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B2B Marketplaces: Is This Model For You and How to Achieve Success

The B2B eCommerce Podcast

Oro Podcast

Key Points

  • There are different reasons B2B companies start with the marketplace business model. Some are doing it to stay on par with competitors. Others launch marketplaces because they want to serve their customers better, create a one-stop-shop for them, and centralize product data. Either way, it's critical to be clear about what you want to achieve with a marketplace, and what's the added value will be before going all in.

  • When launching a marketplace, creating the best possible customer experience is of utmost importance. For this, you need to ensure that the product data you collect and provide on your marketplace website is clean and standardized. Another consideration is the outreach strategy: make sure to define a strategy of how you're going to bring in suppliers and buyers to your marketplace.

  • Investing in an off-the-shelf marketplace solution or developing from scratch? Rodrigo Garcia's advice is to adopt a solution that can give you the 75-80% of the marketplace functionality out of the box and provide the flexibility to develop or integrate the rest 20-25%. This way you'll get to market faster.

  • Do not underestimate the power of the minimum viable product (MVP) approach. Build an MVP first to prove the marketplace model works for your industry; see what works, get vendors and buyers' feedback; iterate and build the platform on real knowledge, not guesses.


B2B Marketplaces: Is This Model For You and How to Achieve Success

Full Transcript

Jary Carter: Hello, everybody. Welcome to the B2B UnCut podcast. We’re here with episode six today, which is about B2B marketplaces. We’re going to talk about whether it’s the right model for you, and how to make it successful. I’m really excited. 

We have a couple of very, very special guests here. Today, we are joined by Rodrigo Garcia, who’s the Vice President, Chief Technology and Transformation officer at PartsBase Inc. Welcome, Rodrigo. 

Rodrigo Garcia: It’s a pleasure being here.

Jary Carter: We’re so happy to have you here. We have Yoav Kutner, who is the CEO and co-founder at Oro Inc. 

Yoav Kutner: Hi, everyone. Great to be on another podcast with you. It’s been a while. And it’s always a pleasure to be interviewed by the person that was voted the best-looking person in eCommerce :)

Jary Carter: I’ve had the opportunity to work together with the creator of the OroPlatform, OroCommerce, and the marketplace platform, which we’re going to be talking about today. Not so much the product but the idea of marketplaces. Rodrigo, I’d love for you to share a little bit of your background and a bit of the PartsBase story, if you don’t mind.

Rodrigo Garcia: Of course. Thank you, Jerry. Thank you for the opportunity to be here today. It’s very exciting to have the opportunity to talk to you about marketplaces. 

I’ve been in the IT industry for over 20 years. So I’ve seen a lot of the growth around technology and transformation, if you will, that has happened in the technology industry for over 15 years. I was in the consulting industry, and I had the pleasure of working with many Fortune 500 companies like GE, Coca-Cola, ADT, and Baxter Pharmaceuticals. 

But at some point, I decided to join the corporate world. For the past six years, I’ve been working at PartsBase, initially as the CTO, and then I moved on to Chief Transformation Officer position. 

In terms of PartsBase, today it’s the largest aviation aerospace parts locator service in the world. We have almost 8000 companies using our platform every day. We have between 25,000 and 30,000 users on a monthly basis coming in to search for parts, and market intel, and repair capabilities for the aviation and aerospace industry. 

The community keeps getting bigger and better every day. Just to give you some sense of additional statistics, in Q3 2022, we added 346 companies to our community, which equates to over 800 aircraft that require service.

In terms of brand names, any big company in the aviation aerospace industry is connected to PartsBase in one way or another. So it’s a huge community. On an annual basis, we have over 12 million parts being searched and quoted for on our platform. So those are very high-level stats in terms of our platform usage and the size of the community.

Jary Carter: That’s great. Thank you for the breadth of the introduction. PartsBase didn’t start out as a marketplace. What helped your company evolve into the marketplace model? A lot of companies are considering going into this marketplace model. What drove you all into strategically thinking about building a marketplace? 

Rodrigo Garcia: Another quick fun fact: PartsBase was born in 1986 as the world’s first Internet-driven part locator service. 

But over time, as the community and technology evolved, it was a natural evolution for us. It all started with providing a digital platform for buyers and sellers to connect, identify potential suppliers, and explore market pricing information. And now we’re transforming our offering into a fully transactional model and a full-featured marketplace.

Jary Carter: Very cool. How far are you planning to take this evolution? And where’s next for you?

