Twenty years ago – in the midst of the Web 1.0 boom – expectations were high for B2B (product) marketplaces. The assumption was that online platforms would completely automate all supplier-customer transactions including retailing, wholesaling, and procurement.

Yet today, the world of B2B marketplaces still lags far behind its B2C counterpart.

Alibaba is an exception. By reducing the friction for North American companies to find suppliers in China, they’ve been the most successful B2B marketplace to date. As are a handful of vertical marketplaces that have emerged over the past few years (e.g. Knowde which is building a marketplace for the chemicals industry or Metalshub for trading ferroalloys and metals). But overall, we’ve yet to see the large-scale success of B2B marketplaces across the full spectrum of verticals.

As we consider B2B opportunities, we should think about the challenges in today’s customer-supplier relationships, particularly discovery (and lack of price transparency), lack of automation, lack of trust in terms of finding new suppliers, and siloed services. As such, successful B2B marketplaces will do the following well:

1. Aggregate suppliers and provide price transparency

A marketplace needs to bring product catalogs from multiple suppliers and aggregate them in one convenient spot for customers. B2B marketplaces will be particularly useful in heavily fragmented verticals where companies can source from a myriad of suppliers. In this case, a marketplace can help companies identify, research, compare prices, and contact the right suppliers.

2. Automate processes

B2B marketplaces should create buyer-driven workflows, tailored to the specific needs of a given vertical. While large companies can afford to implement automated procurement systems, many small businesses still email, or even fax, purchase orders and quotes. There’s an enormous opportunity to streamline the procurement process via automation, rather than having a purchasing manager call around asking suppliers to fax or email quotes.

3. Increase trust and social proof

New B2B suppliers have to contend with a considerable amount of risk-aversion among purchasing managers and company employees – it’s always easy to go with the safe bet, rather than risk the repercussions of issues with a new supplier.

An online marketplace can help buying agents evaluate potential partners by adding company profiles, operational performance data as well as customer ratings and reviews. This data can help buyers make the right decision, while also helping create a healthy opportunity for new suppliers. Because without a strong pool of suppliers, there’s no incentive for a buyer to use the marketplace.

4. Tie in with the rest of the ecosystem

There’s an opportunity beyond just sourcing and procurement. A B2B marketplace can become a platform, integrating other key services – from KYC (Know Your Customer) to logistics, credit and insurance services.

How to monetize a B2B marketplace

When it comes to monetizing a B2B marketplace, we see three opportunities:

Subscription fees

First, a marketplace can create subscription fees for sellers. Suppliers can pay a listing fee to include their product(s) in the catalog or directory. The marketplace can also charge sellers a fee to use the platform’s software that streamlines buyer interactions.

Transaction fees

Marketplaces can charge a transaction fee if a) buyers are using the marketplace to find new suppliers and b) the transaction can be completed online (ideally with the payment processed online as well). However, B2B transactions are generally complex, requiring many steps and communication between buyer and seller to complete. And while the GMV per transaction is likely large with B2B deals, it can be harder for the marketplace to justify its take. If technology makes the transaction “too easy” to complete, then buyers and sellers might wonder why they are giving a percentage of their transaction away and could take their transaction offline.

Referral fees

The marketplace can monetize its platform and charge referral fees for bringing customers to any of its partners (banking, insurance, etc.).

While the overall market may not have skyrocketed as quickly as experts predicted two decades ago, there’s still a massive opportunity for new B2B marketplaces to transform inefficient supply chain processes across a wide range of verticals – and we at Version One are excited to meet the next generation of entrepreneurs going after this opportunity.