In the chemical industry, a tentative journey to ‘point and click’

Online business-to-business (B2B) sales and marketing have ramped up considerably since the dot-com bust of the early 2000s. With a steady increase in the number of e-commerce platforms over the past 5 years, it would appear that even the chemical industry is headed in the direction of point-and-click buying and selling.

It has a long way to go, however. And it is moving slowly.

Few were surprised that e-commerce in chemicals failed to fly 20 years ago. In addition to the complicated mix of logistics, pricing, safety, and regulatory concerns involved in buying and selling chemicals, dealmaking in the industry has long hinged on personal relationships. Although lab-chemical suppliers successfully introduced online buying for their research customers, the barriers to establishing Amazon-like storefronts for industrial chemicals seemed insurmountable.

That view changed, however, as the industry threw its weight into digitalization programs and the concept of B2B e-commerce evolved toward more sophisticated models. It became clear that some form of internet sales and marketing would need to take shape.

As a result, an act 2 for e-chemicals began in recent years with the arrival of platforms including Knowde, a brash entrant in the US, and several ventures in Europe and China. Chemical companies themselves have also been busy developing online platforms, some adding product catalogs from competitors to their sites. By all accounts, the current wave of e-commerce platforms appears viable.

But traffic remains low: some developers estimate that only about 1% of commercial transactions across the industry are executed online. It’s a rate that reflects the immaturity of e-commerce platforms, many of which are essentially search engines, and the slow-to-evolve culture of the chemical sector.

Knowde, which launched its platform in 2019, has gained the most attention, garnering over $100 million in investment through four financing rounds. Its home page displays the logos of 15 sellers and buyers of chemicals, including large firms like Dow, BASF, Mitsubishi Chemical Group, Givaudan, and Tesla. In all, the company claims that buyers can access the catalogs of over 8,000 chemical suppliers via Knowde and complete transactions with some of them.

Knowde also makes its technology available for suppliers to install as the engine for their own online marketing, says Ali Amin-Javaheri, CEO of the company.

But the chemical industry has a long way to go, according to Amin-Javaheri, who is unique among the new crop of platform entrepreneurs in having worked in the industry. He led the technology and marketing team at ChemPoint, a technology-enabled distribution firm where he started in 2003.

“It’s one of these markets that hasn’t seen a lot of change,” he says. The industry is not populated with internet entrepreneurs, and outsiders with experience building online marketing engines are unfamiliar with chemicals.

“The market is very opaque,” Amin-Javaheri says. “You can’t just jump online and learn what you need to about the industry and start building software for it.” He says the disconnect between the tech and chemical worlds presented an opportunity to build a platform such as Knowde.

What’s more, most chemical companies have not digitized their product catalogs, a prerequisite to online marketing, Amin-Javaheri says. “They haven’t organized it, structured it, harmonized it, put a taxonomy codification system around it,” he says. “Ninety-five percent of suppliers haven’t done that. They don’t know how to do it.”

ChemDirect, another third-party platform, was launched by the solvent manufacturer Nova Molecular Technologies in 2018 and spun off as an independent company in 2019. Dave Haase, ChemDirect’s president, says the platform has 130 suppliers and over 1,000 buyers. It boasts growth over the past year of 50% in the number of suppliers and 100% in buyers.

“We have seen most success with things not running through procurement,” Haase says, explaining that industrial companies’ procurement departments deal directly with chemical suppliers for a large portion of what they buy. “That is why we focus on getting on the tailspin,” he says, referring to low-volume, onetime purchases that may represent 20% of a company’s total purchases.

Haase says procurement departments’ aversion to change remains the key limiting factor in chemical e-commerce. Many in the industry fear that disclosing pricing on an online platform will lead to lower profit margins. Haase says ChemDirect has developed tools that allow suppliers to list products at high prices for small-volume customers and then offer discounts for larger ones.

A recent entry, BluePallet, launched in 2021 with $4 million in seed funding from investors including the former president of Univar Solutions, the largest US chemical distributor, and two board members of the National Association of Chemical Distributors (NACD). Developed with the NACD, the platform employs a technology called TradePass, which performs risk analysis on potential business partners. BluePallet is being used by 97 NACD members.

“The core component of the platform is permission-based selling,” CEO Scott Barrows says. In this method, sellers control access to prices quoted to individual customers. The system protects the regional contract pricing that is essential in the distribution business.

The NACD has facilitated contact with US agencies including the Drug Enforcement Administration, the Department of Transportation, and the Environmental Protection Agency about hazardous or potentially illicit chemicals, Barrows says. “We are working with those regulatory bodies to access their databases for chemicals of interest and make sure all the information tied to those lists is in our platform,” he says. “They are part of our DNA.”

Knowde, ChemDirect, and BluePallet are still coming up to full speed on e-commerce, each on a path to developing a system that goes beyond mere product search to include immediate online transactions.

“We believe that in order to really buy chemicals online, you need to finance it in real time, and you have to give a logistics plan in real time because you can’t make a final purchase decision until you know what everything is costing,” ChemDirect’s Haase says.