Rodrigo Garcia: If we look at last year’s statistics, we had a little bit over 12 million parts being searched and quoted for in our platform. This year, we are on pace to break that record by between 12% and 15%. But the reality is that less than 5% of those parts are being sold through PartsBase.

So in terms of the direction that we want to go, we want at the very least 30-40% of those 12 million parts to be sold in our marketplace. So that’s where we want to go. 

The reason why I give you these conservative numbers is that there’s going to be an adoption process or investments that our customers will have to do. There’s some transformation that they need to go through in order to participate fully in our marketplace. But that’s where the vision is.

Jary Carter: I really appreciate that perspective. It’s helpful to a lot of folks. Yoav, I want to go back to you. You’re the other side of this coin, a vendor on the B2B eCommerce side. But you and the engineering team made a strategic decision to build a B2B marketplace solution. I’m curious, what drove you to that opportunity?

Yoav Kutner: With OroCommerce, we were trying to fill the void and actually build the product for B2B companies that are trying to sell online or digitize their sales operations. We looked at what’s the use cases in the B2B space that needed to be solved that were underserved by the existing platforms at the time. And that’s what we focused on. 

And for us, these models included, of course, what we call buyer-seller interaction, where you can start any kind of interaction between the potential buyer and a seller and a sales team and interact in a digital format. 

But there are other use cases that we can solve out of the box with our platform, including the franchise model, reseller model, and distributor model. And we started seeing and creating a lot of these features in our application. 

Of course, we also did stuff that was more advanced. So we had all kinds of permutations around the B2B use case, like B2B2B, B2B2C, all kinds of things. We created a lot of features built into our platform to solve and address B2B needs. 

What happened was that we were actually demoing our products to some of the biggest analysts on the market. And they looked at the demo and said, “Why aren’t you participating in the marketplace solution industry? You’re already outperforming with a lot of features that we see lacking in the marketplace industry right now. So why won’t you participate in that too?” 

We did, and we scored pretty high. So again, using all the built-in features that were already solving for what we were considering standard use cases for B2B, we created a whole new product – OroMarketplace – almost as a side effect. So we already had vendor management and many of the tools and features needed for the marketplace. 

Plus, we brought a lot more flexibility than other platforms in terms of the different business models that we see from marketplaces. We could not only just list all items in one place and allow the different vendors to log in and manage that. We also could handle use cases where every seller gets his own website built on our platform. 

So with the analysts’ recommendation, we decided to start addressing this market directly.

Jary Carter: It’s such a tribute to the flexibility of Oro. That it so easily fits into that purpose. I’m curious what do you think is driving the need for B2B companies to have a marketplace? Is it technology evolution? Is it business needs?

Yoav Kutner: There are different aspects to making this decision. First of all, the old use case where ‘my competitors are doing it, so I should do it as well’. That is because marketplaces are becoming a hot trend right now. 

Additionally, we are seeing that a lot of B2B companies might be the central point of contact for a customer. But in the back end of that, there are a lot of other vendors. And for many orders, there can be 5-10 vendors involved in a single order, even if they are selling directly to a customer. So we see that those relationships already exist on the business side. 

A lot of times, there’s the use case for bringing direct contact between the buyer and one of the vendors that they work with. It often more optimal to have them interact directly, without the need of the sales team to get in the middle and facilitate that communication.

We also see that a lot of B2B companies provide the products or sell the finished goods, with a lot of services around that, such as installation, implementation, configuration, and whatever the industry needs. A marketplace provides one place where the customer can interact with the brand selling products, as well as with the community of service providers around the products that they’re selling.

We also see models where the backend vendors are not exposed. That is a way for them to allow the seller to grow their catalog. They can sell many different products by bringing on vendors that can do drop shipping, for example. A customer might even be oblivious that he’s ordering from multiple vendors. Because it’s done on the back end. We still treat that as a marketplace because you need marketplace functionality for this, like vendor management, order processing, and splitting the order to the different vendors on the back end.

Another trend we’re seeing is a lot of market consolidation. Companies attempt to cut costs, be more efficient, and reach more customers. We’re seeing a lot of drivers that are from the business side, and now technology is there to serve them.

Technology provides an efficient way to build these processes, automate them, and make it an efficient way for buyers to interact with fewer vendors for a single order.

