August 2, 2016
Online marketplaces have historically suffered from a 'chicken or the egg' syndrome. Either there were not enough buyers to support all of the people trying to sell, or there weren't enough sellers to support all the people who want to buy. This problem has finally been overcome in the B2C sector, thanks to the likes of Amazon, eBay, Etsy, Uber, and others. In the B2B sector, that issue still looms. The B2B marketplace has so far been defiled with defunct failures such as Commerce One and Pepmarket. Will B2B ever crack the 'chicken or the egg' syndrome to form a successful marketplace of its own?
From the Cloud SaaS for B2B Marketplaces
The crashes of the dot-com era put fear and trembling into any business person thinking of starting a B2B marketplace. Now, the market is older, wiser, and has enough experience to begin building a model that might actually prove to work.
As it happens, the cloud just may be the solution. Which is a good thing, because the B2B shopping sector represents approximately 80 percent of the world's total economy. Until now, it's been almost exclusively a manual sales process, but SaaS (Software as a Service) is most likely going to change all of that.
With the SaaS model, any marketplace that is not yet capable of pulling in enough buyers to lure those B2B sellers into the scheme can offer another form of value until the buyers are actually on-boarded. Within the industry, this is working into a tools-first scenario. Businesses kick off a SaaS application that makes it possible for businesses to interact with one another, offering a single-user utility. The model can expand from there to provide a full-service B2B marketplace. One industry pro refers to it as a "Come for the tools, stay for the network," business model.
If You Build It Right, They Will Come -- Eventually
Here's how it works. First, the marketplace-to-be develops a SaaS tool that is attractive to potential sellers in the marketplace. This helps onboard sellers using the SaaS value proposition. Then, they establish a marketplace that is able to utilize that existing set of sellers. Now, buyers begin onboarding, attracted by the value proposition of the emerging marketplace. As the marketplace achieves a critical mass of sellers and buyers, the marketplace grows exponentially.
Examples of SaaS Working for B2B Marketplaces
It might not be as simple as, 'If you build it, they will come." But if you build it the right way and give them enough reasons to come and time to get there, it's likely that you will establish a successful, lucrative B2B marketplace using the SaaS model.
Though not perfected just yet, a good example of how such a B2B marketplace via SaaS would look is Zenefits. The creators of Zenefits established a marketplace for business services, such as insurance, by setting up a free SaaS platform where human resources managers could automate practices like hiring, managing employee benefits packages, and keeping track of payroll. After Zenefits was able to establish a user base of buyers for their inevitable marketplace, they scaled up to incorporate sellers for the marketplace, such as insurance companies that were offering their products and services to those on-boarded human resources managers. Zenefits was eventually able to scale that model upward to the tune of $4.5 billion.
The logistics and supply chain marketplace Freightos is using a similar approach to establish a marketplace for international shipping. This business exists to help logistics businesses automate their freight pricing via a SaaS app, which also serves as a gateway for marketplace sales to businesses that import and/or export goods.
The Benefits of Using the SaaS to Establish B2B Marketplaces
There are some distinct advantages in using the model of deploying SaaS as a leveraging tool for onboarding buyers and sellers into a marketplace. First, it creates new opportunities. Many of the B2B marketplaces that haven't been able to make a go of things were stalled because sellers simply won't wait out a lengthy onboarding process, and there's just no way to get buyers lined up if sellers aren't there with worthy wares.
Another advantage of the SaaS model for B2B marketplaces is that the sellers stick around. Sellers begin deriving value from this model even before the marketplace is officially launched. After the marketplace gets going, online sales deliver a net gain, relieving the pressure to drive buyers pronto or risk sellers jumping ship.
This model can also serve as a de facto vetting process for both sellers and buyers. The SaaS platform use acts as something of a filter, automatically weeding out sellers and buyers that aren't so qualified to be there. Zenefits, for instance, lowers the sales costs for the insurance companies in their marketplace. Since only businesses that are large and successful enough to merit their own human resources department participate in the program, that means they are probably already prequalified as potential buyers.
While SaaS definitely benefits B2B marketplaces, it works the other way around, as well. B2B marketplaces can help to improve the SaaS business, too. The initial goal doesn't even have to be establishing a marketplace; when the SaaS apps call for additional internal resources in order to deliver a great value, marketplaces can be the means by which that value is provided. This means that you could very well begin seeing B2B marketplaces spring up from SaaS businesses or markets that were already there, but weren't established specifically as a springboard for a marketplace.
Can the SaaS Model be Successful in Building B2B Marketplaces?
Will it work? It can and it does. How? When? Where? Who? Those questions fall squarely under the "just wait and see" category. What is evident is that for enterprises looking to get the most out of B2B marketplaces and other SaaS offerings is that network performance is crucial. Without a solidly performing network, these services become too slow and cumbersome to be of much benefit to the enterprise. You can learn more about how this works and how to get the most out of your SaaS services when you download our white paper: The Frictionless Enterprise