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The B2B marketplace stack

The B2B marketplace stack

When people think of marketplaces, they usually assume it’s all about matching the demand and the supply sides. The reality is that it involves so much more than that, especially in B2B.

Most founders we interviewed shared similar views to Nicolas d’Audiffret’s, founder of Ankorstore:

“Building a B2B marketplace is not about one thing, rather a compilation of features: execution, remaining reachable, bringing convenience and detail in the product”


In this post, we (in collaboration with Point Nine) go back to basics and recap the key functionalities of B2B marketplaces. We hope that this comprehensive view of the stack that's based on the interview of tens of marketplace practitioners can give an interesting perspective to entrepreneurs building in this space!

The B2B marketplace stack consists of 4 key functions:

          1. Curating the suppliers

          2. Organising the transaction

          3. Supporting fulfilment of the orders

          4. Providing value-added services


Figure 1. Under the bonnet - The B2B marketplace stack
The B2B Marketplace Stack

Before we jump in, it's worth noting that not every B2B marketplace offers every component included in this diagram. For services marketplaces, for instance, things like shipping and logistics as well as leveraged purchasing are not necessary.

         1.1. Credentialing

Credentialing is an essential step in the curation process of a marketplace, whereby the marketplace verifies the identity and trustworthiness of a supplier. 

Why it matters: B2B marketplaces need to change the purchasing behaviour of a professional buyer. For this to happen, it is crucial for professional buyers to be able to trust that the supplying counterpart has been properly vetted and will deliver.

Who does it well: MetalsHub is a metals trading marketplace that ensures that suppliers meet certain compliance requirements and quality certificates. This process saves a lot of time to purchasing departments that must follow Total Quality Management (TQM) procedures and incentivises buyers to keep using the platform.

         1.2. Cataloguing

Cataloguing is the process of codifying the offers of each supplier and making them available to buyers in a user-friendly, searchable way. 

Why it matters: Marketplace founders who cater to both B2C and B2B clients frequently highlight speed as a key difference in purchasing behaviours. Professional buyers are often strapped for time and don’t have the luxury to browse for hours to find their dream purchase. 

Who does it well: For example, Rekki developed a translation engine that allows chefs (who are the buyers) to search for inventory using different phrases from different languages. Without this feature, it would be much more challenging for the chefs to communicate their orders to the food suppliers. Another example is ManoMano, a marketplace for construction materials, which has customer support teams to help busy construction entrepreneurs order on the go while driving to a construction site. This allows the phone operator to populate the order based on high-level instructions provided by the customer.

          1.3. Leveraged purchasing

Leveraged purchasing refers to the fact that marketplaces can aggregate demand and arrange cheaper supplies for its buyers. Some platforms even go as far as “pooling” the orders from multiple buyers in order to help them get economies of scale. 

Why it matters: Implicit to the marketplace value is the underlying promise that the economics will be at least as attractive - if not more - than in the old world. B2B buyers are naturally price sensitive, especially when the merchandise they purchase is a core part of their COGS. Clearly, marketplaces that can achieve economies of scale and guarantee competitive prices despite their own commission have an edge over alternative solutions. 

Who does it well: In the agriculture sector, Farmitoo views it as its mission to inject price transparency into a traditionally opaque sector. The platform puts small farmers that used to be bullied by large suppliers on an equal footing with larger buyers. In retail, platforms such as Ankorstore (a European version of Faire.com which connects brands to local retailers) give their (small) buyers access to a large catalogue at a competitive price which was traditionally only achievable to large buyers making bulk purchases. 

          2.1. Matchmaking & price discovery

Facilitating the discovery of supply & demand and the formation of a price is the first function of a marketplace. Depending on the market dynamics (AOV, level of commoditisation, fragmentation of supply & demand…), marketplaces use different mechanisms to match sellers and buyers, the most frequent approaches being demand pick (when buyers decide which item to buy from a list), supply pick (when sellers decide which buyers to sell to) and double commit (when both sides opt in).

Why it matters: Although the matchmaking and pricing functionality may appear as a basic requirement, it doesn’t mean that it is easy to perform. Behind the scenes, B2B marketplaces invest a lot of time in service and UX design, to make sure that participants enjoy the smoothest selling - or purchasing - experience. Digitising the discovery process can be transformative for the workflow of a given industry, saving time to all parties involved.  