But I do want to add one interesting use case that we’ve seen. It’s about one of the biggest energy companies. They created a marketplace to learn about the competitors. If you look at some of these alternative energy farms, they might use different brands for older turbines and generators. Creating a marketplace for all the spare parts, regardless of the brand that they’re using, even if it’s a competitor brand, allowed the manufacturer to learn how those energy farms are actually being used and get some of the stats on the competitors, products, etc. So we’ve seen that data play is used as a reason to launch a marketplace. 

Jary Carter: This is fascinating. If I were going to distill some of that down, one strategy is to offer more than what you can currently provide customers. I’m also hearing this idea that the market is trending that way. I also heard about customer experience and becoming a one-stop shop, making yourself more relevant to the customer.

Yoav Kutner: Yes, absolutely. And keeping your customers around, because if they start looking around other places, you might lose them. There are more and more businesses that are coming in from specific industries which lack this place where you can consolidate all these different vendors in an efficient way. That’s why a lot of manufacturers and distributors are doubling down on marketplaces.

Rodrigo Garcia: If I may add something to what you’ve just mentioned to round it off. Marketplaces are almost a byproduct of the democratization of information. In a sense, a marketplace, ideally, should be a neutral, unbiased party, the digital platform where any given seller in that industry can go in and have a higher degree of confidence when they are searching and comparing thousands of products and providers based on industry-specific data. 

So having all of this aggregated industry-specific information as part of the purchase process is a huge differentiator for us. The industry data that we’ve collected over 25 years is available to our members every time when they search for a part. There’s no one else that can provide that level of detail around supply-demand market pricing information.

Jary Carter: Yeah, that’s really interesting. Moving on to another question, what are some of the must-do things that folks have to do to create a better digital experience? What do they need to get right before they launch a marketplace?

Rodrigo Garcia: Knowing your customer is key. It may sound obvious. But the reason why I bring it up is that in B2B, the buyer personas that you are catering to might be very diverse based on geographical location, industry, or vertical.

The other thing is that you need a healthy amount of both buyers and suppliers for a marketplace to be successful. That will be one of the key things for sure.

Yoav Kutner: These points are very valid. Another thing I would point out that you also need to understand your business model and the vision of how you want to evolve it.

It’s crucial to understand the type of interaction between you and your sellers, you and your customers. And that goes as far as to assigning who’s gonna have the customer support, and things like that. A lot of companies don’t even put it on the list of things to do for the marketplace. 

When we start projects, and start working on specs with companies that are new to this, there are a lot of open issues that they have to figure out on the business side before we get to the technology product side. So the first step is to learn as much as you can about the business model behind the marketplace.

Rodrigo Garcia: A huge part of what you need to do is have a comprehensive, well-defined outreach strategy for bringing in both suppliers and buyers to your marketplace. 

When I say outreach strategy, I mean your SEO, your PPC, email campaigns, trade show presentations, and how you are going to do that.

In fact, going back to the previous question for a second, one of the advantages that you get by participating in a marketplace and why they are such a hot trend is because it provides the benefits of economies of scale.

When a marketplace is already positioned well in terms of organic reach, you’re going to get to potential buyers of your product. But it’s important to think about that as part of your business model.

Jary Carter: Rodrigo, what’s the biggest challenge that you faced building a marketplace at PartsBase?

Rodrigo Garcia: The biggest challenges was adoption. I want as many sellers and suppliers advertising their products in our marketplace. So I need to give them the ability to easily connect to our platform. We have a public API that everybody is capable of using. But because of the nature of our industry, we’re not as sophisticated as other verticals, for instance, healthcare and financial services. 

So it is a challenge to build a one-size-fits-all model for the intake of inventories and capabilities that are going to be listed in our platform. It’s a similar challenge that we’re facing now that we’re moving into the full transactional model with the marketplace. 

The good news is that with the OroMarketplace, we have a very robust API that we can rely on, but we still working with some of our customers to find those generic adapters that are going to help them ultimately list all their inventories right in the marketplace. 

Another challenge is our suppliers have different systems that are not necessarily talking to each other. I’m sure that some people in the audience might sound it familiar. When you’re talking about marketplaces, you need the part number information and other ancillary elements, so you can effectively advertise and sell. Sometimes the information coming from our suppliers sellers is not perfect. And you need to think about ways to standardize it.

In many cases, you have to rely on the seller for the accuracy of the information included in the part description. So, our challenge is how do we help our sellers to make sure that they provide as much information as they can? And if there are deviations from what we would normally expect, how we can rationalize all of those?

So it’s all about how we provide our buyers a very seamless, the best experience possible when they try to look up a part and compare it between different sellers.