ChemDirect recently raised an undisclosed amount of series A funding led by Schneider National, a trucking and logistics firm with which the company is developing a carrier network to support transactions on its platform. ChemDirect already has a partnership with Balance, a developer of B2B payment systems, to deploy a mechanism to qualify buyers using publicly available data.

Knowde is also at work on enhancing its transaction capabilities but is concentrating more on engaging with customers, Amin-Javaheri says. “When we think about platforms, we see search and discovery, engagement, and transaction,” he says. “A lot of people overlook the second section. It’s the most important.”

A resurgence in third-party e-commerce may be underway, but a handful of major chemical companies, notably Dow, are also playing in the space.

Daniel Futter, Dow’s chief commercial officer, acknowledges the demise of most chemical e-commerce platforms after the dot-com bust, but he points out that there was one exception: Xiameter, which was a wholly owned e-commerce platform of Dow Corning.

Launched in 2001, the site allowed users to access Dow Corning’s full catalog of products. “It had full search capability, catalog and transaction capability with predetermined business rules, and automated, real-time order confirmation, which is still something of a challenge to the industry broadly,” Futter says.

After Dow’s acquisition of Corning’s stake in Dow Corning and its merger and demerger with DuPont, Dow expanded the Xiameter engine to include product catalogs from Dow, Dow Corning, and DuPont. “We built a whole new dedicated platform,” Futter says. It went online in late 2019.

Dow achieved $11.4 billion in digitally enabled sales in 2022, representing 20% of total sales, Futter says. One-third of digitally enabled sales involved the company’s e-commerce platform, he says. The rest accrued through electronic data interchange (EDI), a method in which trading partners link their financial operating systems. Digitally enabled sales at Dow have increased by 72% since 2020, Futter says. But the split with EDI was 50-50 that year. Sales via the company’s e-commerce platform have remained nearly flat, at $3.3 billion in 2020 and $3.7 billion in 2022.

Evonik Industries launched a platform called OneTwoChem in 2018. “The intention first of all was to have a solution centered around stock-volume transactions—basically we are talking about surplus volumes and an easy way and quick way to get surplus products to the market,” recalls Henrik Hahn, Evonik’s chief digital officer.

The German company also sensed an opportunity to allow other suppliers to list their products on the platform and complete transactions offline, Hahn says. “A fun fact was that one of our first customers was a competitor. A major German player.” The project failed to thrive, however, because there were too few suppliers to meet buyers’ needs. “So the platform more or less dried out,” he says.

Evonik discontinued OneTwoChem in 2021 and pivoted to a search-oriented platform to facilitate transactions offline. The firm announced last year that it would invest in Chembid, an Oldenburg, Germany–based search engine and marketing intelligence platform for chemicals.

CheMondis, an e-commerce platform developed and owned by Lanxess but operated as an independent company, launched in 2018 and has about 1,900 registered suppliers and nearly 12,000 registered buyers. “We believe we are the largest online marketplace for the chemical industry in Europe,” CheMon­dis CEO Marcus Riecke says.

Like other platform developers, CheMondis endeavors to support complete transactions online. “We are 4 years old, no longer a baby, beginning to be a toddler,” Riecke says. The CheMondis platform facilitates real-time transactions and even provides an escrow-based payment service for immediate financing, according to Riecke. But most of the current activity on the platform involves buyers and sellers meeting through the catalog search function.

Getting to the point at which a significant number of buyers complete transactions on the site will take time, Riecke says. He acknowledges a cultural resistance peculiar to the sector and agrees with BluePallet’s Barrows that a slow transformation is to be expected. “B2B tends to trail developments in consumer technology by easily 10 years,” he says.

Nor is there any rush. “We are at a stage of development where we still have to build up an abundance on the supply side to be more relevant to the buyers,” Riecke says. “But we are not necessarily saying that it ultimately has to be a transaction on the platform.” There is nothing wrong with operating as a search and lead-generating engine, he says, noting that platforms for selling used cars all operate in that mode.

Some of the larger chemical companies are participating on third-party sites on a trial basis. “We are working with quite a few, mostly because we are curious to see how they evolve,” Dow’s Futter says. Hahn says Evonik is testing options regionally, relying on its own platform for Europe and using Alibaba’s 1688.com platform for China. “In America, we are trying out Knowde,” he says.

PPG Industries, a coatings maker that has a much less comprehensive online store than Dow’s, is experimenting with third-party platforms on just Knowde for now. “We are piloting it to understand whether the marketplace channel will be meaningful in our industry,” says Brad Budde, PPG’s chief digital officer.

Despite the slow pace of change, industry executives maintain that chemical e-commerce is not only viable but destined to grow. “Our vision is that every transaction will become digital at some point,” Barrows says. The onus is on platform developers to provide technology that responds to industry needs, he says.

Futter is sold on the concept but sees it as just one of what will remain several avenues in sales and marketing. “We don’t mind if customers want to go with EDI, make a phone call, use Dow.com or a third-party website,” he says. “All that matters is they buy our product. Our job is to make sure we are in all those places and to try to make the experience as easy and effective as possible.”