Article written by Sarwant Singh, a forbes.com Contributor
Alibaba is known for a number of achievements; the most noteworthy is the fact that it is larger than Amazon and eBay EBAY +0.61%
combined – it is recording more trade volume than the two together.
While this is certainly an incredible achievement, perhaps the most
disruptive move the 11-year-old Chinese behemoth has made is their focus
on B2B markets.
According to recent research from Frost & Sullivan, Alibaba is a
pioneer of B2B eCommerce with gross merchandise value of $ 27.28 billion,
about 11 percent of their total; this dominant leadership position in a
market expected to grow to $ 6.7 trillion in gross merchandise value by
2020. This trend will make the B2B eCommerce market two times bigger
than the B2C market ($ 3.2 trillion) within that timeframe. With China
expected to emerge as the largest online B2B market with an estimated
potential of $ 2.1 trillion by 2020, there is a huge opportunity for
Alibaba to stamp its authority on this important and growing market
But before we begin drawing parallels between the B2C and B2B
eCommerce markets’ ecosystems, which sounds similar, it is important to
note the key differences between the two. In B2C, sales are relatively
simple. Prices are fixed, quantities are low, and shipping is easy. Very
little regulation or tax complexity comes into play, and products are
easy to showcase and market. In the contrasting B2B setting, prices are
highly variable. Similarly, volumes are much higher, but also of a much
wider range, necessitating a flexible shipping and logistics solution.
Tax and regulatory concerns impact sales highly, and providers typically
employ large staffs whose only responsibility is delivering products
and services within these restrictions. Marketing (or as many firms
prefer, “client educational initiatives”) is more complex, as clients
need to understand how products work and interact with other systems
they already have or are considering for purchase. The “black box”
effect, where a customer buys a device without a real interest in
learning how it works, barely exists in B2B, while it is dominant in
B2C. For this reason, a B2B eCommerce implementation is fundamentally
more complex than in a B2C environment. While this makes the successful
design and implementation of a B2B eCommerce platform more difficult, it
also dramatically increases the value of that system, as the problems
solved are costly to address using conventional means.
The B2B marketplace is currently dominated by industry-sponsored
marketplaces and consortia-led exchanges thriving on low-cost Internet
platforms and harnessing the value proposition of collective
bargaining/selling. In recent years, many large global corporations have
started their own independent, B2B markets to migrate-specific services
such as aftermarket, support or lead generation to online platforms.
B2B business models vary from single firm-sponsored, e-procurement
solutions and consortiums to collaborative marketplaces that aggregate
demand-and-supply services. The below images show the different models
Most B2B models are moving away from legacy systems that involved the
use of EDI (electronic data interchange), which were expensive and
cumbersome to handle, toward ubiquitous and affordable online platforms
where buyers and sellers can meet from anywhere in the world on the Web
to transact goods and services, using only standard PC and Internet.
This transition marks a move from the “one-to-many” model, where one
company had to work with many suppliers using EDIs, to “many-to-many,”
where organizations are integrating their processes with e-procurement
companies and pure-play online B2B retailers to automate and facilitate
the purchase of their goods online.