6 Comments

Summary:

During the heyday of Web 1.0, B2B marketplaces were, we were assured, the next trillion-dollar gold rush. In 2000, Gartner Group was projecting B2B ecommerce transactions would reach $7.3 trillion by 2004. Goldman Sachs predicted $4.5 trillion by 2005. The assumption was that web-based technologies would […]

shutterstock_39769858

During the heyday of Web 1.0, B2B marketplaces were, we were assured, the next trillion-dollar gold rush. In 2000, Gartner Group was projecting B2B ecommerce transactions would reach $7.3 trillion by 2004. Goldman Sachs predicted $4.5 trillion by 2005. The assumption was that web-based technologies would completely automate virtually all supplier-customer transactions, including retailing, wholesaling and procurement.

Like so many other predictions of that era, B2B marketplaces proved to be more fizzle than sizzle.

With the dot.com crash, many B2B companies disappeared just as quickly as they rose to fame. The ones that survived were primarily solutions for large companies, from horizontal players like SAP’s Ariba  to consortia-based marketplaces that focused on a particular vertical:  supplyON.com (automotive), elemica.com (chemical), agentrics.com (retail), and hubwoo.com (MRO-Parts).

One major player of that era, Alibaba (which got its start in Jack Ma’s apartment in 1999), is on track to be the world’s first ecommerce platform to handle $1 trillion a year in transactions. This Chinese B2B trading platform connects buyers in North America and Europe with suppliers from China. Alibaba follows an aggregation of supply model (similar to other early B2B players), helping to solve the pain of global sourcing. Yet with Alibaba, buyers still need to work to identify the right supplier and complete the transaction.

While the overall market may not have skyrocketed as quickly as analysts predicted a decade ago, today we are seeing the emergence of a new wave of B2B startups that are focused on making procurement and supply chains more efficient for the long-tail SMB market. (Disclosure: The author’s firm holds investments in commerce-related companies Clarity, GroupTalent, Indiegogo, and tindie.)

New wave caters to small and mid-sized companies

More than aggregators, these new B2B marketplaces are buyer-driven workflow solutions for small and mid-sized businesses. While large companies can afford to implement EDI or other automated procurement systems, small businesses still fax and file paper purchase orders and quotes. There’s an enormous opportunity to streamline the procurement process, rather than having a purchasing manager call around to suppliers to fax over quotes.

There are a number of B2B ecommerce startups focusing on specific vertical opportunities. Examples include Joor, for fashion – the company is shooting for $350 million in sales this year – and Lookboard for furniture and home décor. Such marketplaces are particularly useful in those verticals where companies can source from a myriad of suppliers and need tools to help them identify, research and contact the right ones.

The future of B2B marketplaces

The B2B players we see today are just at the cusp of what’s to come, as there’s a massive opportunity to replace the paper-centric, error-prone supply chains for small businesses. Emerging B2B startups can improve on earlier generations by creating more value for their users either by lowering the costs of transactions or identifying unique suppliers/products. Here are three methods for doing so:

1. Increasing liquidity by providing more choice and enabling buyers to discover new suppliers. While these marketplaces are mostly buyer-driven (i.e. buyers post the products they need), marketplaces need to increase the supplier base in an efficient way beyond those that are already seeing the RFP.  Without strong suppliers, there’s no incentive for a buyer to use that marketplace.

2. Employing modern technologies such as matching algorithms, personalization and big data crunching to help buyers find the right products and suppliers. For example, a platform can recommend new suppliers based on a buyer’s past purchase history or defined preferences.

3. Supporting mobile in addition to desktop. Even today, a large number of sales transactions involve face-to-face meetings between buyer and supplier. The addition of mobile streamlines these interactions, as quotes and purchase orders can be processed right on spot via smartphone.

Challenges to overcome

Naturally there are obstacles that every startup must face, and creating a marketplace has its own specific ones. Here are two:
If none of these start-ups can execute on the three points above and deliver additional value to the participants of their marketplaces, their role will be reduced to merely being a provider of purchasing software. While that’s still a solid business for sure, it’s definitely less attractive than a marketplace business, where you take a middleman’s cut of every transaction.
And for all B2B marketplaces that are focusing on a vertical, there’s always the question of whether any given vertical market even has the potential to grow enough to support a large, stand-alone company.

Still, given the rise of cloud apps alongside the use of iPads and iPhones in the workplace, the market is more ready today than it was 10-20 years ago for B2B ecommerce. While we didn’t see the projected numbers come to fruition during Web 1.0, today and tomorrow’s B2B startups will undeniably disrupt supply chain processes for small businesses.

Boris Wertz is the founder of version one ventures, and has invested in over 40 early-stage consumer and enterprise companies.  He blogs at http://versiononeventures.com/blog/; follow him on Twitter @bwertz.

Have an idea for a post you’d like to contribute to GigaOm? Click here for our guidelines and contact info.

  1. Some really interesting insights, especially the application of the big data model. If the application of big data could apply vertically to support not just what you buy, but guide where you could sell, there would be some very powerful value creation.

    I think the key challenge driver is empowering the buyer while scaling efficiently. This is largely niche dependent, but the smaller decentralized buyer has challenges around limited resources, complexity and vendor reliability. If a B2B can tackle those, while scaling efficiently and stay relevant throughout the vendor/buyer relationship (middle-man vs purchasing software), they should be in a very strong position. This is definitely going to be an interesting market segment in the coming years.

    Great article!

    Share
  2. i would like to know more small business focusing on enterprise lik joor and lookboard

    Share
  3. Don’t think Hubwoo.com is in the MRO industry. We’re in the MRO industry and I think they do more software than specific engineering b2b supplies.

    Share
  4. This is really good blog, B2B Data Matching service is a different approach for entrepreneurs, they depend on prospect’s email information to launch successful campaign programs. Learn more…B2B services

    Share
  5. “Great tips… B2B data matching is a favorable option in email marketing industry. For more information visit us at
    B2B data matching- Data Drips

    Share
  6. Nice blog. I agree Kristine. to know more about B2B contact B2B Email Listz

    Share

Comments have been disabled for this post