top 50 ranking q1 - 2021 marketplaces b2b

B2B MarketplacesTop 50 RankingQ1 - 2021

CONFIDENTIAL AND PROPRIETARYAny use of this material without specific permission of Applico is strictly prohibited

MEET THE AUTHORS

Applico - © 2021www.applicoinc.com

Alex MoazedFounder and CEO

LinkedIn Profile

Alex Moazed is the CEO & Founder of Applico and co-author of the best-seller, "Modern Monopolies." An advisor to NAW on Amazon's business practices, Alex helps B2B distributors win against big tech through strategy development, education on the platform business model, and assisting them to partner, invest or acquire marketplace ecommerce startups.

Nick L. Johnson Principal

[email protected] LinkedIn Profile

Nick is Principal at Applico, where he works directly with Fortune 500 C-Suites and Boards to help them build and buy their own platform businesses. He also oversees the company’s research into platforms, and he has been featured in the Financial Times, Bloomberg, CNN, CBS, Reuters, USA Today, Buzzfeed to name a few.

The Defining Book on Platforms

Alex and Nick are the co-authors of Applico’s Amazon-best seller Modern Monopolies.

Modern Monopolies explains the infrastructure and techniques required to build a modern and successful tech platform business like Uber and Airbnb. The book was recently recognized as an Amazon Best-Seller and has been featured on Yahoo and Bloomberg.

https://www.linkedin.com/in/alexmoazed/

https://www.linkedin.com/in/nick-johnson-85b50a53/

TABLEOF CONTENTS

1. EXECUTIVE Page 4 SUMMARY

2. RESEARCH Page 7 METHODOLOGY

3. B2B MARKETPLACES Page 9 INSIGHTS

4. B2B MARKETPLACES Page 15 THE LANDSCAPE

5. B2B MARKETPLACES Page 22 TAKEAWAYS

6. THE LANDSCAPE Page 24 IN PERSPECTIVE

7. GLOSSARY OF TERMS Page 28


EXECUTIVE SUMMARY


B2B distribution, the United States’ largest industry generating nearly $7 trillion annually, is undergoing tremendous change.1 Few alarm bells are sounding and most distributors show little concern about what Ian Heller calls the wholesalepocalypse. Yet Amazon Business has rapidly made headway in B2B distribution.

Amazon has already hired a host of B2B expert staff and former salespeople from large distributors. And it’s rapidly introducing new competition into the US B2B market. In the past 2 months alone, 75% of the new sellers on Amazon are Chinese manufacturers.2 That number is a significant increase from 47% in 2020, and there is no end in sight. This influx of new, low-cost competition via Amazon is a worrisome trend for distributors and manufacturers alike.

Amazon Business is doing $25B in annual GMV, six years after its launch, with more than half of those sales coming from third-party sellers.

To make matters worse, on March 15, 2021, Amazon Business admitted that it is doing $25B in annual Gross Merchandise Value (GMV), six years after its launch, with more than half of those sales coming from third-party sellers.3 That number is up from $10B in 2018. To put that in context, that would mean Amazon Business now sells about twice as much as Grainger, and it would mean Amazon is already a top 5 distributor across all of B2B.

At this rate, per Applico’s prediction in 2018, Amazon Business is on track to do $75B in annual GMV by 2023. Bank of America analysts predicted $52B by the end of 2023, but Amazon Business’ current growth trajectory has surpassed that projection. B2B distributors, as well as manufacturers, are in BIG trouble. The rise of Amazon Business spells the downfall of large incumbent distributors and manufacturers, if they don’t act.

Whether or not Amazon will dominate B2B to the same extent it does retail is yet to be decided.

1. The Frantz Group, “Wholesale Distribution Industry Overview,” accessed March 29, 2021.2. Kaziukenas, Juoza, “75% of New Sellers Are From China,” Marketplace Pulse, March 19, 2021.3. Amazon Business, “U.S. public entities and enterprises accelerate adoption of Amazon Business,” March 15, 2021.


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This report ranks the top 50 B2B marketplace startups. Like distributors, these startups are also competing against Amazon Business.

