A B2B2C is a particular kind of business model where a company rather than accessing the consumer market directly it does that via another business. Yet the final consumers will recognize the brand or the service provided by the B2B2C.
Therefore, the company offering the service might gain direct access to consumers over time. This kind of model can help build a robust B2B as the foundation to the consumer market. While it makes it less scalable in the short term, if well executed, it can scale.
B2B2C in a nutshell
In the business world, the difference between B2B vs. B2C businesses often seems clear and straightforward. However, there is a third kind of business model, primarily based on what might seem B2B strategy. However, the final aim is to build B2C company over time.
This model is called B2B2C or business to business to consumer. The logic is the following. If a business can’t have direct access to consumers, it will gain it via a second business.
That second business will allow the first business to gain access to its consumers, have its brand recognized and over time expands the overall consumers base.
Now the question is why an intermediary business would become the link with its consumers for the B2B2C business?
Did you know Google was a B2B2C?
One of the deals that made Google the tech giant it is today was the deal with AOL. At the time AOL was a tech giant, while Google was still in its infancy.
While the search engine from Mountain View was snowballing, it still missed the first-scaler advantage that would have given it the dominance of the search industry.
Google was already a consumer product. However, it needed to pass first through a set of bottlenecks to gain access to consumers. In addition, the more data Google gained over time, the more it got better.
And the more consumers knew about it; the more Google would be less reliant on distribution channels like AOL. This is not to say that Google took advantage of AOL.
Quite the opposite, Google offered to AOL a minimum guaranteed of revenues, and it bought a stake into the company.
Indeed, a B2B2C business model relies on a closely tied relationship which makes the intermediary business (which connects to end consumers) position quite good.
Let’s analyze the basis of this B2B relationship, which will then trigger the B2C opportunities. For the sake of this discussion we’ll call:
- B1: the business trying to enter the consumer market via another business
- B2: as the intermediary between B1 and consumers
- C: as the consumers in that industry
Why not go directly to consumers?
One of the first questions that come to mind in designing this kind of business model might be about why not going directly after the consumers?
In reality, going after the consumers is the dream of many, but a few make it. The consumer market seems to be biased more than any other toward the winner-take-all effect.
Source: Sapphire Ventures
In a study by Sapphire Ventures on the exits in the consumer vs. enterprise since 1995, the latter seems to have generated $825B compared to $582B in the tech consumer space.
An exit is a strategy where the venture capitalist or investor liquidate its funds in a previously invested startup, and it usually measures the ROI for the investor.
In short, from 1995-2016 there were 4,600 exits in enterprise tech and over 2,600 exits in consumer tech.
A little caveat: the numbers above are in no way to be interpreted as investment advice, instead this is just a strategic analysis of the business landscape.
This means that starting from a B2B, an enterprise business allows at least three advantages:
- risk reduction
- a more predictable growth path
- easier financing as more investors can liquidate their position via an exit
One drawback, of course,e is the lack of scalability, unless you design a B2B2C business model.
How does a B2B2C relationship look like?
A B2B2C business model relies on a tight relationship between the B1 that wants to access consumers and B2, which instead has already access to the consumer market.
As it might not make sense for B1 to enter the consumer market, it will make sense to find the key players that can help it open it.
A partnership between B1 and B2 has – I argue – three main features:
- it is not a white label: if it was a white label, final consumers would not recognize the product and brand over time
- it has direct access to consumers’ data: many software as a service, and digital tools in general benefit from network effects. In short, the more data they have about the people using it the better those tools will get for each new user. If the business entering the consumer market via another business didn’t have access to their data, it wouldn’t be possible to benefit from network effects and scale up over time
- it gains brand recognition: not only the B2B2C business will have access to consumers data, but its brand will be pretty visible to them. Thinking back to the Google deal with AOL where it got powered by Google searches, more and more people could recognize Google over time, at the point that it became a verb
What are the premises of a B2B2C relationship?
A B2B2C business starts with a few key partners, which are other businesses that can help it gain access to consumers. This relationship has to be highly beneficial to the business that has access to the consumer market.
It might look like a joint venture in practice, with a tight-knit that makes the incentives in favor of the business partner to distribute the product of the other business which doesn’t have access to consumers.
Indeed, I argue – this kind of partnership has to have a few key elements:
- willingness to offer a wider portfolio of products or services: often customers might ask to B1 for products or services that are not in its portfolio. B1 can make its customers happy by having your product or service featured. Going back to the Google deal with AOL, at the time search was seen as a secondary service, yet it was a nice to have feature for consumers. Google worked 10x better than its competitors and it made sense to offer searches powered by Google through AOL
- price convenience: another key element is the convenience in distributing the product or service of B1
- an economic opportunity: a very important element is about economic opportunities created for the business which helps access the consumer market. Indeed, if the product or service of B1 makes B2 able to expand its offerings to consumers. That opportunity is too good to be given up and this makes B1 in a position of sealing that relationship. Also, if B2 is driven by an economic opportunity, the chances that it will distribute the service provided by B1 will be higher. Indeed, one of the greatest pitfalls of a B2B2C business might be the lack of push and distribution from its partners
- not interested in entering directly that industry: another reason why B2 might want to use B1 service to its consumers it’s because it doesn’t have any interest in entering that industry. Going back to the AOL deal example, the company didn’t have any interest in entering the search industry
- a very good deal: last and important ingredient is about offering a deal that is too good to refuse. This deal is a marketing expense on the side of B1 to acquire consumers market share. On the other hand, it is for B2 a great opportunity to grow the business with no costs and risks
B2B2C marketing done right!
On the one hand, you want to have a structured sales force able to perform account management for those businesses acting as intermediaries to the consumer market.
On the other hand, you need to invest resources in branding and marketing effort. This will allow your business to be recognized from consumers over time. In this way, consumers will act as a push that will make your entrance in the B2B space easier.
While this process might seem simple in theory, it is quite complex in practice. But in this article, we analyzed the few key ingredients, which should give you enough information to get started.
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