We’re excited to share this exclusive report on the state of B2B eCommerce and predictions for the future written by PeakSpan, a growth equity firm based in New York City and Silicon Valley.
For years, eCommerce has revolved around and catered to the business-to-consumer sale (and more recently “D2C”). The rise in online commerce has certainly been profound and it has led to a flurry of technological innovation over the years. Shopify counts 2.5M merchants in its customer base and offers over 10,000 apps in its app store across categories such as i) marketing, ii) checkout, iii) logistics, iv) loyalty, v) returns and so many more. Brands use six different applications on average to optimize their ability to sell products to the consumer. D2C eCommerce sales are now over $3.8 trillion globally. This is sizable and continues to grow but still pales in comparison to B2B eCommerce sales, which total $7.7 trillion, more than double the value of D2C.
And so that begs the question, why are D2C merchants using six apps on average whereas retailers, manufacturers, wholesalers, and distributors continue to leverage “old school” workflows for business-to-business sales despite playing in a large, dynamic, and growing market?
This must change. B2B Ecommerce, grab your helmet and your bat, you’re up next!!
As the millennial generation ages, they will take on leadership roles in B2B. In fact, 70% of B2B buyers are projected to be millennials. We are already seeing preferences change in survey data with 83% of B2B buyers preferring to manage their orders online. Not only that, but the potential ROI uplift is increasingly obvious when you consider 1) the fact that B2B orders are still entered manually (limiting 24/7 selling as is seen with B2C commerce) and 2) the labor savings that might be realized once sellers are able to size down their sales team (or arm sales reps with the ability to sell more with less effort). This buyer persona shift, clear ROI opportunity, and continued push for digital transformation sets the stage nicely for some much-needed upgrades to the current pen-and-paper status quo.
Don’t take our word for it, in Shopify’s most recent transcript, B2B was mentioned 14 times. GMV for B2B grew over 145% YoY, its fifth consecutive quarter of triple-digit growth. In last year’s Q3 transcript, B2B was only mentioned 6 times. In 2021, it was not mentioned. It’s becoming increasingly clear that Shopify sees B2B adoption as a primary lever to sustained growth in the next decade. In our discussions with Shopify execs, when asked about their focus on B2B, the answers (paraphrased) were as follows: “Well yes, isn’t it obvious!”
In our view, Shopify will be a major catalyst for accelerating adoption in this space. Shopify has the brand, the reach, and the developer resources to drive change. We’re not alone in this, B2B eCommerce veteran and PeakSpan and B2BEA Expert Community member, Rick Black explains:
“Most consultants and agencies still require de facto B2B eCommerce solutions, but Shopify is the clear sleeping giant, recently being named a B2B leader in the most recent Forrester Wave. Shopify has natural advantages such as their app ecosystem as well as their ability to serve D2C and B2B use cases under a single roof.”
What is B2B eCommerce and How Is It Different?
Let’s level-set…because B2B eCommerce is largely misunderstood. In summary, here are the primary differences between B2B and B2C eCommerce:
Platform
Historically, B2B purchases occurred offline or via procurement catalogs but this is beginning to change with eCommerce platforms such as Shopify building B2B offerings with the ability to create personalized buyer portals for each account. B2B buyers have log-in credentials for key supplier catalogs/sites.
Customer Experience
In B2B, buyers will have their own personalized portals with baked-in custom catalogues and custom pricing. In B2C, everyone sees the same products/prices.
Additionally, a B2B seller typically sells the product AND services (catered to the product) which adds to ongoing communication and can lead to additional spare part sales, replacements, etc.
Buyer/Supplier Relationship
B2B sales involve multiple stakeholders (procurement, finance, etc.). Further, there is often a human-to-human interaction (unlike the D2C experience which is fully DIY).
From a technology perspective, the ERP and CRM are HEAVILY relied on to facilitate sales. ERP more so than CRM. These two systems will continue to dominate and maintain relevance in B2B.
Quantity and Pricing
B2B transactions are typically larger (bulk ordering) and are for higher dollar amounts. This can be particularly true with wholesalers and distributors.
Prices are custom and often negotiated in a B2B setting, based on volume and client relationship.
Payment Terms, Tax, and Accounting
D2C sales are paid for at checkout or with the assistance of a BNPL provider. B2B sales involve payment terms such as net 30 or net 90. It is also common for credit lines to be offered. Payments ultimately occur post-delivery and are typically manual and bespoke based on the customer.
- Tax and accounting are also more complex, including adherence to state-level sales and use taxes.
- Invoices are required in B2B sales and are not relevant in the D2C world.
- Warranties are more common in B2B relative to D2C and can be bundled with the sale.
Marketing
In B2B, given the higher value nature of the transaction, marketing is done on a personalized basis and over a longer period of time. High effort, one-to-one interactions are common (dinners, etc.) as opposed to mass-marketing campaigns or personalized digital advertising.
Product Information
On average, the product information in B2B is materially more detailed and will matter more in the purchasing decision relative to a D2C sale where consumer reviews, pricing, and shipping estimates are bigger factors (the products themselves are more straightforward). Product information is also more complex in B2B as key data might be pushed out and simultaneously managed across multiple ecosystems.