Distributors and B2B marketplace startups have a narrow window of opportunity to work together to ensure that Amazon’s retail dominance isn’t repeated in B2B distribution.

The top 50 B2B Marketplace ranking focuses exclusively on B2B product marketplaces that facilitate the exchange of goods between a business customer and a third party distributor and/or supplier. This ranking does not include marketplaces for services and is focused on US marketplace activity.

The average valuation of startups in Applico’s Top 50 Ranking is $250M.

We believe every startup in this ranking should be studied thoroughly by distributors and manufacturers alike. And quickly. Asset-inflation is on the rise according to Lending Tree’s Chief Economist Tendayi Kapfidze.4 Valuations for mid-to-late stage startups have dramatically increased. And now, many late-stage venture capital firms are shifting their investments to Series A startups, further exacerbating valuation inflation problems amongst earlier stage startups.

As each startup’s valuation rises, distributors’ leverage and opportunity decreases. Fortunately, the average valuation of startups in our top 50 ranking is $250M. And, the average valuation in the top 25 is $450M. These opportunities are not yet out of reach for large distributors.

Many of the top 50 marketplaces still represent attractive opportunities for strategics evaluating an acquisition, investment or partnership opportunity.

4. Kapfidze, Tendayi, “Lending Tree Chief Economist, Tendayi Kapfidze on Asset Inflation, 2021 GDP Growth, and Stimulus“ Winner Take All, March 17, 2021.


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Applico has correctly predicted the growth in B2B marketplaces over the last several years and we believe the industry is on the cusp of a B2B commerce renaissance. Applico is actively advising major distributors and service providers in B2B distribution on how to better engage with tech startups. The more enterprises and startups work together, the worse off for Amazon and the better off for just about everyone else. If this sounds like you, get in touch at [email protected]!

In addition to this report, Applico recommends you also evaluate our landscape of SaaS and MaaS (marketplace as a service) tool providers, not included in this report because they are not marketplaces, in the B2B distribution industry. These reports can be found at resources.applicoinc.com/maassaas/.

Sign up for our weekly Platform Innovation Insights Newsletter at applicoinc.com/insights

https://resources.applicoinc.com/maassaa/

RESEARCH METHODOLOGY


Ranking Methodology: The following factors were weighed in determining the top 50 product marketplace startup rankings:

● Scale - Scale is measured as traction in filling each side of the marketplace to generate both supply and demand. One of the best measurements of marketplace scale is GMV, gross merchandise value, the aggregate measure of total sales facilitated by the marketplace. Some industries like Agriculture – have very high aggregate marketplace GMV because the average order value (AOV) is much higher relative to other industries.

● Monetization - Companies who monetized with a meaningful take rate scored at the top of the monetization criteria. A take rate is the percentage of each transaction that goes through the platform that the marketplace keeps as revenue. Being able to charge a meaningful take rate at scale suggests the marketplace provides a lot of value to both sides of its network and has strong defensibility. It also substantially increases the profit potential of a marketplace compared to other methods of generating revenue. Advertising revenue could also be another path for a marketplace to have a high margin revenue stream. Other monetization strategies such as a recurring subscription, value-added services, SaaS fees or revenue derived from being a reseller scored lower than companies who had a higher proportion of take rate revenue.

● Competition - In our methodology, companies who successfully compete and grow in a crowded industry are favored more highly than companies who are operating in less competitive markets. Similarly, companies that are not one of the top two to three marketplaces in a crowded industry were ranked lower.

● Competitive advantages/barriers to entry/moat - Companies that have successfully built competitive advantages such as meaningful scale, first-mover advantage, unique inventories, or are offering an attractive or unique arrangement for users such as credit terms, financing, etc. were ranked more highly.


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● Market size - Companies operating in larger markets with more greenfield opportunity were considered to be more favorable than those in smaller, more niche markets that have less potential GMV to be captured.

● Capitalization - Companies who successfully raised meaningful capital to scale their platforms, as well as those that were perceived to be profitable, were ranked higher than those that had less success or traction in fundraising or generating sustainable revenues.

