There are many different business models that a founder can choose for their B2B marketplace. Sometimes, a marketplace might start out with one type of business model and then move to a different model in order to increase revenue, attract new customers or grow the business. The commission model – where the marketplace takes a commission on each transaction (shocker) – is popular because it is often the most lucrative marketplace model. When done right, these platforms own the end-to-end transaction, from discovery through to payment and beyond, adding value at every step. According to Sharetribe, these marketplaces take an average of 10-30% of the transaction value for their commission.
But in taking such a high cut of the transaction value, commission marketplaces put themselves at greater risk of every marketplace founder’s biggest fear: disintermediation.
Disinterwhatnow?
You might know it as platform bypass or leakage (we like those terms). Some refer to it as platform circumvention or deplatforming (we’re not sure about those ones). But at the end of the day, they all mean the same thing.
In the context of marketplaces, disintermediation is when the users of a platform (i.e., buyers and sellers) decide to cut out the mediator and complete their transactions off-platform. The mediator (or middleman, to common folk like you and I) is the marketplace. When disintermediation happens, they lose any revenue from the transaction. If every buyer and seller disintermediated (we don’t know if that’s actually a word) the marketplace would no longer make any money and very quickly be forced to shut down. Kaput.
So, you can see why disintermediation is one of the main concerns and challenges facing B2B marketplace operators today.
The primary reason that a buyer and seller might choose to transact off-platform is to avoid the fees or costs of the marketplace. The main challenge is that leakage is practically impossible to accurately measure. However, some marketplaces believe that they lose up to 80% of their revenue this way, while others put the mark closer to 30%.
Some marketplaces are more susceptible to leakage than others. For example, a platform like Uber isn’t likely to suffer from disintermediation because it would be difficult and possibly even dangerous for a rider to find a driver without the trust, security and convenience that the platform offers. Conversely, a marketplace connecting freelance designers with marketing teams is at high risk. After the first project is complete and trust has been established, the two parties might perceive that they’re getting no further value from the marketplace and begin working together privately. Similarly, marketplaces selling stock and materials to businesses, where frequent repeat orders are expected, are also very susceptible to leakage.
The only way that a commission marketplace can sustain and justify its share of the transactions is by adding more value than it takes. You have to offer something so exceptional that it negates any reason that a seller or buyer might have to take their transactions off the platform.
If you’re struggling with the concept, think of it this way: you go out to eat at a restaurant and, midway through the meal, you realise you could have made food at home for much cheaper. But you also realise that you could never have made it taste this good (and you’re a bit scared of deep frying in your own kitchen) so you don’t stop going to the restaurant. However, if the food you were served was cold, bland or rotten you’d probably bypass the restaurant and just cook something at home. See what we’re getting at?
Anyway, we’re not here to talk culinary delights. We’re here to talk about the horrors of disintermediation, and the value that you can add for buyers and sellers in order to avoid it.
Build unparalleled trust, reputation and credibility to keep buyers and sellers on board
Many buyers come to marketplaces like yours because of the security and assurances on offer. Maybe you offer buyer and/or seller protection, guaranteed payments, insurance, user verification, dispute resolution assistance or a robust review system. Whatever you do to foster trust between buyers and sellers, once a transaction is taken offline, all that security goes away.
The buyer who chooses to meet the seller off-platform takes the risk that they won’t get their money back if something goes wrong. The seller takes the risk that the buyer might be a fraudster that intends to raise a false dispute about not receiving their order. The key for marketplace operators is to create an environment that feels significantly more secure and trustworthy than dealing with a buyer or seller in a one on one situation.
Marketplaces can foster trust among users in a number of ways. As mentioned above, you could create a buyer and/or seller protection policy which assures sellers they’ll get their money no matter what and that buyers won’t have to pay for missing or damaged goods. You could guarantee sellers that, if a dispute with a buyer arises, it is the responsibility of the marketplace to resolve it and that any refunds come out of your pocket.
Many marketplaces choose to implement reputation or review systems where the buyer and the seller leave each other feedback after a transaction is completed. Both parties are incentivised to behave professionally and appropriately because a bad rating could impact future transactions. Often, reviews can only be given if the transaction happens on the platform, thereby discouraging any potential disintermediators (we’re just making words up now).
Off-platform, buyers must judge for themselves whether a seller is legitimate or not, while sellers must deal with all disputes – real and false. With the added value of your guarantees and review system, both parties are encouraged to continue transacting on your marketplace.
