I’m lucky enough to have been involved in the formation, operation, success (and in rarer cases failures) of digital B2B Marketplaces over the last ten years.
I’d like to share with you the wisdom I’ve managed to collect along the way and in doing so hope to create a simple set of guiding principles with which to maximise the success of any journey into single sided (one seller to many buyers) B2B Marketplace and Multi-sided B2B Marketplaces (many sellers to many buyers).
Each topic requires its own examination, but I also aim to boil it all down to a set of simple headlines; you won’t need to read each of the full articles unless you somehow feel compelled.
So, without further ado:
B2B Marketplaces require value on both sides — the seller and the buyer — and the difficulty of the data payoff.
There are two compelling facts that influence the initiation of B2B Marketplaces;
· You need a foundation seller to “make the market”. In other words, to ‘prime the pump’ by putting up attractive inventory/assets or services and encourage buyers to use a new digital channel.
And;
· Starting a multi-sided market is incredibly difficult; the lighting up of the network effect can be thought in the same terms as “the empty disco syndrome”. i.e. no activity begets no activity.
Both of these influencing facts mean that typically, the successful route to creating a B2B Marketplace is to start with a single seller. The marketplace overtime adds new sellers which benefits the initial seller (I call this the private hire firm vs single taxi, more on this later).
Because of the need to create the initial spark of adoption in this way, the perspective — through simple value payoff for the investing business — tends to be centred around delivering value to the investing seller.
The list of possible values for being a data-driven, highly responsive digital sales channel are many, varied and do not all apply to every instance, but these might include:
- Optimising margins
- Minimising inventory levels
- Improving outcomes to the benefit of reduced logistics overheads
- Clearing the market, i.e. selling everything
- And so on.
All these are centred around value to the seller, not to the buyer.
Your argument to the buyer might be that you are enabling a more streamlined mechanism for transacting or better discovery of products through self-service.
These are superficial at best and are incredibly hard to build a compelling argument against the counterweight of the seller exploiting his or her newly found digital channel to their advantage.
Your B2B Marketplace will fail unless you have a compelling proposition on both sides of the transaction.
Often cited in this instance is the benefit of DATA for the buyer. Market price information and trends will enable the buyer to understand better the current conditions (e.g. oversupply into the market, so prices being depressed, or undersupply and expectation of rising prices).
The common challenge of achieving success with this data payout is that it’s so long tail that even if the buyers are convinced of the legitimacy of its value, they may not have the patience to participate long enough to realise it.
Everyone wants data, but no-one wants to volunteer data.
This is not the solitary cause — the challenge is to have sufficient data to be able to aggregate it for presentation in such a way that buyers are unable to disaggregate the data down and work out what individual transactions are happening, by specific companies — i.e. by presenting only anonymised data aggregations.
If detailed information leakage were to happen, then competitive advantage could be derived, and participants exploited. An exploited market participant will quickly abandon the channel.
Ergo, you need sufficient data quickly — or the patience of your buyers will erode because of the unrealised benefit.
There is a delicate balance to be maintained, and there will be sufficient nuanced differences from market-to-market; in our years of dealing with data, we’ve seen useful and actionable longitudinal timeframes range from months to years, depending on the nature of the market.
Data Payout is not enough, you must bake in value
(Before we go on, let me make the point that DATA will become the keystone value proposition, so it has immense value. Not necessarily on day one, day one hundred, but often after this — a longitudinal data-view tends to be the most robust).
The ability to create value for the buyer warrants specific analysis. It is often highly specific to the industry, so I’ll leave the discussion of the specifics of this to a further article in this series.
In short, here are some examples to kickstart the planning:
- Connect processes in your business to the marketplace to increase the visibility of post-transaction status to drive efficiencies.
- Enable standard customer interactions to be completed electronically, for example, receipt of goods or rejection of goods.
- Leverage ecosystem innovation and pass added value to the buyer; i.e. add logistics and settlement options which saves the buyer money, effort and time.
- Help the buyer make decisions, i.e. make recommendations around product alternatives which might be more efficient or be a better match for perceived requirements.
In summary, when starting a successful digital marketplace, you will need a deeply compelling and attractive means of encouraging buyer adoption, with the initial goal of getting a single seller to commit inventory exclusively to a digital channel (forcing adoption).To create value on both sides, the seller will need to rapidly experience the benefit of adoption, through realising efficiencies through new data insights to avoid buyer attrition.
Next up:
B2B Marketplaces; Losing the benefit as a result of frequency and granularity.