● Investor backing - This metric was a minor factor, but companies in the rankings who successfully attracted reputable and successful investors were considered to have an advantage over their peers.

● Data Sources: A combination of the below data sources were used to identify companies and to collect data to inform the ranking:

○ PitchBook○ Crunchbase○ Company Websites○ Publicly available information○ Industry sources and relationships

● Entry Criteria: The following factors were requirements for consideration into the ranking:

○ US Operations: The ranking is based upon a marketplace’s business within the United States. However, a marketplace does not have to be headquartered in the US to qualify for the ranking.

○ Product Marketplace: The marketplace has to be transacting products, not services. Marketplaces that sold cars, rather than auto parts, were excluded, as they are typically not included in assessments of the B2B Distribution market.

○ Independent Company: The marketplace is a private company and has not been acquired by another entity.

B2B MARKETPLACES INSIGHTS


● Agriculture is the most mature vertical for B2B marketplaces. It’s already seeing a winner take all dynamic with the top two marketplaces commanding significant volumes and fundraising capabilities.

● Other verticals that have more marketplace startups are still in development and the top two marketplaces are not clearly defined. Some verticals, like food products, may have one clear leader, but then there are multiple marketplaces competing for the #2 spot.

INSIGHTSAVERAGE CAPITAL RAISED VS. AVERAGE VALUATION AND NUMBER OF STARTUPS


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Figure 1

INSIGHTSNUMBER OF STARTUPS PER VERTICAL VS. TOTAL CAPITAL RAISED


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● Figure 1 shows the average capital raised, whereas this figure shows total capital raised. The difference is seen in verticals like Fashion where there are many marketplace startups, yet there are a few marketplaces with significant scale and significant capital raised.

● The categories with fewer startups and less overcall capital raised show clear signs of future opportunities for growth.

● Auto and Healthcare buck the trend : as the number of startups increases, so does total capital raised. The reason is that there are some startups in both of these categories which we believe are profitable and/or have positive free cash flows and haven’t had a need to raise venture capital.

Figure 2

INSIGHTSTOP 10 VENTURE CAPITAL FIRMS INVESTING IN B2B MARKETPLACES


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Figure 3

● Today, Amazon Business has less than 25% of B2B marketplace GMV. Amazon Business is on track to reach $75 billion by 2023, at roughly 50% compound annual growth rate (CAGR). That's compared to Amazon's 44% share in retail e-commerce.5

● All of B2B e-commerce is estimated at $1.39 trillion in 2020 and growing at a 11.9% CAGR.6 We project that all marketplaces, both marketplace startups and Amazon Business, will continue to gain more e-commerce market share relative to overall B2B e-commerce.

● In 2020, all US retail ecommerce surpassed $861B, Amazon accounted for nearly 30% of all US e-commerce in the US. B2B Marketplaces are approximately 1/10 the size of retail e-commerce sales.

INSIGHTSTOP 50 AGGREGATE GMV VS. AMAZON BUSINESS


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5. Dugan, Wayne, “Latest E-Commerce Market Share Numbers and Amazon’s Dominance,” February 4, 2020.6. “2021 U.S. B2B Ecommerce Market Report,” Digital Commerce 360, February, 2021.7. “US E-Commerce Grows 44%,” Digital Commerce 360, January 29, 2021 Figure 4

● Only two verticals, agriculture and fashion, have more than $10B in GMV. And, seven verticals have more than $1B in GMV. This is calculated by aggregating the GMV of all marketplaces in a given vertical.

● The auto parts, cannabis, contract manufacturing, food products, general retail, healthcare and liquor verticals were able to generate over $1B in GMV because contract manufacturing marketplaces were included in the category alongside more traditional product marketplaces.

INSIGHTSVERTICALS WITH $10B and $1B GMV


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Figure 5

B2B MARKETPLACESTHE LANDSCAPE



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B2B MARKET INSIGHTSTOP 50 B2B MarketplacesPrivate US-based Product Marketplaces

The top 50 B2B Marketplace ranking focuses exclusively on B2B product marketplaces that facilitate the exchange of goods between a business customer and a third party distributor and/or supplier. This ranking does not include marketplaces for services and is focused on US marketplace activity.