Offer tools to help sellers run their businesses
One of the ways that you can offer extra value to sellers beyond the first transaction is by creating or providing the tools that they need to run their businesses. This requires a thoughtful approach and an understanding of the types of sellers on your platform: how could you make their lives so much easier that they never want to leave you?
Let’s return to the freelancer marketplace example, which is at high risk of platform bypass after the buyer (client) and the seller (freelancer) have transacted once. It’s tough out there for freelancers – they have to pitch their services or create a proposal, negotiate compensation, invoice the customer, collect payment, handle accounting and pay their taxes… and that’s not even including DOING THE ACTUAL WORK.
Freelance marketplaces like Upwork have identified these mundane, tedious tasks that every freelancer on their platform must do and automated them all. In doing so, they’ve created so much value that lots of freelancers are happy to continue paying commission to the marketplace.
And it’s not just freelancers for whom you can create tools. For businesses that offer time-sensitive services you could offer scheduling help, while an inventory tool is a boon for sellers with vast product catalogues. Some tools – like delivery fulfilment or financing options at the checkout – have the power to benefit both sellers and buyers.
In this scenario, your marketplace goes far beyond the simple connecting of buyers and sellers. In essence, your platform becomes a SaaS tool that has potential to offer value at every stage of the transaction. If that ain’t a way to disintermediate the disintermediators, we don’t know what is.
Reduce friction at every stage of the transaction
Buyers come to your marketplace because it is perceived as an easier, safer and faster way to transact than by going directly to a merchant. You bring lots of products and sellers together in one place; you reduce the number of steps taken to get to the checkout; you offer a superior user experience (UX); you provide flexible payment terms. All these things, and more, provide so much value to buyers that they are incentivised to continue transacting on your marketplace.
So, if a buyer visits your platform only to find that:
- It is difficult to navigate
- They can’t search for what they need
- Product listing pages have limited detail
- Shipping fees and other costs are hidden
- They can’t get the payment terms they expect
…then you’re no longer offering the value which is supposed to convince them to stay. If you offer an experience which is the same (or *gulp* worse!) than the sellers that operate on your marketplace, then what reason do buyers have to remain loyal to you?
Speaking of payment terms…
Lots of founders believe that payment terms help to accelerate growth of their marketplaces because they attract new customers and encourage repeat purchases. However, of the marketplaces that we work with to offer credit, the fastest growing platforms are those that use payment terms to get their largest, most lucrative buyers on monthly billing accounts. They pay one invoice at the end of the month for all of their purchases on the marketplace.
If a seller gets in touch and suggests transacting off the platform, the buyer is far more likely to decline because they value the free payment terms and simple invoicing system. Furthermore, sellers are less inclined to suggest disintermediation in the first place because operating on-platform means they are guaranteed payment on time and in full.
We’d love to tell you more about how payment terms can help you to combat platform bypass on a quick call. No worries if not, there’s plenty more of this how-to guide to read instead.
Bonus round: take the sly approach
Spying on your partner’s WhatsApp messages? Not ok (most of the time). Looking at your teenage kid’s internet history? Not advised. Monitoring the conversations between buyers and sellers on your marketplace? Now that’s something we can get behind.
This one isn’t really an added value, but some marketplaces proactively prevent platform bypass by keeping tabs on the conversations that happen between buyers and sellers on their platform’s messaging service. You can integrate tools that notify you when keywords like “phone”, “email” or “call” are used and then deploy your Customer Support team to investigate. Some tools allow you to prevent phone numbers and email addresses from appearing in the chat box if they are typed in. If you really want to stir the pot, you could offer the option for users to report others who propose an off-platform transaction.
Of course, you’ll have to be transparent and tell users that their messages are being monitored, but it can be an effective way to discourage buyers and sellers from disintermediation.
If you’re offering the right value, disintermediation shouldn’t be a problem
Minck Hermans, COO of Dutch timber marketplace Vonwood, sums it up nicely in our research report: “The biggest mistake a marketplace can make, in my opinion, is making the marketplace the goal in itself. It isn't. The marketplace is a means to an end, so keep your eye on the ball of adding value to buyers and sellers.”
B2B marketplaces (the good ones, at least) have evolved from simple connectors to full SaaS products that add an incredible amount of value to any given transaction. If you’re building trust, making customers’ lives easier, reducing friction and adding value at every stage, you’re giving buyers and sellers a rock solid reason to keep their business firmly on your marketplace.
Keep your finger on the pulse of B2B marketplaces – check out the latest content on Hokodo’s Ultimate B2B Marketplaces Knowledge Hub now.
