After reviewing over 100 B2B vertical marketplaces and deep diving into 35 of them, there was one defining aspect to all of these companies. These particular B2B vertical marketplaces had to figure out one key aspect: how to incentivize demand and/or supply to adopt and then continue to transact on the platform. This point of view is an extension of our initial post, Insights To Building A Successful B2B Marketplace In Your Vertical, where we discussed several key takeaways regarding the B2B vertical marketplace landscape. In order for any marketplace to be successful, it must convince buyers and sellers to continuously use the platform. Here are 5 key factors to B2B vertical marketplace success that platforms can embody:
1. Be The First Mover
Being the first in a market vastly improves chances of success. Alibaba was able to build a B2B generalist marketplace because it was a first mover in its space and, like Amazon, now protects its business through sheer scale. Today, the business has an untouchable supply chain, which billions have been invested into. Even B2B generalist marketplace competitors all have similar resources (Amazon Business, eBay Business) but cannot keep up with the scale and volume of Alibaba. Being first allowed them to solidify their foothold in the space and build out the appropriate technology and supply chain to be successful. You will be surprised to know that there are still a lot of areas that have not been tapped in B2B vertical marketplaces.
2. Provide SAAS Tooling To One Side
Providing necessary software tooling to attract one side of the marketplace is becoming more and more a key to success. Examples include ConstructConnect, which provides RFP management solutions for construction sites and leverages that data to build a marketplace to go after the manufacturer to construction management industry. Companies do not want to build out their own suite of services and benefit from a solution that provides multiple solutions as part of the marketplace service package. Simplicity is essential in a marketplace. Platforms that provide these tools improve stickiness and allow companies and customers to focus on selling and buying resources.
3. Eliminate Key Offline Brokers
Removing a massive offline broker, if one exists (e.g. CH Robinson in the freight industry, Vizient in the healthcare industry) is another important strategy. There are massive economic advantages for both sides to removing a major barrier and providing a technology enabled solution. As Bill Gurley notes, marketplaces can reduce unnecessary costs, increase efficiency, and improve the situation for both buyers and sellers. Brokers benefit from information asymmetries and require a tax for their services. As marketplaces improve transparency and provide a supply chain management solution, the need for a broker is removed.
4. Improve The Overall Buying Process
Simplifying some element of a tough or complex buying process can also be key to success. For example, local construction auctions (IronPlanet), overseas quality assurance testing (Upwork), or office supply purchasing across suppliers (Coupa) are all solving the buyer challenge and simplifying the process for that side of the marketplace. Prior to these marketplaces being created there was an extensive amount of friction in the procurement and sales process. Marketplaces reduce this friction by increasing clarity for both sides and allowing customers to choose the best service for their business.
5. Vertical Within A Vertical Creates Incredible Power
Focusing on a highly specific area of an industry vertical (e.g. E&P in the Oil & Gas space) can create serious advantages from a pricing and competition standpoint. In most of these sub-verticals, you have supply that is exceptionally fragmented or localized. Ultimately, they can win with the proposition that aggregation will drive down prices substantially. In addition, the ease of access will lock in demand. Looking at what small and large examples like Makers Row, Joor, Architizer, and Expedi are doing are good lessons. In markets with this high fragmentation, buyers need real help connecting to sellers and there is less loyalty to specific suppliers combined with the fact that users want transparency.
It is important to scale a platform, but it is even more important to provide incentives for them to remain on the platform. As noted above, these are key factors to B2B vertical marketplace success that will ultimately increase user engagement, outside of building the tech. By executing on these key factors to B2B vertical marketplace success, teams can provide clear value and build the next multi-billion dollar B2B vertical marketplace.
If you liked “5 Key Factors To B2B Vertical Marketplace Success” and want to read more content from the Bowery Capital Team, check out other relevant posts from the Bowery Capital Blog.