Online marketplaces, in particular Alibaba and Amazon, are proving central to the future of B2B commerce. But with each dominant in their own back yards, it will be when they go head-to-head in new markets that things really get interesting.
By 2020, global online business-to-business retail sales will be more than double that of consumer retail, according to growth experts Frost & Sullivan, accounting for $6.7tn of revenue. At the heart of this surge to online purchasing are marketplaces, such as Amazon and Alibaba, which are creating a new era of many-to-many shopping opportunities for the B2B market.
Many of the trends propelling consumer retail online are starting to impact the purchase journeys of business buyers, too. Why shouldn’t a shop owner running low on stock be able to re-order from the shop floor on their mobile phone and get the stock the next day?
Andy Hoar, principal analyst at Forrester, specialising in e-business and channel strategy, says: “All B2B buyers are also B2C consumers, and they have a certain expectation. Amazon sets the standard for that.”
The likes of Alibaba, Amazon and eBay have jumped in and filled a need, transferring the experience of consumer shopping to the context of B2B. Removing the complexity and creating choice for the buyer, as well as providing the opportunity to sell across new geographical borders, means many B2B sellers are now able to find new customers.
Alibaba, which claimed the title of the biggest public offering in 2014, started its now wide-ranging online retail business as a B2B SME platform. In China, its consumer retail business now dwarfs its wholesale business. However, in the three months ending 31 December 2015, in terms of international sales, it did $97m in consumer sales and dwarfed that with its $221m in wholesale.
One argument for the growth of the marketplaces is that they help make the B2B e-commerce experience more consumer-like, as well as simplifying otherwise time-consuming and expensive tasks.
Director of international business development and marketing EMEA at Alibaba.com, Wei Duan, says, “We can only speak for ourselves, but it’s clear that as a society, we are getting more and more comfortable with conducting personal and professional business online – from paying our taxes, shopping for gifts or sourcing products for our business. It makes sense that SMEs are going to use platforms like ours, and others, to run important parts of their business.
"Why spend wasted hours on international procurement and market development when a third party platform has already done all the hard work for you? Smart SMEs succeed because they are able to delegate core functions to experts and leverage solutions such as online global trading platforms to take their business global,” she adds.
This central vantage point for B2B commerce is largely shared by Alibaba and Amazon, though the two tend to be dominant in different markets.
Mudit Jaju, digital and data partner and head of e-commerce at MEC, believes that India will be where the two finally have to go head-on and battle it out against one another.
“Alibaba is not a Chinese retailer – it is a tech company that is changing the way commerce happens around the world. It's been clever in making the right agreements with several local governments, for example Norway or Chile. It'll tell the government that it can help local brands to sell to Chinese consumers, as that’s where growth is coming from. But the reverse will also then start to happen.
“Amazon is also more than you can shake a stick at, but over 50 per cent of its business is US and a large majority outside that is UK and Germany. India is a big focus for Amazon now, as it is for Alibaba. When the elephant and lion attack each other it’ll happen in India – it’s the perfect market for it,” he predicts.
Despite the online marketplaces helping to drive B2B commerce, innovation and revenues remain well behind the offline activity. Even in Frost & Sullivan’s hyperbolic prediction for a shift in the dominance of e-commerce, the $6.7tn number is just 27 per cent of the total revenues that’ll be made in B2B retail.
The much slower shedding of analogue sales is largely due to the complexity of some B2B sales and the need for real, human, expertise as part of the buying process.
For instance, while the marketplaces have been disruptive in some places, they won’t be able to replace the one-on-one expertise needed for some B2B products, Forrester’s Hoar says. “How is Amazon going to provide expertise across millions of skews? This limits the marketplace’s ability to disrupt selling per se. The marketplaces have been disruptive, as they are a new platform for distributors to compete. They are not used to it because they don’t know how to price against another distributor in a transparent price marketplace.
Where there’s disruption, there’s a business opportunity. This gap in knowledge around how to work within the marketplace environment has spawned a new type of intermediary that can help brands navigate these complexities. Businesses such as Channel Advisor and Pentagon help businesses manage their marketplace products and advice on strategy.
Jenni Day, senior marketing manager at Pentagon, believes that the expertise and customer service can be done by the brand, while still using the marketplace strong points for discovery and transaction.
“It needs to be brand-side. Brands should do the customer service; I wouldn’t rely on the marketplace. If you were to, then they’d have to be fully trained. We do manage customer service, but the people who do it have a very good understanding and training from the brand on products. This is important for tech products that are more complicated. You also need local language customer service and understanding; for example, in China you won’t get away with leaving a few days to respond – they expect answers within 10 minutes,” she explains.
A key downside to the marketplace model is relinquishing ownership of the customer and, more specifically, customer data.
Greig Holbrook, founder of Oban, specialists in helping brands scale multinationally, believes that ultimately the future for B2B is in brands taking command of their own commerce.
“I would always argue, once you’ve got demand and are established, paying a commission to Alibaba or Amazon isn’t the right strategy because you don’t own the data and the customer. Are you sitting on goldmine if you switch to direct?
“In a marketplace, they are obviously also promoting everybody and not just yourself. It makes sense initially, but it’s about having an eye on at what point you need to be serious. I’m wary of any industry that relies on aggregators; they get greedy, take bigger commissions and have you over a barrel,” he argues.
Alibaba’s Duan unsurprisingly disagrees and believes that the future is bright for marketplaces, particularly in the B2B space. “The B2B e-commerce market is the model for the future of business and levels the playing field for SMEs, who we all know are drivers of economies. This industry will continue to innovate and help SMEs compete on a global scale.”
This feature was first published in The Drum's B2B-focused issue.