The Verticalization of B2B Marketplace Models
May 15, 2020
May 15, 2020
The past few decades have seen the rise of online marketplaces. These marketplaces include both platforms with a horizontal business model that caters to a broad user base, and platforms with a vertical business model that seeks out niche markets. Initial marketplaces were horizontal, e-commerce platforms, including Amazon and Etsy. Later platforms, such as Grubhub, Uber, and Airbnb, focused on vertical, service-based offerings.
More recently, the marketplace sector has seen the rise of “business to business” (B2B) platforms, including Upwork and Fiverr. However, despite the proliferation of the B2B marketplace model, such marketplaces have failed to succeed to the extent that e-commerce and service-based platforms have.
With the saturation of the marketplace sector, companies are finding new ways to drive business. E-commerce platforms gave way to service-based platforms. Service-based platforms are now giving way to B2B platforms.
Like e-commerce marketplaces, many B2B marketplaces adopt a horizontal model, serving a large audience that has varying needs. These marketplaces deliver a “one stop shop,” where users can purchase cross-functional services. For example, users of both Fiverr and Upwork can find service providers ranging from writers to marketers.
While horizontal marketplaces have many advantages (for example, less supply/demand discrepancies, lower market fluctuation, and decreased risk) – this business model also has many downsides. These types of platforms have a high attrition rate. They focus almost entirely on the discovery process of matching clients with service providers for one-off projects. Such projects may include a press release or an ad design.
Horizontal marketplaces serve as the middleman, connecting many service providers to many potential clients, and vice versa – resulting in few high-value relationships. The result is a simplified, transactional way of doing business, from which few derive value. Service providers face high competition, low project rates, and high commissions from the platform. These circumstances eat into profits and disincentivize effort put into projects. Clients deal with short-term, overburdened, underpaid hires with low investment in projects. The result is low-cost but also low-quality work. And ultimately, for the platform, there is little incentive for either service providers or clients to stay on, when they can easily remove the middleman from the equation for future projects.
In contrast to horizontal marketplaces, vertical marketplaces are more specialized but also more tailored to users’ needs. Hyper-verticalization limits competition, creating a more codependent and equal relationship between service providers and clients. Relationships are formed based on service providers’ certifications, experience, and ability to provide customized solutions to clients on a continuous basis.
Vertical marketplaces have an advantage over horizontal marketplaces in encouraging retention through high quality and high value. Because these platforms focus on niche industries, users often have more complex problems that require more complex solutions. Thus, it matters more that projects are done right than that they are done quickly. Users of vertical marketplaces prioritize customized processes and quality of service, which is not readily available. These users also seek competitive but not necessarily low costs, willing to pay more to get more. The result is reduced competition and higher value placed on services. In this way, both clients and service providers derive value, forming collaborative and mutually beneficial relationships. Some examples of vertical B2B marketplaces include Flexport, uShip, and of course, Borza.
Borza is an example of a vertical, service based, B2B marketplace that focuses exclusively on tech services. Technology both drives and is driven by change in business. Thus, even as the tech industry has led to the rise of vertical marketplaces, they have also been impacted by this rise. As almost every major industry, from healthcare to finance, comes to rely heavily on technology, they increasingly turn to tech service providers. As businesses scale and become more complex, they increasingly seek customized services.
To succeed, tech service providers need to embrace these changes.
Like tech service providers, B2B marketplaces can achieve success by offering quality solutions to business needs and building strong relationships between stakeholders. This is done by "providing the right mix of product selection, value, convenience and trust." These marketplaces are both client- and service provider-centric, consistently matching clients who have repetitive, complex needs with service providers who can offer customized, quality solutions at competitive but fair prices. Ultimately, through collaboration, B2B marketplaces can reduce the complexity that plagues businesses – turning themselves into high-value players in the marketplace sector.
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