Who does it well: Large marketplaces such as Amazon and EBay are clearly trail blazers in this area. The largest platforms are able to hire data scientists focused on search, scientifically determining which items to surface to buyers, depending on recent purchase behaviour, price, reputation, time of year, promotions etc. 

In pure B2B, some marketplaces like Rooser or Laserhub abstract the identity of the supplier which mitigates the issue of platform bypass in the long run. The marketplace acts as the sole counter-party, which helps build trust around its brand.

“Trust is the cornerstone of our business. Our customers know that we’re in charge and it’s not simply about handing over to an unknown third party supplier. LaserHub is the contractual partner, in fact even the invoices come from LaserHub” Adrian Raidt, LaserHub

          2.2. Payment

Payment is rather self-explanatory - it’s the action for the buying party to compensate the selling party for the goods or services. Whilst early marketplaces only provided the matchmaking, most modern platforms support the settlement of the transaction.

Why it matters: Many B2B marketplaces realise early on that keeping the payment process on the platform is a vital requirement to avoid leakage. However, B2B payment expectations are very different to B2C, in particular because buyers generally expect to be offered payment on credit terms and because the higher transaction size often means that credit card payments are not practical.

This creates two challenges for platforms:

a) Managing the credit risk and liquidity strain for suppliers. The marketplace can either: 

  • Help the suppliers to cope with it (e.g. via credit scores, buyer vetting etc.), recognising that it's a particularly acute issue when buyer and supplier don't know each other so well
  • Take it onto the marketplace’s balance sheet, by guaranteeing payment. But this is fraught with issues and creates a lot of financial and operational risk for the marketplace  
  • Pass it onto a third party (credit insurer or financer). This is the most scalable solution for marketplaces that aim to be agile tech platforms rather than cumbersome FS providers

b) Managing the collections which is particularly complex when invoicing is involved. Even Direct Debit payments are much more prone to failure (e.g. chargebacks) than upfront charging would be. So marketplaces need a robust solution for this - cf below step 3.3.

Who does it well: The ability to issue invoices and grant payment terms is massively differentiating and helps increase acquisition, AOV and stickiness on the platform. In the long term, it also fluidifies the whole supply chain. 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 while allowing their suppliers to get paid right after the order.  

          2.3. Transaction admin

Transaction admin describes the set of activities that unfolds 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: Done well, this can become a unique selling point for the platform, and we have seen examples where the time saving in admin led to suppliers (resp. buyers) bringing their whole portfolio onto the platform. 

Who does it well: One way of facilitating this process is to develop connections into merchants’ order management systems and/or ERPs to get real-time answers. When those connections are not yet in place, the best marketplaces implement stringent SLAs with merchants to make sure that a majority of orders can be confirmed and shipped within an agreed timeframe.
Another step where there’s room for value creation is the invoicing process, which is a wedge into several incremental services such as factoring, credit insurance and collections. A good example of an optimised invoicing workflow is Privateaser, a marketplace that connects event organisers (medium and large corporates) with service providers. Most events involve several providers e.g. the venue, the catering, the DJ, the keynote speaker… who all issue their invoices with their own quirks and payment terms. Thanks to Privateaser, the client’s finance team only gets one consolidated invoice - as if they only had just one supplier.

The key to our success on the B2B side is to fit with our corporate clients’ current processes and make their lives as easy as possible. B2B is all about efficient workflows.” - Alexandre Paepegaey, Privateaser

          3.1. Shipping & logistics

An increasing number of marketplaces have introduced fulfilment and logistics services as a way of simplifying the lives of their suppliers while increasing the value of their marketplace for the demand side. These services include warehousing, packaging, customs handling, inspection services, delivery and returns processing.

Why it matters: These additional services provide value to all participants through additional efficiency, trust and convenience. Insourcing this step allows the marketplace to entrench itself in the supply chain of its users and justify the take-rate. Marketplaces are also well placed to negotiate attractive rates with shipping companies.

Who does it well: Amazon D2C marketplace’s fulfilment offer (which is now also available for the B2B sales) is probably the best-developed fulfilment proposition. Many Amazon sellers now outsource their entire post-sales operations to Amazon, allowing Amazon to further increase their share of wallet on their sales.