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B2B MARKET INSIGHTSTOP 50 B2B MarketplacesPrivate US-based Product Marketplaces

B2B MARKET INSIGHTSTOP 50 MARKETPLACE RANKING


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B2B MARKETPLACES TAKEAWAYS


● Agriculture has the biggest marketplaces by capital raised and valuation, but there are only two players, Indigo and FBN, and they are hybrid marketplaces, meaning they combine both linear and marketplace businesses. Additionally, they don’t monetize their marketplace very well. They do huge volumes, bigger than our #1 marketplace Faire, but they don’t have as much pricing leverage to charge a meaningful take rate. Instead, the majority of their revenue comes from selling linear inputs like fertilizer and other value-added services to farms.

● Fashion marketplaces is the other vertical with $10B + in GMV. But similar to agriculture, a number of the leading marketplaces in fashion don’t charge as meaningful of a take rate as we see in other verticals. This could change in the future and/or advertising could be a bigger priority as these marketplaces continue to drive massive volumes.

● Chinese marketplaces, historically, tend to derive more revenue from advertising than take rates. In the US, more marketplaces try to charge a take rate. If a take rate doesn’t fit the business model for regulatory reasons, like in cannabis, or because of market conditions, advertising revenue is a viable alternative only when large scale has been achieved. Meaningful advertising revenues are generally not possible with little scale. To bridge that gap, advertising-based marketplaces require substantial investor capital to reach enough scale until significant advertising revenues start to kick in.

● Auto parts, general retail, food and healthcare are all large industries with meaningful marketplace scale. Not only are the marketplaces doing impressive volumes, they are all able to command some form of take rate with a healthy revenue-to-GMV ratio. We expect all of these industries to continue to see aggressive marketplace growth while keeping sustainable gross margins.


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● While not in this marketplace ranking, European B2B chemical marketplaces are collectively seeing more traction than in the US. As a result, we see chemical distribution in the US as a promising vertical for more aggressive growth in the coming years.

● Industrial and Maintenance, Repairs, Operations (MRO) product marketplace startups are not as large as one would think – given the relative commoditization of the product catalog and the aggressive focus of Amazon Business and other entrants on this category. We think that the competitive environment – namely Amazon Business as a major competitor – has thwarted venture capital investment into marketplace startups in this category. That said, there are still a number of startups with meaningful scale that represent attractive partnership or M&A opportunities for incumbents.

● Electrical, building materials, metal and other niche B2B verticals are promising and we expect to see continued growth, even though they do not have over $1B in aggregate marketplace GMV so far. Venture capital investment is present in these verticals and the fragmentation, industry size, and other qualifiers for successful marketplace traction are present. The recipe is there for marketplace disruption in the coming years.

THE LANDSCAPE IN PERSPECTIVE: HOW DISTRIBUTORS CAN COLLABORATE WITH B2B MARKETPLACES


This top 50 ranking was created to help distributors and leading startups work together and prevent Amazon Business from diminishing their collective market share and future growth opportunities. Fortunately for free enterprise, there is a relatively small but growing cohort of B2B marketplace startups that can challenge Amazon.

For distributors and marketplace startups, it’s not necessary to compete with Amazon Business on their own. By partnering together, they can reach digital scale more quickly. Marketplace startups need scale more than capital - and incumbents need to embrace new digital business models more than ever before.

For distributors and marketplace startups, it’s not necessary to compete with Amazon Business on their own. By partnering together, they can reach digital scale more quickly.


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Marketplace Value: Owning the Network and Preventing Competitive Threats

All that said, incumbents should be wary of providing scale to a marketplace without taking a strategic stake or ensuring they capture some of the upside.

McDonald’s experience with UberEats is a case in point. McDonald’s rolled out an exclusive partnership in 2017 with UberEats to compete with other big chains that already had delivery services. UberEats was able to effectively build its global business on the back of McDonald’s scale. At one point, McDonald’s accounted for 10% of restaurants listed on UberEats worldwide.8

8. Wong, Vanessa, “McDonald’s And Uber Eats Need Eachother Now More Than Ever,” Buzzfeed News, February 15, 2018.

McDonald’s lost the chance to exact a much better deal from Uber when it had the leverage to do so. Recent moves to diversify partnerships through deals, like with Doordash and with Just Eat in the UK, won’t make up for the missed opportunity. McDonald’s underestimated how big of an advantage it would provide to whichever platform it partnered with – and it should have gotten much more long-term value for that.

