B2B Commerce: The True Economic Powerhouse

Over the last decade, the growth of big-box consumer-facing ecommerce has created a treasure trove of tech built to reduce friction and complexity in B2C transactions. With solutions like one-click checkout, payment automation, same-day delivery services, and real-time tracking, the number of tools built for the B2C ecommerce industry is overwhelming. Retailers are adding new tools to increase conversion rates by single digits, and much of the buying friction in B2C has been solved.

The same cannot be said for B2B. In the shadows of B2C are the many businesses enabling the creation of consumer goods. Like an iceberg, B2C is the sliver of ice you see above the ocean, and B2B is the gigantic mass that looms below.

The global ecommerce market did $13 trillion in online sales in 2021. B2C contributed about $4 trillion to this figure. B2B contributed $6 trillion — over 50% more than B2C.

If we zoom out to look at the size of the global economy more broadly, an interesting picture begins to emerge. In 2021, the global economy was more than $96T USD, and ecommerce sales only made up about 8%.

B2B businesses are in a prime position to digitize their operators, utilizing marketplace technology to transform an industry that largely operates in the shadows of today’s globally connected ecommerce ecosystem.

The digitization of B2C means the focus shifted to solving the problems of online ecommerce, but the actual friction lies in offline channels.

To understand this problem — and how we can create solutions to fix it — we need to look at digitally enabling the B2B businesses behind the B2C products.

The B2B Shadow Economy is Full of Friction

While there are a plethora of opportunities to reduce friction throughout the B2B ecosystem, let’s walk backward through the steps it takes to produce and distribute a product, painting a clearer picture:

• Retailers buy products from a wholesaler/distributor
• Distributors buy from a manufacturer
• Manufacturers purchase raw materials and equipment from other businesses
• That manufacturer works with another manufacturer that designs their machines

This chain is a constant cycle conducted through phone calls, emails, word of mouth, Excel sheets, and tens or hundreds of staff. This is B2B  — the true friction in the economy ripe for digitization and disruption.

Solving these pain points has posed a challenge for B2B businesses, as the industry has historically struggled to digitize due to a few unique complexities:

Supplier Relationships are High Maintenance

For the B2B buyer, choosing suppliers is a big decision. Suppliers can make or break production plans, inventory quotas, and sales goals. A supply chain is only as strong as its suppliers, and issues will inevitably emerge, so building long-term relationships is critical to establishing trust. Unlike B2C buyers that might take a chance on a seller with few reviews, B2B sourcing often requires stringent due diligence and effortful relationships.

Orders are Larger and More Complex

In B2C, most prices are set, and most transactions are small enough to fit on a credit card. Because B2B consists of big, expensive bulk orders that exceed the thresholds of standard ecommerce credit card processing, manual invoicing and payment via paper check are the norm. Moreover, B2B buyers often don’t settle for the sticker price. The status quo is negotiating with suppliers on pricing, units, and volume.

Delivery Will Rarely be Instant

Instead of shipping items using parcel delivery services, many B2B transactions require crated shipments. B2B buyers must carefully balance shipping methods, speed, costs, and units. For example, sea is the most cost-effective transportation method to carry large loads, but it’s also the slowest. On the other hand, air is the most expensive and least able to accommodate volume, but it’s also the fastest. International suppliers might be cheaper, but you risk significant customs delays, which in turn could cost you in delayed go-to-market. It's all a dance of time and cost.

Growth Means Incurring Capital Expenses

Many B2B companies physically need to hold inventory, which means they need warehouse space. To grow, they must take on more inventory and, thus, acquire more warehouse space. Real estate is a giant capital expense, and running a warehouse requires staff, machinery, and utilities, which means a ton of overhead. Warehouses are a substantial operational undertaking that takes a lot of muscle to run.

The Takeoff. Image courtesy of The Takeoff.

Current Processes are Holding Back B2B

B2B’s pain could be your gain. Many B2B companies address these complexities through human-driven means: phone calls, lengthy negotiations, spreadsheets, visits to the bank — back and forth, and forth and back again.

Even the B2B companies that have ventured into the promised land of ecommerce find their businesses wrought with manual processes. Most are squeezing a multi-seller, multi-region, big-bill business model into traditional single-seller, single-location, small transaction systems. In other words, they’re using B2C systems for B2B business instead of systems built for their unique needs.

The Missing Link to B2B Digitization is the Marketplace Model. B2B’s inherent complexity might make automating relational processes challenging, but the marketplace model has the potential to connect supplier networks, centralize relational communications, and support intricate B2B relations through digitization.

Just as marketplaces have changed the face of B2C by enabling companies to streamline and automate across commerce, fintech, and logistics, the same is true for B2B.

Under this model, buyers and suppliers are unified under one roof, saving capital and keeping data centralized. Growth can be achieved via dropshipping, endless SKU depth, automated invoicing, centralized communications,  custom contracts and permissions settings for vendors, and more.

B2B is Greenfield For Digitization

B2B’s shadow economy has been neglected by tech for B2C innovation. B2B might be a complex place to innovate, but each complexity represents an opportunity for entrepreneurs to swoop in and provide a fix. The market is ripe for disruption, ecommerce, and digitization.

Goldman Sachs estimates that businesses in North America are spending $187 billion annually on accounts payable processing, which only accounts for direct processing and labor costs.

“In reality, we believe businesses are shouldering up to $501 billion in B2B payments costs when including indirect costs such as short-term credit for receivables financing and cross-border transaction fees,” according to a B2B report by Goldman Sachs. “We believe the total direct and indirect b2B payments cost borne by global business is nearly $2.7 trillion.”

The same report called manual processing the direct cost — traditional payables processes are labor intensive and inefficient. Opportunities to automate these processes can yield significant savings and higher margins for B2B businesses.

This is the digitization opportunity. Multi-vendor marketplace platforms offer a centralized solution for businesses across commerce, fintech, and logistics, unlocking a massive economic opportunity for a segment of the economy that has lurked in the shadows.

To learn more about launching your B2B marketplace, reach out to the marketplace experts at Nautical.