October 10, 2018
The State (and Future) of Digital Marketplaces
E-commerce has changed drastically over the past decade, as entire industries have collapsed under seismic shifts. Retail, for example, has been dealt multiple blows, with 6,800 chain stores closing in 2017 (Bloomberg).
And retail is by no means the only industry that has suffered. Publishing is but a shadow of what it used to be, with print newspapers becoming virtually nonexistent. Record labels, once powerful media giants, have been decimated as changes in consumer behavior and technology have redefined music listening. Advertising. Media. Cable. The list goes on and on. Despite the carnage, from the rubble of this destruction, other forms of commerce have emerged. In no place is that more prevalent than the modern day marketplace.
Look no further than eBay, the world’s original online marketplace; Airbnb, the world’s largest hotelier; or Uber, the world’s largest taxi company. Only a handful of years ago, these giants were nascent, burgeoning ideas, yet they now represent three of the most valuable companies in the world.
There’s plenty of evidence to support the long-term viability of marketplaces, as numerous Forrester projections indicate by 2022, marketplaces will account for nearly two thirds of all consumer sales. Just think about what two of every three sales via marketplaces means to retailers of any size.
All that being said, you’re probably wondering what a marketplace is, and how they stand apart from traditional retailers. Below is a brief primer on the topic.
Marketplaces are virtual bazaars where buyers and sellers transact under the safety, security, and structure of a brand. Marketplaces span various industries, encompassing virtually any vertical you can think of. They are geographically dispersed, with Mudah representing the largest marketplace in Malaysia and eBay representing one of the most popular marketplaces in the United States.
The product mix for marketplaces is as diverse as the platforms themselves. Some marketplaces source “homogeneously,” where all supply is identical. Uber is a perfect example, where all rides are functionally equivalent.
Others source “heterogeneously,” where products, even ones in the same category, are different. Companies that sell a variety of one-off or limited quantity of like goods such as Etsy are common examples of that.
Despite their differences, all marketplaces have a handful of common characteristics, most notably buyers, sellers, and the place they transact (the marketplace itself).
Buyers in marketplaces are just that—the people buying the items that are for sale. In the context of a marketplace, they are (arguably) its most important asset, as a marketplace’s existence rests entirely on a sufficient pool of willing buyers.
With a myriad of purchasing options and buyers typically looking for a wide selection of products at reasonable prices, the competition for buyers is fierce. As a result, with few exceptions (such as a niche product), it’s unusual to find a marketplace that has exclusive ownership of a buyer segment.
Sellers, as we all know, are those individuals (and companies) that are looking to offload inventory, or offer their services. They represent the other half of the buyer/seller equation.
Marketplaces provide a distribution channel that provides access to a larger buyer pool than a seller would reach via their own property. Marketplaces also are a valuable marketing and promotional resource, where undiscovered sellers can flourish without having to invest dollars in promotion and advertising.
Since most marketplaces don’t charge for listing items (vs. actually consummating a deal), successful sellers frequently leverage multiple platforms.
A marketplace is a virtual bazaar, where buyers and sellers discover one another. The marketplace’s role in this dynamic is critical, one that goes far beyond simply providing a place to transact.
Successful marketplaces offer a multitude of value-added services such as payment, security, and facilitation of communication between the parties. Their focus is on delivering positive experiences to both parties so that they return for subsequent transactions.
Since their very survival hinges on buyer and seller retention, some marketplaces take responsibility and resolve product malfunctions or misrepresentations by a party to the transaction.
A marketplace’s vibrancy can be measured by purchase frequency, average order value, and transaction completion percentage. Successful marketplaces are beginning to apply recommendation engine technology to cross-sell like products and advise sellers on the timing of discounts and even suggest products to sell to maximize seller success.
This is the first of a five part introductory series on marketplace businesses. You can find the second part of the series here.
To learn more about how you can embrace the marketplace business model, check out The Kahuna Blog. Just click the button below!
A Bi-Weekly Newsletter Focused Exclusively on Online Marketplaces