Hi all,
As the co-author of Modern Monopolies, the defining text on the marketplace business model – we have been one of the most vocal believers in the B2B marketplace opportunity. Over the past 6 years since we started working in B2B distribution, the euphoria surrounding B2B marketplaces has continued to build – with 2021-22 cementing the inevitable success of B2B marketplaces as an almost unassailable assumption.
Let this week’s newsletter be an attempt to reign in that sentiment and set more realistic expectations.
But first, a little history on B2B marketplaces
The average founding year of our top 25 B2B marketplaces was 2016. They raised relatively modest sums of capital pre-Covid and were showing early success connecting buyers and sellers. Mostly focused on driving efficiencies amongst highly fragmented markets where pricing transparency was lacking, they were facilitating “spot” transactional purchases – with relatively smaller order sizes.
Growth was great, customers were repeat, but B2B marketplaces were still in the early innings. In our 2022 ranking, the top 50 did an estimated $60-75 billion in GMV – a material amount of volume, but relative to the $8 trillion B2B distribution sector, still a small portion of the industry, albeit growing quickly.
Enter: Covid
Then comes the Fed’s infinite money printer. The venture industry was awash in capital. And, B2B marketplaces were a great thesis to underwrite. Valuations shot up across all tech startups – but especially with B2B marketplaces.
Unfortunately, this unchecked influx of money polluted the normal progression for many B2B marketplaces in their focus and how to invest in product development. A lot of B2B marketplaces were still very young, just a few years old, and they started to raise more money than they would’ve ever thought possible. The expectations for growth to justify the sky-high valuations resulted in huge increases in customer acquisition spending. However, what was missing was customer lock-in and an ability to defend both sides of the marketplace’s network.
B2B Marketplaces: Big GMV Isn’t Enough
Don’t believe the marketing being plastered across every email, webinar and conference. There’s certainly a place and a big opportunity for disruptive B2B marketplace models, but the current climate on B2B marketplaces is overhyped.
Our upcoming top 50 B2B marketplace ranking is going to look very different –
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