Inventory Management
Structurally, B2B purchasing is done on a regional basis with localized inventory levels whereas D2C takes on a single catalog and relies on shipping and logistics partners to move products from distribution centers to the end customer’s doorstep. This is further exacerbated when thinking internationally.
Customer Support
B2B customer support is high-touch with dedicated account reps and ongoing consultation.
Shipping and Logistics
In D2C environments, the buyer is presented with shipping options pre-checkout. In B2B, the logistics elements are an afterthought and are often carried out manually or via the ERP.
B2B Last Mile Logistics in particular represents a fundamentally different arena within the transportation and logistics space (requiring unique software and service providers). B2B Last Mile Logistics is a $30BN+ per year industry growing at 10% per year. Companies such as Dispatch, a portfolio company of ours and a leading last-mile delivery marketplace for the B2B Industrial supply chain, are a necessary part of the supply chain given the unique last-mile demands of B2B.
In summary, B2B commerce is tailored for complex, high-value, and relationship-driven transactions, while B2C focuses on simple, quick, and individualistic buying experiences across a larger “n” of (often faceless) customers.
B2B eCommerce Predictions
And lastly, our predictions!
B2B Commerce Growth!
By digitizing B2B commerce, we will see continued strong growth as sellers will now be able to sell products 24/7 and in a more automated, scalable manner. As software becomes more prevalent, it will fundamentally transform the B2B buying arenas for the better.
CRM Renaissance in B2B
As B2B sellers pursue a fundamental mindset shift, they will realize that a central repository for all customers is mission-critical towards powering sales and marketing solutions. The CRM market will continue to evolve to meet the needs of digitized B2B selling.
Specialist B2B Commerce Solutions
Given we are still in the early innings, there is currently a dearth of B2B commerce software relative to the market size and relative to the volume of D2C applications. We will see new upstarts begin to specialize in solving specific pain points across the B2B buyer journey.
Procurement Synchronization
Suppliers will look to set up their own shoppable websites with buyer credentialing. However, they will continue to sell through procurement catalogs and the two environments will need to exist in harmony. This will add complexity with respect to pricing, order/inventory management, and product information management. Shameless plug for our portfolio company, Sales Layer, which handles this for B2C and B2B retailers, manufacturers, wholesalers, and distributors.
Compliance and Security
Given the higher prevalence of fraud, higher ticket items and larger buying entities, security and compliance will be a hot topic and a key requirement for technology adoption in this space.
B2B Payments and POS Financing Innovation
With nearly $200 trillion in B2B payment volume, the secret is out as to the market opportunity for payments tech in B2B. We will see B2B-focused solutions hit the market and enable AP automation, supplier risk management, and account-to-account payments. Lastly, we will see the equivalent of BNPL providers focusing on B2B (next-gen trade finance), embedded at the checkout with streamlined underwriting at the point of sale.
Personalization Tidal Wave
D2C eCommerce is being fundamentally redefined through a wave of personalization. Interestingly, B2B is not too far behind as the status quo must be personal by default (given the involvement of rep). That said, as B2B eCommerce becomes more automated, B2B sellers will need the same personalization solutions to drive higher revenue growth (personalized product recommendations, personalized text and email communication, personalized checkout experiences, etc.). Further, this value could also be delivered via arming the sales rep with tools to personalize interactions.
Personalization leaders will capture $2 Trillion in incremental sales in the next five years.
B2B Contracts will “Embed”
B2B contracts will be redefined, they will be fully digitized, and they will live in harmony with the payment terms, billing platforms, renewal flow, eCommerce platform, and ERP.
Rise in Cross-Border Logistics
Supply chain transformation in B2B will move slower but represents a large opportunity. One early example we see is in the cross-border space. As B2B eCommerce sellers digitize, they are naturally better suited to sell internationally. Logistics services providers are jumping at the opportunity to move goods cross-border given the chunkier deal sizes make the customs process worthwhile.
ERP 4 Life!
Nothing will happen to the ERP…. (let’s not be hasty!!!). We will continue to see cloud migration in the ERP world and as it pertains to B2B sellers, the ERP will still retain its status as the core system of record and will need to work seamlessly with the above mentioned solutions.
We will see ERP ecosystems continue to grow with software vendors selling through ERP marketplaces.
Bonus Prediction(!): Artificial Intelligence
Touched upon in the above but deserving of its own section. Artificial Intelligence will act as an accelerant to several of the above categories including product information management, intelligent order management, personalized sales and marketing capabilities, and customer experience-related workflows. Remember, B2B by default is personalized given the status quo involved in a 1:1 relationship. Over time, AI will take on this 1:1 personalized relationship responsibility.
At PeakSpan, we are hungry to partner with innovative solution providers attacking the B2B commerce space. We invest at the Series A stage, have $2BN+ in AUM, and can write $10-$20M+ checks. If you know of any scaleups attacking B2B commerce, please don’t be shy and reach out!
