B2B Marketplaces: Startup Landscape | Definition | Analysis

By Nicholas L. Johnson

B2B marketplaces are here to stay.

With dozens of startups across a number of verticals having surpassed nine figures ($100 million) in annual GMV, B2B marketplaces are already on the path to dominance in several industries, such as Agriculture, which on its own has multiple billion-dollar “unicorn” marketplaces. In others that lag a little further behind, there are a number of strong contenders vying for the dominant position in a winner-take-all battle.

Most notably, Amazon Business continues on its path to dominate B2B distribution, the country’s largest industry. It is currently the largest B2B marketplace in the US, and is on track to be the largest seller in the USA for industrial supplies and auto parts, its top two verticals.

Other verticals such as medical supplies, food distribution and more are also in Amazon’s crosshairs, as shown in our recent Amazon Business report.

Incumbents need to act quickly to enable a future where vertical-specific B2B marketplaces can successfully compete against large, multi- category marketplaces like Amazon Business, or Alibaba internationally. More than capital, these B2B marketplace startups need scale – something incumbents have and can provide help solve for up-and-coming marketplaces.

With Covid-19, there has been a tremendous shift to eCommerce and digital channels. While many of these B2B marketplaces are growing quickly in a post-Covid environment, Amazon Business is growing even faster, on track to reach $75 billion in annual sales by 2023, per our estimates.

As the saying goes, the enemy of my enemy is my friend. The current moment presents a unique opportunity for incumbents and disruptors to come together and to fight back and win against big tech.

Below, we will show the current B2B marketplace landscape and the dominant and emerging marketplace players in each industry. For industry-specific analysis, we also provide links to download our recent in-depth vertical specific reports on marketplaces in Agriculture, Auto Parts, Chemicals, Foods, Health Supplies, Industrial Supplies and more.

The B2B Marketplace Landscape

The landscape includes US-based marketplaces with meaningful traction and/or funding.

In total, there are more than 50 B2B marketplaces across the many verticals of B2B distribution in the US. However, the B2B marketplace landscape differs significantly in each industry.

In some industries, like Agriculture the market is more mature, marketplace consolidation has already taken place, and there are two dominant players – Indigo Ag and Farmers Business Network. Auto Parts also has a few clear leaders. However, in the other verticals, the leading marketplace positions are still very much up for grabs.

In industries like Food and Health Supplies, you still have more than a dozen startups, each with their own unique B2B marketplace approach, competing against each other.

Below we examine the total B2B marketplace funding by industry.

B2B Marketplace Funding by Industry

Here’s how each industry stacks up when it comes to funding for B2B marketplaces.

As you see in the B2B marketplace landscape above, the industry with the most B2B marketplace startups is Food, followed closely by Health Supplies. However, the industry with the fewest marketplace startups – Agriculture – has the most funding.

Why is that?

In less mature marketplace industries, there’s often room for several successful players, each occupying a specific sub-niche in an industry. However, consolidation will happen as the marketplace dynamics in that industry mature. Eventually, one or two dominant winners will tend to emerge, with the others being acquired, pivoting or folding and fading away.

We’ve seen this dynamic play out in innumerable areas of B2C, and it will happen soon enough in B2B. The industries with more than a dozen marketplace startups, such as Food and Health Supplies, will inevitably undergo significant marketplace consolidation over the next five years. And the significant growth of eCommerce in a post-Covid environment will likely accelerate this timeline.

The real question for incumbents is whether or not Amazon Business will be one of those dominant players in their industry or not.

If incumbents embrace and partner with the leading B2B marketplaces in their industry, they can help build a strong moat against Amazon Business. But if they wait too long, Amazon will establish an unshakable foothold in their industry, as it has already done in Industrial Supplies and Auto Parts.

Industry-Specific Marketplace Reports

Below are our recent industry-specific in-depth reports on B2B marketplaces and tech startups. Click the image to go to that industry’s B2B marketplace & tech startup report.

Agriculture:

Click to view the B2B Agritech Startup Landscape Report 

Auto Parts:

Click to view the B2B Auto Parts Startup Landscape Report 

Chemicals:

Click to view the B2B Chemical Tech Startup Landscape Report

 

Food:

Click to view the B2B Food Tech Landscape Report

Health Supplies:

Click to view the B2B Medical Supplies Tech Landscape Report

Industrial Supplies:

Click to view the Industrial Supplies Tech Startup Landscape Report

Can Incumbents Fight Back Against Amazon?

