7 things we learned in conversation with B2B marketplaces expert Colin Gardiner
As part of our B2B Marketplaces Knowledge Hub, Hokodo Co-founder and President Louis Carbonnier sat down with Colin Gardiner, founder of Yonder Ventures and renowned guru of all things marketplaces.
The conversation was a fascinating one, covering all the hot marketplace topics from network effects and disintermediation to SaaS and payments. Here’s a recap of 7 key things we learned from Colin.
1. B2B marketplaces have evolved in recent years
In our research report, Behind the scenes of winning B2B marketplaces, we mention that B2B marketplaces are no longer simply platforms on which buyers and sellers meet. Instead, they are full-service e-commerce solutions that bring new and unique value to both parties.
In our conversation, Colin looked at the development of marketplaces from a different angle: namely, that at first, marketplaces started as a way to digitise simple commodity-based markets like chemicals or metals, but now we are seeing marketplace innovation in increasingly complex sectors.
“What we’re starting to see more of is B2B marketplaces that are less commodity-based and more focused on trying to bring together different kinds of assets that haven’t been traditionally online, like heavy machinery, for example,” Colin explains.
2. Network effects are crucial for B2B marketplace success
“The thing I’ve been looking for more and more is B2B marketplaces that have network effects built into them,” Colin tells us.
A network effect is a phenomenon whereby a product or service gains more value as more people use it. A good example of this is an instant messaging service like WhatsApp. When the app first launched, it did not have much value because very few people used it, but as more people switched from text messaging to WhatsApp, the value of the app grew, in turn encouraging more and more people to use it.
It’s easy to see why network effects are vital for marketplace success. These platforms must attract a certain number of buyers and sellers in order to function and scale sustainably – this is referred to as critical mass. If a marketplace has a network effect, it will reach critical mass in a faster, easier and more cost effective way.
3. SaaS-enabled marketplaces are future-proof
During the conversation, Colin highlights the growing trend of founders that are building defensibility and ensuring longevity by creating software-as-a-service (SaaS) enabled B2B marketplaces.
These marketplaces use a SaaS layer to solve a particular problem for one side of the marketplace (buyer or seller) exceptionally well. This enables the marketplace to fully embed itself in the transaction and create a level of value that simply can’t be found elsewhere. The seller (or buyer) is served so well, that they refuse to operate off-platform, thereby bringing all their buyers (or sellers) onboard. Disintermediation becomes a non-issue and, as Louis notes, these marketplaces are the ones that drive the highest retention and command the greatest take rates.
One such marketplace, as described by Colin, is Hopskip, a B2B platform for hotels and event planners to connect.
“They have SaaS products on both sides of the transaction – for the planners to run their planning process and for hotels to run their RFP process – and the platform then connects them.”
However, it’s a significant endeavour to create a SaaS product on top of the marketplace you’re already building. So, where should marketplace founders start?
“I don’t think there’s a one-size-fits-all answer. Some markets may already have demand aggregation solved, but they may not have supply aggregation solved. So, in those marketplaces, you may actually want to create the SaaS product first and then build a marketplace on top of it,” Colin suggests. “Vertical SaaS and vertical marketplaces are essentially solving the same problems but coming at it from different directions. Eventually, they converge in the same spot.”
4. When it comes to B2B marketplaces, there’s not a one-size-fits-all success metric
In B2B, repeat purchasing and customer loyalty holds greater significance than in our lives as consumers. Think about it: you or I might only buy a pair of trainers once or twice a year, but the shop we’re buying the trainers from probably orders stock several times per month.
So, when businesses find a decent, reliable, trustworthy supplier, there is a good chance they will purchase from them over and over again. In this scenario, repeat purchases and customer loyalty are evidence of product-market fit (PMF) – but it’s not the only metric your marketplace should focus on.
“It depends on things like the transaction type and average order value (AOV). I tend to agree that, if you can show stickiness within your product, the sky's the limit, but there are a lot of infrequent purchase marketplaces that are also very successful,” explains Colin. “There are marketplaces that sell high AOV equipment or things like that where purchase frequency is every couple of years. But if they have a high breadth of inventory, they can essentially be a one-stop-shop and capture all the demand.”
5. There are two ways for marketplaces to embed themselves into transactions
The goal of any marketplace is to add so much value to a transaction that the buyer and seller have no desire to take their business off-platform. Many marketplaces choose to embed themselves firmly in the transaction, as it allows them to take a higher commission, increase revenue and become an essential part of the flow of funds, thereby preventing platform bypass.
According to Colin, there are two main ways for marketplaces to achieve this. The first is by slowly and surely earning the right to become part of the transaction. By building trust and proving that your marketplace can connect supply and demand, over time it becomes an essential part of the equation.
The second way is to empower your marketplace platform with fintech tools that make payments, lending, insurance and other aspects of the transaction quicker, easier and more effective.
“I’ve been looking into a short-term waste management marketplace solution and one of the bigger problems they have is invoicing and payments in that industry, because there are a lot of SMB (small and medium sized business) buyers” explains Colin. “They’ve been able to provide payment rails and invoicing so that people want to use the platform because it’s valuable to them. It makes everything easier. Overall you want to do that so that you can prevent disintermediation.”
6. Marketplace founders must tailor payment terms to their industry
At Hokodo, we’re pretty clued up when it comes to marketplace payment terms. It’s, like, our whole thing, so if we weren’t it would be a bit worrying. But it’s always nice to hear an external voice (and an expert one at that) that echoes the things we say.
During his conversation with Louis, Colin highlights the importance of tailoring your marketplace payment terms to the idiosyncrasies of the industry and its players.
“I think there’s a lot of path dependency on what has happened in that industry before. As a founder of a B2B marketplace, you’ve really got to understand the market and either deliver better or exactly the same as what’s expected,” says Colin. “If you come in with a consumer mindset and you’re like ‘Hey, they’re going to put down a credit card and buy this’ – it’s not going to happen.”
7. Self-service is the secret to marketplace success
We know there isn’t just one thing that contributes to overall B2B marketplace success. The winning marketplaces we’ve spoken to as part of the Knowledge Hub have proven that success is a multifaceted beast with lots of moving parts.
But to play Devil’s Advocate, we wanted to ask Colin if there’s one particular strategy, element or quirk that makes the most significant contribution to the success of the best B2B marketplaces. Here’s what he had to say.
“I think one of the key things overall is that you would never build a consumer marketplace that isn’t self-service. In the B2B space, there are a lot of marketplaces that get traction and reach the Series A stage by building a kind of tech-enabled brokerage,” Colin explains, “But they haven’t crossed the chasm into people adopting and using the marketplace because the technology makes it a better experience. [...] I think the secret sauce and what I look for a lot in marketplaces is whether they have figured out early on a product experience or innovation so that people want to use the platform – where does that self-service element come in?”
Thank you, Colin!
If you’d like more exclusive insights from Colin, don’t forget to check out the full recording of his fireside chat with Hokodo.
