E-commerce expert Alexander Graf outlines how to win in the B2B marketplace space
For those of us who live outside Germany, the name of the company that leads its tire market is most likely not common knowledge. It should be. Saitow AG is the company behind Tyre24, a big success story and Germany’s most thriving online marketplace for tires, wheels and automotive parts. It is a company from which we can all take valuable lessons.
Tyre24 is responsible for around half the entire market for its product lines in Germany, which has a total annual value of around 2 billion euros. In addition, the company benefits from a huge profit margin, yet only charges a very reasonable 1% transaction fee. This successful online B2B marketplace and its connected shop network is an object lesson for many.
That Saitow is not so widely known outside of Europe is a classic illustration of the rewards and challenges involved in building a B2B enterprise marketplace. If you need more convincing of its striking digital business achievements, consider the following Tyre 24 metrics:
● Annual sales in excess of 1 billion euros
● 100,000 daily transactions
● An online inventory of more than 10 million items
● Deployment by over 2000 connected sellers plus 40,000 verified commercial buyers
A lot of work has been put into growing this billion-euro business over its twenty years of operation, with a tight focus on following the business’s original vision. Tyre 24’s success has not come about overnight. Supporting this is the strength and reliability of the company’s platform, underpinned by state-of-the-art technology—in fact, the risk of failure associated with orders runs at below 0.3%.
The road to market dominance
What Tyre24 has done so successfully is build a robust USP for its enterprise marketplace, making it the Amazon of its niche. It is an approach that can lead to market dominance on a country or regional level. Given the overall dynamics of digital marketplaces, any company following this path could become the monopoly supplier in their chosen market.
The company’s hold on the market means there is little incentive for rival tire vendors or buyers to compete, given the strength of its digital marketplace. Anyone tempted to create an alternative D2C (direct-to-consumer) tire product service would be roundly trounced by Tyre24. Prospective entrepreneurs seeking B2B online marketplace success, take note.
In looking to develop your own market dominance, it is important to understand how B2B enterprise marketplaces work. They typically have a limited number of vendors and sellers, for instance. They are not the same as multi-category B2C marketplaces like Amazon, which has hundreds of millions of customers served by around 20 million sellers. There is much more scope in developing specialist B2B marketplaces, much like Tyre24, rather than seeking to create the new Amazon or Alibaba.
B2B sectors have at most a couple of thousand users for a specific product and anything from a dozen and up to several hundred vendors. If a company is set up well, a monopoly position can be reached quickly in the B2B space, as long as it offers a win-win proposition for vendors and sellers. By building bigger ecosystems and finding new ways of generating revenue, there is a huge opportunity to transform how business is done in B2B markets.
Even very niche marketplaces can generate hundreds of orders a day with associated services and subscriptions. Enterprises in all vertical sectors should all be getting ready to make the most out of this market evolution. Before you rush to jump in though, there are some key items to consider.
Thick, uncongested, and safe
According to the Nobel Prize Economics Laureate Alvin Roth, in order to achieve success, marketplaces need to be “thick, uncongested, and safe.” In being “thick,” the market prospers when there are enough people taking part. Being “uncongested” is about achieving balance on the offer and demand side—where customers can’t access a wide enough product selection, there isn’t an oversaturation of sellers and when a growing demand is not being satisfied. And then we have “safety,” which refers to an environment in which all parties feel secure enough to make decisions based on their best interests.
So, how do you go about building a workable model, perhaps one where you own half of the market? It starts with identifying a good B2B opportunity, then having the vision and the technology to back it up.
You’ll need to make sure that your marketplace structure is tight and that you can get enough vendors and sellers to work with you. You’ll want them to stay with you too, so building a really compelling technical proposition is key—then expand as quickly as you can.
Finally, the vendor and seller balance has to be right. If there isn’t enough market demand or there are too many vendors—or if the opposite is true—the entire marketplace will come apart.
Nobody wants to be the company that no one knows about. To avoid that, make sure you closely follow all the steps to success outlined above. If you do this, you might find yourself running your own multi-billion-generating B2B company, just like Saitow.