On October 24, 2017, the share prices of several Fortune 500 industrial supply companies dropped as much as 5%, even though the NYSE and NASDAQ indexes remained essentially flat.
What happened? According to investment analysts, the decrease occurred due to the launch of Amazon Business, which provides Prime’s unlimited fast delivery to Amazon’s business customers. As an online B2B marketplace, Amazon Business provides a software platform that enables buyers and sellers to connect and do business. The platform is the facilitator; the transactions are essentially peer-to-peer.
Amazon Business shifts inventory and logistical duties to participating suppliers, cutting its costs and increasing its agility. It’s a model the world’s largest B2B marketplace platform, Alibaba, adopted from inception, allowing it to carry zero inventory on its own balance sheet, much as Amazon pioneered with books.
The marketplace model allows these companies to grow at a pace and scale that companies with heavy inventory, facilities and logistics investments cannot. This enormous capacity to scale, plus a compelling user experience, have enabled these marketplaces to disrupt sector after sector.
ALTERED CUSTOMER EXPECTATIONS
The disruptive nature of business-to-consumer (B2C) and consumer-to-consumer (C2C) marketplaces is well-documented in hospitality (Airbnb, Wimdu), travel (Booking.com, Ctrip), financial services (M-Pesa, PayPal), transportation (Uber, Lyft), and retail (eBay, Tmall).
From the consumer’s perspective, it’s easy to understand the appeal of digital marketplaces: greater choice, easier offer comparisons, lower prices, anywhere/any device access, fast fulfillment and community interactions. In short: a winning customer experience.
These winning experiences have permanently altered consumer expectations regarding choice, price and convenience. It was only a matter of time, therefore, before businesses began to demand the same type of experience for purchasing business and industrial goods and services.
“B2B buyers are consumers as well, after all, and they have high expectations for their digital experiences,“ said Brian Beck, senior vice president of E-Commerce and Omni-Channel Strategy at Guidance Solutions, a B2B and B2C e-commerce services company in Marina Del Rey, California.
B2B marketplaces are not new, however. While Amazon Business has only recently expanded from the US to Germany, the UK, France, Japan and India, many regions of the world have been served by large, industrial marketplaces for the past two decades. This is especially true of Asia, where well-known B2B marketplaces including Alibaba, Global Sources, TradeIndia, IndiaMART, DHgate and HAIZOL, among others, have brought millions of industrial buyers and sellers together.
So what is new about industry marketplaces? For one, sophisticated strategies for using cloud, mobile and social technologies, together with advanced big data analytics, to create the more compelling, Uber-style experiences business customers demand today. For another, technologies that include affordable versions of 3D modeling and 3D printing are opening opportunities for more small businesses to participate in global marketplaces. Lastly, marketplace operators are aggressively expanding into new geographies and extending the range of goods they offer, as global awareness of the market potential of B2B e-commerce grows.
GLOBAL GROWTH AND DISRUPTION
According to the market data and research portal Statista, B2B e-commerce revenue in 2017 was US$7.7 trillion (€6.5 trillion), triple that of B2C e-commerce revenue.
In a survey of 400 B2B decision-makers in Europe and the US, Salesforce CloudCraze found that 89% expect e-commerce to be a key growth driver in B2B. The survey found that for the first time, nearly half (48%) of B2B businesses are selling their full line of products online.
Alibaba Group’s Founder and Chairman Jack Ma told investors at Alibaba’s 2017 Investor Day in Hangzhou, China, that he was confident his company alone would hit US$1 trillion (€853 million) in revenue by 2020. By 2036, he predicts Alibaba will serve one-third of the world’s population (2 billion customers), support 10 million businesses and enable 100 million jobs, making Alibaba “the world’s 5th largest economy.”
“We are way beyond being a simple e-commerce website,” an Alibaba spokesperson told Compass, “as we provide our partners with an integrated technological infrastructure and a vast array of accessory services like payments, logistics, cloud computing and more, in order to enable consumers, merchants and other participants to operate and thrive in our ecosystem.”
Experts agree this evolving ecosystem model and phenomenal B2B marketplace growth are not just upending middle-tier players like distributors and wholesalers, but reshaping the entire supply chain, from design to final sale. As a result, questions with obvious answers in legacy supply chain models are being asked anew: Who is my customer? Who will control my customer data? Who will provide logistics, fulfillment, inventory and after-sales service?
Sonesh Shah, vice president Brand and Digital at Robert Bosch Tool Corporation, a US-based subsidiary of the BOSCH Group, is feeling this disruption, along with his channel partners. The company manufactures power tools for professional and consumer use, and has traditionally sold its products through distributors and retailers.
