How to Structure a B2B Marketplace Venture

Business-to-business marketplaces, like their consumer-facing cousins, help streamline purchasing by giving buyers and suppliers an online platform for conducting transactions. Once a company decides that it wants to create a marketplace to make transactions more efficient and extend its market reach, it must start by deciding on an ownership structure: Should the marketplace be kept in-house or spun out as an independent business? And is it worth bringing in partners or other owners?

Each type of structure has its advantages and disadvantages, and which is the best option will depend on several factors, including how fragmented the market is, the costs and benefits of independence from the parent company, and the value that outside investors or partners may bring.

The authors surveyed 200 B2B marketplaces to understand the key challenges and success factors they had encountered. The study found that such marketplaces are typically set up in one of three ways. Slightly more than half the respondents (51%) were pure startups, usually established by independent investors to serve highly fragmented markets. Nearly a third (30%) were owned and operated as internal company units, while about 1 in 5 (19%) were corporate spinoffs that started in-house and later separated as independent companies.

Companies considering which organizational structure is best for their B2B marketplace need to address three critical questions.

1. How fragmented — or concentrated — is the market?   In fragmented markets, “open” B2B marketplaces can deliver more value by connecting otherwise isolated buyers and sellers. An open marketplace accepts nearly all qualified participants and gives buyers and sellers a secure and trusted space to conduct transactions.  But for concentrated markets with just a few dominant players, there is little value in creating an open marketplace. A better alternative is a managed marketplace, where buyers and sellers are preapproved.
2. Does the marketplace’s connection with its corporate parent enhance or hinder potential participants’ attraction to it?  If the parent company can provide technology, skilled workers, capital, and other valuable resources, then it is worth operating a marketplace as an internal unit. If competitive or regulatory concerns are an issue, the company should consider spinning off the platform. If, however, the industry is dominated by many small suppliers, and none of them have sufficient resources to launch a B2B marketplace, the best option may be to form a startup.
3. Is the company open to partnerships — or a change in ownership?  As an online marketplace grows, its need for capital will increase. Often, the solution is to accept outside sources of capital in exchange for an ownership stake. However, any new ownership structure must also protect both the platform’s independence and the fairness of its operating model.