UberEats became a dominant player in the US and abroad, and McDonald’s got little-to-no long term benefit.

Plaid’s failed acquisition by Visa is another illustrative example. Banks and large financial institutions weren’t worried about Plaid, which provides a data transfer network that powers fintech and digital finance products. In short, it enables fintechs to easily get data from traditional financial institutions. Most in the industry didn’t view Plaid as a threat – that is, until a dominant platform company came in and tried to buy it.


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Once Visa announced its planned acquisition of Plaid for $5.3 billion, many in the financial sector were up in arms over the competitive threat.9 In the end, the US Department of Justice sued to prevent the merger and was eventually successful in getting the two companies to abandon the acquisition

Relying on antitrust laws to prevent Amazon or another major platform company from making a big marketplace acquisition in your industry is a risky proposition. If major financial institutions had a strategic stake in Plaid, they could have prevented Visa from even considering an acquisition in the first place.

Taking a strategic stake in the leading marketplace in your industry can help prevent this nightmare disruptive scenario from happening – and help prevent Amazon Business, or another tech monopoly, from suddenly being on your doorstep.

B2B Marketplace: Partnership vs. M&A Opportunities

Strategic investments or mergers and acquisitions (M&A) can provide offensive value, to gain digital customers and market share, as well as defensive value, in preventing Amazon or another major platform monopoly from acquiring the leading marketplaces in your industry. Properly structured partnerships, unlike what McDonald’s did with Uber Eats, can enable a large enterprise to accelerate revenue growth in the core business while capturing equity upside in the startup partner - without having to invest capital into the startup itself.

9. “VISA to Acquire Plaid,” VISA press release, January 13, 2020. 10. Kaziukenas, Juoza, “Marketplace Is Driving Walmart’s Online Progress,” Marketplace Pulse, November 14, 2019.

Walmart provides a recent M&A example. It acquired Jet.com to jumpstart its marketplace efforts, and now Walmart’s marketplace and e-commerce growth is consistently outperforming.10


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Partnerships are a great way to start building the innovation muscle memory in a large distribution organization. When properly arranged, a startup partnership could bring a more comprehensive solution to a distributor’s existing customers. The startup achieves more scale and the distributor actualizes more revenue and grows the customer base.

Vertical Specific Marketplaces: How to Beat Amazon Business

Further abroad, specialized B2B marketplaces have taken over in China, which is already home to the largest e-commerce market in the world. While unicorns like Alibaba and Tencent are the big story in terms of generalized e-commerce outlets, several Chinese startups have risen up over roughly the past decade to solve the fragmentation problem inherent in B2B industries. They have begun to dominate verticals such as agriculture, food services, chemicals, industrial machinery, and maintenance, repair, and operations (MRO).

As it relates to Amazon Business, this state of affairs is not yet guaranteed. In the West, incumbents need to act quickly to enable a future where vertical-specific B2B marketplaces can successfully compete against large, multi-category marketplaces like Amazon Business. More important than capital, platform startups want to solve for scale – something incumbents have and can provide to up-and-coming marketplaces.

Are you ready to explore B2B marketplace partnerships or M&A? Applico’s experienced, founder-led teams can help you go end-to-end, from platform design and strategy through deal execution, integration and scaling up. If you would like to discuss these B2B marketplace opportunities, please contact us at [email protected]!

11. “Grainger Names A New Head of Zoro.com,” 360 Digital Commerce 360, January 30, 2020.

In B2B, Grainger entered a joint venture with MonatoRo, a Japanese B2B marketplace for industrial supplies. Now, the head of Grainger’s MonatoRo also leads Zoro, an additional Grainger e-commerce marketplace, which has experienced exceptional growth.11 In 2019, MonatoRo sales increased 19% year over year to $1.9B compared to Grainger’s total sales increase of 2.5% to $11.5B.