For incumbents in B2B distribution, there are two paths to trying to fight back against Amazon. One path is to retreat to higher value-added parts of the value chain where the traditional service component of distributors can provide a moat.

However, this path will involve shrinking or abandoning significant parts of the more commoditized product categories that today make up a significant portion of most B2B distributors’ business.

In other words, while this path can provide defensibility, it means creating a very different, and in many cases smaller, business than exists today.

The other path involves embracing the B2B marketplace disruption. In this path, a large incumbent would want to invest in, partner with and/or acquire an existing B2B marketplace and help bring it to scale.

B2B incumbents have substantial “dry powder” they can bring to these marketplace startups to help them grow.

Dry powder is a familiar concept in board rooms, referring to cash or other relatively liquid assets that a business has at ready use. But in the context of B2B marketplaces and the advantages that large enterprises have in building them, dry powder takes on a whole new meaning.

Here it refers to the latent value that large incumbents have in their current, core business that can be channeled into the new B2B marketplace entity.

How Incumbents Partner with B2B Marketplaces: Harnessing Enterprise Dry Powder

What are some examples of this dry powder? One would be existing digital eCommerce demand and traffic. Another is the latent marketplace demand a distributor has from its “stockout sales.

B2B distributors, and many manufacturers, have large sales teams. These sales teams harness significant, mostly analog demand. So, how can this complement a marketplace?

Enter: Marketplace Sales Enablement.

Spot purchases make up  material portions of most distributors’ revenues today. This spot revenue is from transactional purchases where the customer is ready to place an order “on the spot.”

This is the opposite of contract customers. In today’s environment, spot purchases are on the rise in many B2B verticals, while contract orders have declined.

During a sales call with a spot customer, every sales rep knows that speed wins the deal. The faster the sales rep can provide a full quote with pricing and fulfillment times to the customer, the higher the win rate for that customer’s business.

Unfortunately, distributors’ ERP systems don’t always have the requested product or it may not be in stock, a “stock-out.

B2B marketplace startups have a solution for this: the marketplace “stock-out” tool for enterprise sales teams. Through our work in B2B distribution, we find that win rates can increase significantly, driving more top-line sales, decreases in time to quote, and margin improvements per order.

Marketplace sales enablement provides a distributor’s sales reps with two things:

• Instant price and fulfillment timeframe information for products that the distributor’s ERP doesn’t have
• Competitive pricing information on the products that do exist in the ERP.

This marketplace sales tool can help the distributor’s sales reps sell more products. And, it also helps the B2B marketplace harness more demand from the latent, stockout demand generated by those sales reps.

This means that incumbent distributor is generating more sales while also helping to solve the startups biggest challenge: capturing scale.

This is just one example of the many ways incumbents can harness their dry powder to partner successfully with B2B marketplaces.

Advantages in other areas like technical knowledge, product and pricing data, customer support capabilities, existing key customer and supplier relationships, logistics infrastructure, financing capability, and industry-specific value-added services can also bring significant benefits to both the B2B marketplace and the incumbent.

The Future State of B2B: Will Amazon “Take All”?

Today, there’s a robust landscape of B2B marketplaces in the US. But will it last?

The ideal for incumbents is to have multiple, competing B2B marketplaces within a specific industry. The worst-case scenario is to have one, dominant multi-category generalist marketplace that dominates like Amazon does in B2C retail.

China provides a possible glimpse into the future, with a healthy ecosystem of vertical-specific marketplaces across a wide range of industries.

As in many other industries such as finance and healthcare, the Chinese market is at least a few years ahead of the US when it comes to marketplace maturity. What you see today is one or two dominant players in a number of industries, including  steel, chemicals, automotive, agriculture, food and more. Collectively, these marketplaces have managed to keep Alibaba’s dominant, generalist B2B marketplace from taking over every vertical.

However, this future state is not inevitable. With the increasing dominance of Amazon Business, the window of opportunity is narrowing. Incumbents have the opportunity to embrace the B2B marketplace model and help ensure a future with a vibrant landscape of competing B2B marketplaces across many different verticals.

However, Amazon Business has many significant strategic advantages, not the last of which being Amazon’s massive balance sheet and logistics infrastructure.

Without a healthy relationship and strong, synergistic partnerships with incumbents, Amazon will likely “take all” in many verticals of B2B distribution.

But that hasn’t happened yet. And the quickly growing landscape of B2B marketplaces that exist today is evidence that the more fragmented, incumbent-friendly marketplace future is still possible, if they act fast.

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