Companies setting up a business-to-business marketplace to make transactions more efficient for buyers and sellers should carefully consider the best ownership structure. New research suggests that owning the marketplace outright can give a company greater control, security, and access to suppliers but can also create regulatory problems and channel conflicts. Depending on the business objective, creating a spinoff or startup can be an effective strategy for launching a B2B marketplace.
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.
We surveyed 200 B2B marketplaces to understand the key challenges and success factors they had encountered. We 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.
These formats are dynamic, not static: A marketplace may start as an internal unit and be spun off as it matures, and a pure startup might later be acquired and integrated into a corporation’s operations.
Internal Versus External Marketplaces
Internal marketplaces enjoy the security, infrastructure, and access to clients inherent in being part of a large corporation. Sysco, a global wholesale distributor to the food service sector, launched an online marketplace as an internal venture last year. The structure makes sense: The marketplace is largely complementary to Sysco’s current offerings and allows the company to extend its portfolio of products and vendor relationships, greatly increasing customers’ options.
But internal marketplaces can also face a few challenges. One is channel conflict. A company that creates a B2B marketplace risks cannibalizing its other marketing and sales channels. Of course, this is true for both internal and external marketplaces, so at least in this case, the company benefits from increased efficiency and market reach. It’s often a case of “do it before others do it to you.”
Spinoffs enjoy one main advantage over startups: access to the corporate mothership’s technology, expertise, and capital.[
