By Af Malhotra The Co-Founder of GrowthEnabler,
Online marketplaces are transforming the way buyers and sellers engage and purchase products, solutions and even ideas. The online marketplace model has gained in status as Platforms have become the default path to building a digital business. New emerging technologies such as AI, machine learning, data API’s and cloud hosting has become more accessible and affordable and accelerate the adoption of platforms. There are three primary online marketplace platform models. Those that are transaction driven, such as Amazon, ebay, Alibaba and Flipkart – where there is an exchange of money or commission fees for a product or service. Or, investment, lending or payment focussed marketplaces, such as Nasdaq (Stock trading), Funding Circle (Crowd Lending); Paypal or even Visa. And Integrated marketplaces that use a blend of the above.
In short, an online marketplace is a highly scalable model when it reaches a critical mass. It thrives on the concept of ‘network effects’ where the size of your network increases in value as each new member joins the community. The value of a marketplace rises when new buyers and sellers enter the community and actively trade and/or exchange value. Popular marketplace models like Skype, Amazon, Airbnb and relevant examples.
We often think of consumer led brands when referring to online marketplaces, however B2B marketplaces are also gaining market traction and being adopted by large and mid-size enterprises as a way to save time, money, and access the right sellers and solutions within minutes not months. We will focus on the B2B marketplace model and its pro’s and con’s in relation to fairplay and objective decision making.
As a B2B online marketplace scales in size and gains popularity sellers often find it difficult to gain visibility and stand-out. Sellers constantly seek to differentiate themselves and get noticed. Not only are sellers competing directly with other sellers, they are now battling global marketplaces that are populated by thousands of new low cost and agile competitive sellers.
Buyers find it extremely challenging to ‘cut through the noise’ end up spend valuable time, internal resources to curate and select the right seller for them. It can be an onerous process and can often resort to buyers selecting familiar sellers they have previously engaged, or those that are highly rated by other peers in their industry. This is a huge area of risk and opportunity for marketplace owners to consider and act upon.
One of the challenges that comes with online marketplaces is barriers to brand equity. Although this varies per seller, marketplaces often give little brand exposure, meaning you could lose out on building customer loyalty or unable to promote your brand mission and business vision. In most cases, buyers purchase products and solutions, rather than being directed to your brand’s website, which can also contribute to a loss of domain authority. If buyers know they can visit an established marketplace to purchase your products, they are less likely to organically search for your brand to buy direct. This could impact your website’s authority in the eyes of search engines.
This can be dis-advantegous for new sellers who have limited history or brand and market presence. Buying behaviour amongst B2B buyers is complex. The trust factor is critical. Buyers seek to make objective decisions based on real-time seller profile information, active due-diligence, risk vetting, user-ratings and independent scoring of the seller. These are necessary attributes that create confidence and certainty during the buying process, and limit an uncompetitive behaviour on either side.
When working with a marketplace, there are also certain rules and agreements that must be agreed to. The marketplace must set clear parameters and be transparent as to the moral, ethical and business compliance responsibilities and commitments all parties have to uphold. Reverse feedback mechanisms, where buyers and sellers can rate each other post interaction or transaction will create fairness and stop uncompetitive behaviours. It is important to create a level playing field and stop any sponsored listings so every seller has an equal opportunity for exposure. More beneficial models include fixed fee, meaning that whatever your success, you will never pay more than was originally agreed, or CPA (cost per acquisition) which means that as a merchant, you will only pay for a percentage of a successful sale.
As we see B2B marketplace grow in size and dominate, those that are early adopters of AI technologies and experiment with matching algorithms, machine learning tools, apply personalised recommendation systems, and use dynamic scoring and analysis, will certainly differentiate themselves and gain buyer and seller trust. The area of user-personalisation and recommendations is particularly important in this regard. Let’s take Amazon as an example. They deliver a superior experience across multi-channels with their personalised, connected and streamlined approach. The use search to streamline product discovery and functionality that allows each individual to filter and segment sellers using their preferred criteria. Amazon also takes their UX through a powerful and personalised product recommendation engine, which drives an enormous 35% of customer purchases onsite. Fortunately, it’s not only Amazon that feels the benefit of personalised product recommendations. Brands who deliver more personalised product recommendations see engagement increase by 70%. A no brainer initiative for marketplace brands who want to compete drive mass adoption and create unparalleled value for their buyers and sellers and win their hearts and minds.
Nobody can deny that there are a whole host of advantages to B2B online marketplaces, including reaching a wider audience, reducing your cost of sale, and expanding your global brand footprint, all of which boost their appeal. However, the yin and yang live side by side, and bring potential challenges to consider. It is important to select an online marketplace that has market credibility, operates in a niche, and uses AI to create a fair, unbiased and objective ecosystem that creates delight and appeal for all parties.
Af Malhotra is the co-founder of GrowthEnabler, a disruptive AI tech startup radically changing the way corporations partner with, procure from, and invest in the global digital ecosystem. Having started his career in 1999 with Lord Sugar’s iconic brand, Amstrad, Af went on to join the Japanese IT Services giant Fujitsu. He then spent several years in leadership roles with the US research and advisory firm, Gartner, which led him to co-found GrowthEnabler. Af is an active tech investor in AI, IoT and SAAS startups. He is a regular speaker and passionately shares his bold and data-driven perspectives on the forces of change driving digital disruption. Af (and GrowthEnabler) is betting big on #digitaldiversity being the most critical priority for global enterprises. Af is also the chairman of Tech London Advocates India; supports charitable causes, including the Princes Trust. Af talks to the press on key tech issues impacting trade, talent and digital innovation.