Just last week we commented on the B2B marketplace space, regarding a San Francisco-based startup from 2016 that is automating EDI as a service and suggested that there were currently no direct competitors. We then came across this article today in Forbes, which indicates that competition might indeed be more prevalent than expected, which is not particularly surprising in the fast moving e-commerce space.
B2B e-commerce essentially dwarfs the size of consumer e-commerce, as we discussed in our recent Report titled B2B Marketplaces: Disruption Presents Opportunity. The referenced posting in Forbes is about seed funding provided for a 2019 startup out of Canada called Convictional.
The funding came at least partially from a Silicon Valley startup accelerator called Y Combinator. In any event, Convictional has seemingly targeted a specific small business segment as the logical market for their solution set.
“With the growth of e-commerce in the past two decades, smaller vendors have more significant opportunities to sell to merchandisers and retailers regardless of their size. However, these vendors have difficulty selling to larger entities as the latter relies on legacy transaction software to facilitate receiving goods from the former….Convictional is a B2B e-commerce platform that allows these small brands and businesses to enable small vendors to sell to any retailer effectively.”
For many readers, the B2B commerce space may be viewed as marketplace-only (e.g.; Alibaba, Amazon, ThomasNet, TradeIndia, etc), however more than 50% of B2B electronic commerce still takes place through specific EDI connectivity, which is tough on small sellers who don’t have the resources to develop many proprietary connections with multiple standards.
“For a small supplier to sell to a large retailer, the transaction of goods is facilitated through electronic data interchange (EDI) software, which was first created in the 1940s to facilitate military logistics. EDI software allows for the computer-to-computer exchange of data between businesses using a standard electronic format. The type of data being exchanged varies on the companies involved in the transaction. Depending on the retailer, they could use one of the more commonly used EDI standards such as ANSI ASC X12 or GS1 ED1, or rely on a custom one for their unique needs. EDI replaces the paper-based methods of documenting, filing, and executing the exchange of goods and payments between supplier and retailer. By replacing business processes that were driven by paper flow or phone, email, and fax, EDI is estimated to reduce delivery time from suppliers to vendors by 30%. Also, the data exchange software reduces the likelihood of inaccurate information being transferred between business entities.”
Convictional’s SaaS approach is to help the smaller businesses build marketplace business capabilities and remove the friction of EDI development, while allowing for business growth through the smaller pockets of sellers who don’t qualify for large order volumes. It is an esoteric space and surely new approaches (including drop shipping) have opportunity to penetrate the multiple trillions of dollars in growth expected during the coming decade.
“Drop shipping allows for orders of smaller quantities to be facilitated and processed, instead of retailers having to meet a minimum order quantity to have their request fulfilled by a supplier. Retailers and marketplaces not needing to meet this minimum order quantity allow them to address the needs of customer segments directly that they couldn’t before, thus directly increasing their revenues. Also, these smaller retailers and marketplaces can begin to build predictive models around selling to these new customer segments that order fewer quantities of product, similar to big-box retailers learning how much to order from their established vendors based on their inventory turnover. These models can be used to better assist vendors in dynamically adjusting their inventory to meet consumer demand for their product best.”
Overview by Steve Murphy, Director, Commercial and Enterprise Payments Advisory Service at Mercator Advisory Group