Yoav Kutner: There’s a huge problem in many industries of how to standardize the catalog, the content, and make sure that the product is identified across different sellers, your ERP system, etc. 

One of the hardest points is to understand how your industry’s products are being referred to, how you can link them, and finally how you can enrich them. In B2B, a lot of content is so basic and nondescriptive, which, of course, impacts the user experience when searching online.

The next big point for us is integration to existing systems. If you’re working with a lot of smaller ones, you might tell them, “This is how we work”. But when you bring bigger sellers into your marketplace, they might demand integration into their systems. Choosing a platform that’s flexible enough allows you to integrate to multiple technologies and different systems is key. 

Jary Carter: What are some of the features and capabilities in your marketplace that put you way ahead of the competition?

Rodrigo Garcia: I think that, first and foremost, it’s the technology behind our solution. It’s on the locator side of the business. That’s a huge part of our recipe for success because we continue investing and adding features and functionality that are being requested by our customers. 

We also observe how the different types of users use the platform and make sure that we cater to their needs. Combining the power of our native platform with all the features and capabilities brought to the table by Oro creates one of our biggest competitive advantages compared to any other marketplace solution out there.

The other huge differentiator is the amount of industry-specific information that is available. The minute that they search and want to buy a part on our marketplace, they can easily see different elements and average price points. When an airline comes in, they may look at different data points versus a regional operator. Being able to cater to those different buyer personas is another big differentiator for us. So those are probably some of the key things that I would highlight in terms of what we have.

Thinking about the future, this is something that we’re going to be including early next year. This is very specific to the aviation aerospace industry, we have this particular use case called an AOG (aircraft on the ground). So when an aircraft is down for maintenance, they need the part yesterday. So in some cases, they might fly out someone just to buy the part and bring it to where the aircraft is.

As part of our marketplace solution, we’re going to be incorporating an additional capability. So as you go through the checkout process, you’ll see different shipping options ranked against how quickly the product can be delivered to you. So it goes back to that whole seamless user experience that caters to the specific needs that are applicable to our industry, which goes back to being very industry-specific.

Jary Carter: A lot of companies feel this intimidation of building something from scratch. What I’m hearing you both say is if you find a technology that’s approachable enough or modular or customizable enough, you can work on that as a platform for the integration and the customization that you need, which is exactly what’s made PartsBase successful.

Rodrigo Garcia: Adding to what you just said, I don’t think there will be a use case out there for you to justify the investment of building the marketplace technology on your own. Given the state of technology, by the time that you get there, your marketplace is going to be obsolete. That’s why you have to let companies like Oro do what they do.

Besides, no product will fit 100% of your use case. You should go for the 80%/20% technology: the platform should cater to 80% of your use case, and the other 20% you can create from the building blocks that the solution gives you. It’s key to go with a product that gives you that modular approach and speed to market in terms of the ability to develop or expand existing features. 

Jary Carter: Any advice for companies thinking about adopting a B2B marketplace solution? What would you recommend?

Yoav Kutner: Figure out what the added value of the marketplace in your industry is; how you’re going to entice both your customers and your vendors to join this. From the technology side, choose a product that works for you. Develop a clear understanding of the steps that need to be taken.

Rodrigo alluded to this, but this is critical, is not to buy too much at once, especially if it’s a new business channel for you. Go in and do iterations, work on it, see what’s successful, and leave it or continue on that path. 

Start with an MVP approach to prove if this business model is for you, and see if it actually works before you spend years and years developing something.

And then improve on that, get real feedback from real customers and vendors that are going to use your marketplace, and improve on that.

Rodrigo Garcia: Even for a company as mature as we are in our industry, when we decided to move forward, we wanted to start small. We wanted to be quick to market and provide what I would call a basic user experience that would allow us to validate some of those hypotheses in terms of how people were going to use it. 

So it’s important that you take an incremental approach. You remain relevant, and you can quickly test what works and what doesn’t. Even now that we’re about to launch the next iteration of PartsBase’s marketplace, we’re going with an MVP, because we want to test and validate first. Otherwise, you may be spending millions of dollars on something that only 10% of people will use.

Even with all the years of experience that we have, it was important to take an incremental approach because the more you know, the more you understand that there’s so much more that you need to learn.

Yoav Kutner: Yeah, an incremental, iterative approach to development is definitely important for your success in the future.

Jary Carter: It’s amazing how much alignment there is between the things that the two of you are saying. These are fantastic tips. I really appreciate the time. Thank you for sharing your wisdom with us in this format. Have a great day. 

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