin, taxes and find new work opportunities.

That’s all folks!

Hopefully the above gives you a good view of some of the key components which make up B2B marketplaces. As mentioned previously, not all of these components will be relevant for all B2B marketplaces. The importance of each of the building blocks depends very much on the industry you are operating in and the market dynamics. Certain elements, such as supporting the fulfilment of an order, might be more relevant for goods marketplaces. Whilst others, like vetting and credentialing might be even more crucial for services marketplaces (e.g. healthcare staff) where suppliers might be relatively unknown.

If you have any feedback on the above stack we would love to hear from you. This post was written in collaboration with Hokodo, one of the leading providers of credit management solutions for B2B marketplaces, make sure to check them out once you get the chance :)

*P9 portfolio companies

Don’t miss out on any future P9 content by signing up to our ICYMI: newsletter!