Shipping also has a value for buyers, especially when they can be promised “same day” or “next day” delivery. For instance, LaserHub differentiates by offering a wide range of options for delivery, including very fast shipment for hurried buyers. Ankorstore offers free shipping for orders exceeding €300, even if the transaction is actually made of several orders sourced from various suppliers. This obviously creates a lot of efficiencies for buyers and incentivises them to try and move their current suppliers onto the Ankorstore marketplace

          3.2. After-sales

After-sales refers to the provision of services, support and maintenance following the provision of the goods or services. Obviously, after-sales cannot substitute suppliers' duties but it provides an additional protection to buyers and improves the purchasing experience.

Why it matters: Offering robust after-sales generates a virtuous cycle of positive customer reviews (and/or helps avoid the negative reviews of disgruntled customers), which in turn builds trust and reputation for the platform and attracts future customers. Good after-sales increases customer satisfaction and reduces the online shopping inconvenience of not being able to try the product before buying.

Who does it well: Many B2B marketplaces have developed after-sales teams (often known as Customer Care) that facilitate end customers’ cancellations and returns.

For instance, ManoMano has launched the “Garantie Béton” (Concrete Guarantee) which goes above and beyond the standards of their industry (construction and DIY) by generously compensating the buyers facing issues at delivery such as: 

  • the non or late delivery of the order;
  • items damaged, different from the order or order incomplete; 
  • order returned to the supplier but not refunded

Another good case study in the after-sales area is Faire. On top of net 60-day payment terms and bulk shipping, Faire offers free returns on new inventory which allows retailers to test the appetite for a product without taking any inventory risk. By the way, as highlighted by Anu Hariharan and Nic Dardenne in their article Reimagining B2B Commerce with Faire, Faire is able to leverage sales data to make accurate predictions about returns.

          3.3. Dispute resolution

Since B2B trade is all about trust, all the parties involved in a transaction must meet certain standards and expectations to create a win-win situation. However, out of thousands of transactions, some disputes are bound to arise. The root causes of such disputes are virtually infinite but they broadly fall in four categories as per the figure below.

Figure 2. Sources of dispute

Why it matters: The economics of a marketplace can be upset by a very small percentage of dysfunctioning or fraudulent participants. In an industry where the EBITDA margin stands at 10%, a single loss caused by (for example) a charge-back requires 10 additional transactions to be recouped. 

Who does it well: In practice, good faith claims make up the vast majority of the disputes. These are just inherent to doing business and should be resolved promptly. Therefore, it is crucial for marketplaces to triage as fast (and accurately!) as possible the claims based on good vs. bad faith.

The best marketplaces understand this and often prefer to oil the wheels by settling the claim on behalf of the parties involved rather than taking the risk of deteriorating their relationship with participants. For instance, ManoMano’s “garantie béton” takes care of resolving the disputes caused by merchants when the goods have not been received or if they arrived damaged. 

B2B marketplaces increasingly have a toolbox of financial services instruments at their disposal to deal with these issues, including performance bonds and credit insurance. One example of this is Hectare’s livestock marketplace, which is used by farmers to trade cattle or sheep between each other. In 2019 Hectare introduced an escrow payment facility whereby buyers pay funds into an escrow account prior to delivery. More recently Hectare introduced Hokodo’s credit insurance onto Graindex, their grain trading platform, which also protects the seller against the risk of non-payment but without having to tie up the cash in an escrow account. 

          4.1. Data & analytics

Modern marketplaces are all digital data driven businesses. Even more than historical ones, they’re able to capture “data exhaust” and repackage it to drive additional value to their participants - sellers and buyers alike. 

Why it matters: By generating additional insights e.g. on price trends, on best selling articles, on the current state of inventories, marketplaces help their participants make better business decisions. In some cases, access to marketplace transaction data can even become one of the key reasons to use the marketplace. 

Who does it well: Here are a few best practices that we’ve picked up: 

Breedr views itself as an app for farmers i.e. not just a trading marketplace. Breedr helps farmers capture data to improve performance and find the optimum time to sell their cattle. Breedr leverages multiple data points such as date of birth, breed, genomic, antibiotics, medical history, weight, sires to advise farmers on the optimum price. To food processors (buyers), Breedr offers better visibility and the ability to track and assess the performance of their suppliers.

