(This is the second in my series of posts on the nine value propositions offered by B2B platforms/multi-sided markets.)
Value Proposition #2: Matchmaking
Supply Chain Automators (Value Prop. #1) improve the transactional efficiency of already established buyer-supplier pairs. Matchmakers, by contrast, seek to create new relationships between buyers and suppliers who were previously unknown to each other. The value proposition is to:
- make the search process for a new supplier or product better for buyers
- make the sales and marketing process better for suppliers
Think of matchmakers as an “e-Yenta”, for those of you familiar with Fiddler on the Roof!
Because matchmaking involves search for new business relationships, matchmaking adds the most value in markets where:
- frequent search for suppliers is necessary
- products or services required are custom or project-oriented
- products or services where the inventory is perishable
- markets where new suppliers are common or supplier turnover is high, and
- the supply base is fragmented, unbranded, and/or local
Examples of matchmakers in products are:
- mfg.com (textiles and custom parts)
- Liquidity Services in surplus equipment
- Cvent in event venues
In services, there are even more examples of matchmakers:
- elance and odesk (and many more in freelance work)
- Fedbid in government procurement
- Upcounsel and Lawpal in legal services
- 99designs and Poptent in marketing services
- too many online ad exchanges to mention
- Science Exchange for science experiments!
Strategic Issues Facing Matchmakers
Matchmakers of all types face the following issues:
1. How to divert buyers from using Google and send them to their own website! Google is free and easy. Even though it may not offer details on suppliers, it is a starting point. Matchmakers monetize the “eyeballs”, RFQs, or purchasing intent of their buyers. If a matchmaker does not have enough buyers there will be no reasons for suppliers to join. Matchmakers have to find a way to drive buyers to search on their site– without paying a zillion dollars for AdWords.
2. How to create and retain an interest in recurring relationships. By their nature, many of the goods and services bought on matchmaker exchanges fill a one-time, or spot, need. Once a matchmaker helps to create a new relationship, there is a strong incentive for buyer and supplier to move off the platform and transact without paying the matchmaker’s fee. Ever bought more stuff from an Ebay seller off Ebay? You are not supposed to!
There are two ways matchmakers attack this problem of “off-network” use:
- One is to offer some of the commerce services of the supply chain automators–escrow systems, payment systems, progress payment capabilities.
- A second approach is to use a volume-based rating system to encourage on marketplace transactions.
As a result matchmakers end up dabbling in two of the other value propositions–commerce automation and credentialing– to stay part of the transaction. Ebay did both, for example They always had a rating system to help keep transactions on network and they eventually had to buy PayPal to have a way to participate in settlement.
4. As mentioned above, matchmakers have to decide how much to get into the credentialing business. If you are going to be a matchmaker who beats Google, a rating system is likely a necessity. How robust to make the rating system, how it should be influenced by suppliers, how its integrity is maintained–all of these are issues for matchmakers and credentialers. (I’ll cover credentialing businesses, which can be an entirely different, stand-alone value proposition, in the next post.)
5. Matchmakers monetize buyer purchase intent and search, but they have to decide exactly how to charge suppliers. Google’s pay-for-performance model, in the form of pay-per-click, puts pressure on matchmakers to adopt a similar model, but there are several formats to consider within that approach:
- pay per profile click or lead
- pay per RFQ “seen” or “responded to”, or
- pay a percentage of any business actually “won”/transacted
The right fee structure is really a question of where in the sales funnel to charge the supplier, at the top or at the bottom? Prices, of course, go up as the lead progresses down the funnel to a true commission on real business gained.
Matchmaking is one of the true distinctive of the Internet and search–especially in the consumer and small business world. That’s why there are so many successful B2C and C2C matchmakers–eBay, Angie’s List, Care.com, Yelp, OpenTable, etc. But matchmaking can also be a great value proposition in the right areas of B2B where search is critical and constant.
Up next, the third B2B platform value proposition: the very closely aligned value proposition of credentialing.