Marketplaces

Creating a two-sided marketplace when one side hates you?

Michael Brill Technology startup exec focused on AI-driven products

May 18th, 2015

Imagine a B2B scenario with thousands of sellers that sporadically sell product and a small number of very large buyers who want first dibs on buying product. Each of the buyers simply wants the sellers to go directly to them to avoid having to compete with other buyers.

Now imagine that an online marketplace emerges to create more efficiency (higher prices for sellers). Sellers love it, but buyers hate it because they are being forced to pay more than if they negotiated directly. They hate it so much that they refuse to use it (after all, there aren't that many sellers on it at startup) and even call up sellers they've worked with in the past to tell them that they're not working with sellers on the marketplace because [insert some BS reason here].

Is that a recipe for disaster? Are there examples of this type of situation that have/haven't worked? Are there longer-term strategies (e.g., providing non-marketplace services such as transaction or logistics support to get everyone on the service and add a marketplace mechanism later)?




 



Reem

May 18th, 2015

Michael, can you offer sellers risk minimization, for example, by showing the value of what they are buying (because it is eliciting interest form other buyers, presumably)? Or is risk minimization not a strong enough hook for these buyers?
You're going to have to solve some pain point for buyers for them to participate.
If you manage to solve some other problem for both parties (transactions or logistics), it may well be a stand-alone business without the marketplace feature. Would you be willing to forego that? What are you really trying to do?
Maybe there's a transaction processing/ accounts payable angle? e.g Orders can be placed on the marketplace but are not payable until shipped. This would be good for the buyers, and if there are mutual ratings, the providers would know they can share non-payment info with other buyers. Reputation matters & can be used as leverage.

Lane Campbell Lifelong Entrepreneur

May 18th, 2015

Sounds like the only way to get the sellers on board is for collusion to occur.  We all know that's illegal.  Seems like a bad model.

Ryan Nobrega Product, Technology, Operations

May 18th, 2015

Not a recipe for disaster. It's an opportunity to create sustainable value. Do the supply-side parties want this efficiency? Are they willing to help you shift the model?

If so, exclusive distribution through your platform for certain SKUs would be a good way to seed the behavior change and prove the value to the supply side. Perpetual exclusive for a desirable vintage or a "first dibs" window of exclusivity for a similarly desirable new release may be a good approach. Marketing benefits as well w/this approach. 




Michael Brill Technology startup exec focused on AI-driven products

May 18th, 2015

(Note: this has nothing to do with wine... working on helping a friend through this. This has more to do with excess inventory - situations that occur sporadically, but in aggregate are ridiculously huge).

Raem, there is probably a viable service model - some sort of private deal room where a few percent can be clawed out. Looking into that. Most of these entities are large and have well-established reputations, especially on the buyer side and 30 day terms tend to provide the risk management for buyers. In any case, I'm definitely looking at a service-only possibility. But the current offline business is transaction-based and they are quite large and wildly inefficient transactions so they're attractive.

Ryan, supply-side absolutely want efficiencies as you can see the same deal go for X to 3X, depending upon sophistication of seller, timing, sales tactics, etc. Today's model is offline and based on a broker-type model... but once a deal or two is done, then the broker may get disintermediated because the buyer can move fast the next time a deal comes up. Of course they're likely paying less than the seller could otherwise get, but there's no efficient way for them to test that. 

Just thinking aloud:
* Maybe market intelligence to sellers based on actual retail prices of comparable products and understanding of buyer's margin requirements, logistics costs, etc.
* Maybe the "marketplace" is simply a reseller that uses the above intelligence to buy direct and mitigate selling risk.



Karen Leventhal

May 18th, 2015

We are building a b2b marketplace.   We know our sellers are highly motivated (as most sellers as) because the existing system they have to deal with is pretty exploitative.   We know the buyers maybe a bit less desperate.   

So we did a bunch of interviewing and surveying of buyers to get at the core pain points, which seems to be-- 1) no central way to get information 2)  very inefficient one off ordering procedures, and 3) no easy way to know if a seller is trustworthy or validated by others with credibility.  Essentially boils down to efficiency and validation for the buyers-- I think this is generally true of most buyers in marketplaces.  Are you saving them time ?   You would have to find your pain points for your buyers. But I would think efficiency might be important. 

Mark Dostie CTO of Artificial Intelligence Dev

May 18th, 2015

You should perhaps study the history of Blue Nile - it was in the business of selling diamonds over the Internet and as you might imagine created the same situation you have described here. Today they are a $333M business with almost 200 employees. I'm sure there are many lessons to learn from their experience.

Michael Brill Technology startup exec focused on AI-driven products

May 18th, 2015

Karen, better understanding the buyer pain points is good counsel. 
Mark, I'll poke around to see if I can find info on the Blue Nile experience.