AdQuick is a marketplace that allows buyers to book outdoor / out-of-home (OOH) advertising in a simple way. The impact of OOH campaigns is traditionally hard for advertisers to quantify. As they gather more and more individual data points and integrate with other data sources such as mobile phones, AdQuick is in a prime position to assess the value of a real world impression and measure the effectiveness of an outdoor campaign. This allows AdQuick to solve a decade long issue for their industry and provide advertisers with accurate attribution analytics!

Metalshub is a pan-European metals trading platform. As liquidity increases on the platform, Metalshub is building the data to create indices for the main metals and alloys traded on the platform. Over time, this feature becomes a massive differentiator on an opaque market. To get there, Metalshub encourages liquidity on the platform - because each additional data point carries massive value in and of itself.

JOOR is a B2B marketplace in the fashion sector that connects more than 8,000 brands (sellers) with retailers. Interestingly, JOOR pitch themselves as a data exchange platform. Joor provides brands with a real-time view of the latest transactions allowing them to spot emerging market trends, identify the best-selling styles and adjust their offering accordingly.

          4.2. Industry-specific tools

Modern marketplaces offer embedded software functionalities that go far beyond the initial brief of cataloguing and matching offer & demand. This trend has been well spotted by commentators and labelled as “SaaS enabled marketplaces”, “smarketplaces”, “managed marketplaces” or “4th generation marketplaces”. Here are a couple of resources on this topic (here and here). 

Why it matters: We believe that this trend is particularly deep in B2B. All the founders we spoke to referred to the additional layer of software that they had developed on top of their marketplace. About half of the founders we interviewed went as far as stating that they didn’t want to be perceived as a pure marketplace - but rather as a SaaS solution for their industry. 

Who does it well: Here are a few best practices in this respect: 

Faire is an endless source of inspiration when it comes to SaaS solutions. On the supply side, Faire offers a cool suite of tools that brands can leverage to streamline their sales process. This includes invoice management, advance payments and a chat solution, Faire Messenger, which allows suppliers to exchange with their buyers before fulfilling an order. Just like JOOR, Faire also proposes sales analytics showing suppliers how their different items perform at retail stores. As noted by YC, “this insight is a black box for those operating in the legacy wholesale ecosystem, giving brands on Faire the competitive advantage of being able to iterate on existing product mixes, merchandising strategies, and product development in real time.”

Privateaser is a marketplace that brings together event organisers (individual and corporate) with a community of vetter suppliers. On the supply side, Privateaser offers suppliers a booking system similar to what OpenTable does with restaurants. 

Lantum started out as a marketplace connecting healthcare organisations (clinics, GP practices) with high-quality, vetted physicians. Over the years, Lantum evolved into an end-to-end staffing platform supporting healthcare organisations. This includes helping healthcare providers manage their current staff as well as introducing them to a wider network GPs. In parallel, Lantum provides tools for locum doctors to manage their admin, taxes and find new work opportunities.

We pivoted from a classical marketplace to a trusted platform, and we can build a win-win relationship with our participants that we didn’t have before. It’s just different when you’re embedded in their workflow for the long term and they can’t do without you” - Melissa Morris, Lantum

Conclusion 

The building blocks of this operating model are not specific to B2B marketplaces - many B2C marketplaces display a version thereof. However, each building block needs to be executed in a particular way to suit the needs of professional sellers & buyers. It was thus striking that all (bar one) the marketplaces we interviewed had developed their platform in-house, without leveraging external vendors, because they recognised that the needs of their vertical were super specific and thus required a lot of “custom” software to be properly tackled.

The 4th and last component of the B2B Marketplace Stack (namely “value-added services”) was added following our interview series to reflect the fact that most if not all B2B marketplaces are actually building an additional layer of software and services on top of the core trading platform. This software layer is key to embed the marketplace into the workflow of its participants and thus foster retention. There is no such thing as an “unmanaged” marketplace these days. Therefore, value-added services must be explicitly included in any framework to analyse B2B marketplaces.

We’re building a software-enabled marketplace that has the potential to provide the operating system for the road freight industry” - Loreta Žukauskaitė, FreiDesk

If you have any comments or feedback on the B2B marketing stack, let us know. Can't wait for the next blog in the series? Check out some of our previous blogs in the B2B marketplace series also written in collaboration with our friends at Point Nine, the early stage venture capital firm focused on SaaS and digital marketplaces