“There’s been a lot of attention paid to the effect of B2B marketplaces on distributors, but manufacturers are undergoing severe disruption as well,” Shah said. “As brand manufacturers, we have built our business on carefully elaborated relationships with wholesalers, distributors and retailers. Now big e-commerce is blowing in and upending the informal and formal structures that we developed for success within traditional supply chains.”
Manufacturers now have to decide if they should participate in marketplaces through existing partners who add marketplaces as a channel, or participate in such marketplaces directly. For Shah, this presents manufacturers with some strategic and operational challenges, but he feels that manufacturers can’t go wrong if they put the customer first.
“The customer has to be first,” Shah said. “And for manufacturers, I mean the end user of what you produce; you have to think through issues like pricing, margins, brand presence and logistics, but you’ll navigate them all the right way by viewing them through end-user lenses.”
Accordingly, Robert Bosch Tool views the shift to industry marketplaces, and B2B e-commerce in general, as an opportunity, not a threat. In fact, some of Shah’s channel partners have taken the same view and adopted marketplaces as additional channels, rather than a competing one. He says the marketplaces have been very successful for his channel partners, which is good for them and Robert Bosch Tool.
NEW OPPORTUNITIES FOR INDUSTRY
Proponents of industry marketplaces say they boost both supply chain and customer experience innovation. Andy Hoar, former vice president and lead B2B commerce analyst at Forrester and now CEO of B2B e-commerce strategy firm Paradigm B2B in Chicago, underscores the importance of taking an optimistic approach to their arrival.
“In breaking the linear, hierarchical supply chain models of the past, collaborative marketplaces enable digital ecosystems where all participants – from raw-material suppliers to after-market service companies – can connect, interact, innovate and co-create value and commercial success,” he said.
Guidance Solutions’ Beck believes marketplaces are an essential e-commerce channel for manufacturers, brands and distributors of all sizes. “With marketplaces, you can reach customers and regions you couldn’t otherwise,” he said. “The bottom line is you have to go where your customers want to be, not where you want them to be. Fighting where your customer wants to buy is a losing proposition.”
A similar dynamic exists for buyers, said Bill Cronin, senior vice president, Sales and Marketing at Xometry, a marketplace for custom parts manufacturing that connects prototype and production part buyers with manufacturing suppliers across the United States. “By participating in marketplaces, designers and engineers can connect with a large pool of pre-qualified suppliers, many of whom they likely would have never discovered on their own,” he said.
Cronin also believes marketplaces greatly simplify acquisition processes for everyone. Specifically, the Xometry platform uses machine learning to automate otherwise cumbersome processes and identify the best price and supplier for the customer.
FINDING THE RIGHT MARKETPLACES
At a tactical level, finding the right industry marketplaces for your company can be challenging. Marketplaces exist for virtually all types of B2B goods and services, including raw materials, standard parts, custom manufacturing, process manufacturing, machines and tools, heavy equipment, factory/site supplies, labor, freight and packaging.
To begin working through these options, Scot Wingo, founder and chairman of ChannelAdvisor, an e-commerce platform that helps companies manage multi-channel selling, suggests first assessing your own in-house competencies (manufacturing, call center, logistics, etc.), and then narrowing down the types of marketplaces that align with these capabilities and with your business plan.
To go a step further in selecting marketplaces, Guidance Solutions’ Beck recommends adopting a customer-first strategy: “Focus on the end user of your products. Where are they buying? Where are they doing research? What value do these platforms offer them? Also, keep in mind that B2B purchases are more complex than B2C shopping, and that people are buying as part of their job. So, look for solutions that enable them to do what they have to do more quickly and easily.”
FUTURE OF B2B MARKETPLACES
Beyond this major shift to digital B2B commerce, what does the future hold for industry marketplaces? What type of advances should supply chain players anticipate?
ChannelAdvisor’s Wingo points out that “data, as Alibaba and Amazon know, is the key to the castle. Big data gathering and analytics enable their customers to be successful, which in turn enables them to succeed.”
He notes an interesting data-related trend: entrepreneurs creating new businesses based on what they learn from marketplaces. He foresees more companies like Anker, whose founder – a software engineer with no manufacturing experience – studied portable device chargers on the Amazon marketplace and jumped in to exploit the demand gaps he saw.
“Anker is now the most popular brand on Amazon for that category, and they’ve expanded into the smart home market,” Wingo said. “They’ve even introduced a smart, Alexa-enabled speaker that undercuts the price of Amazon’s cheapest Alexa device. Amazon likely won’t mind any innovation that helps boost Alexa’s adoption, but it’s an example that shows companies they should add ‘marketplace-natives’ to the list of disruptive competitors they should be preparing for – now.”
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