Glossary of Terms


Gross Merchandise Value (GMV) - The sum, in monetary value, of all merchandise sold through a marketplace. This metric is typically used for digital marketplaces to measure the health of the business and total throughput it facilitates.

Product Marketplace - A platform that connects buyers and sellers of physical goods with each other and facilitates a transaction.

Linear Business - A company that creates a product or service and sells it to a customer. Value flows linearly and in one direction through the company's supply chain. These businesses are generally asset heavy.

Platform Business Model - A business model that facilitates the exchange of value between multiple user groups, typically consumers and producers. These businesses are asset-light.

Platform Type - A group of platforms in which the core transaction facilitates the same kind of value being exchanged. Figuring out which platform type a business model fits into is one of the first steps in platform design.12

Revenue-to-GMV Ratio - By standard accounting rules, GMV does not count as revenue for a marketplace. Marketplace revenue is the portion of a transaction that the marketplace retains via a take rate, or the revenue it can earn by selling other value added services or advertising. Comparing the ratio of a marketplace’s revenue to the GMV it facilitates is a useful metric to understand how much of the value created the business is able to retain as revenue.

Take Rate - The percentage of each transaction facilitated that the marketplace retains as revenue. A typical take rate for B2B marketplaces would fall between 1%-15%, depending on the vertical

10. Applico Inc., “Platform Types: Explained and Defined,” Applicoinc.com, Accessed April 5, 2021.

https://www.applicoinc.com/blog/what-makes-uber-different-from-android-how-to-make-sense-of-platform-businesses/

ABOUT US


Applico is the Platform Advisory and Investment firm to CEOs and Boards who are tired of the same old career consultants and bankers. We are a team of tech entrepreneurs with proven experience building high growth tech businesses. Our founder led teams advise enterprises on how to do the right deals with tech startups, both strategically and economically. We’re so confident in your intrinsic value – that we’ll co-invest alongside of you. We win when you get results. Not PowerPoints.

Introducing: Applico CapitalApplico Capital is the vehicle for Applico to co-invest alongside enterprises when they do a transaction with a tech startup. Initially, Applico Capital was formed to coincide with the launch of PLAT, WisdomTree’s Growth Leaders fund comprised exclusively of platform businesses.

As of Dec. 10, 2020, PLAT was up 62.5% over a 1-year period, outperforming other tech indices by over 25%.

To learn more about PLAT, visit : https://www.wisdomtree.com/etfs/equity/plat

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Disclosures


The views expressed here are those of the individual Applico LLC (Applico) personnel quoted and are not the views of Applico. Certain information contained here has been obtained from third-party sources. While taken from sources believed to be reliable, Applico has not independently verified such information and makes no representations about the enduring accuracy of the information or its appropriateness for a given situation.

This content is provided for informational purposes only, and should not be relied upon as legal, business, investment, or tax advice. You should consult your own advisers as to those matters. References to any securities or digital assets are for illustrative purposes only, and do not constitute an investment recommendation or offer to provide investment advisory services. Furthermore, this content is not directed at nor intended for use by any investors or prospective investors, and may not under any circumstances be relied upon when making a decision to invest in any fund managed by Applico. (An offering to invest in an Applico fund will be made only by the private placement memorandum, subscription agreement, and other relevant documentation of any such fund and should be read in their entirety.) Any investments or portfolio companies mentioned, referred to, or described are not representative of all investments in vehicles managed by Applico, and there can be no assurance that the investments will be profitable or that other investments made in the future will have similar characteristics or results.

Charts and graphs provided within are for informational purposes solely and should not be relied upon when making any investment decision. Past performance is not indicative of future results. The content speaks only as of the date indicated. Any projections, estimates, forecasts, targets, prospects, and/or opinions expressed in these materials are subject to change without notice and may differ or be contrary to opinions expressed by others. Please see Applicoinc.com for additional disclosures.

This information in this report was updated as of Feb. 1, 2021.

top 50 ranking q1 - 2021 marketplaces b2b

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