October 10, 2018
The State (and Future) of Digital Marketplaces
As some retailers continue to struggle with declining margins and less revenue, others are finding new life by embracing the marketplace business model. Here, companies simply provide a central location for buyers and sellers to meet and transact, therefore removing costly inventory and overhead from the equation. More and more companies are seeing marketplaces as their competitive advantage, and the conversation is heating up.
As May comes to a close, let’s review the top 3 articles that explore the rise of digital marketplaces:
By focusing on seller relationships on its #marketplace, @Walmart has a unique angle against @Amazon, which focuses on volumeClick to tweet
Should online marketplaces embrace sellers with open arms, or should the operators exercise discretion over who they allow within their platform? As Bloomberg contributor Matthew Boyle reports, that’s a question Walmart has been struggling to address now that they’re trying to go head to head against Amazon. The key point to note; while Amazon averages around 3,000 new marketplace sellers each day, Walmart only accepted 348 sellers in March 2018.
Despite limiting its seller base, Walmart offers nearly 75 million products via its marketplace. But, the company hasn’t disclosed the amount of revenue that comes from third-party sellers.
So, the main question is whether Amazon or Walmart is taking the winning approach to meeting customer needs. The short answer is that there really isn’t a right or wrong answer. As far as opening the floodgates to sellers goes, Amazon can leverage the wisdom of crowds (its large user base combined with reputation systems) to identify bad actors before they cause much harm. That being said, a significant portion of sellers who sign up on the service never actually sell products. Although it’s slightly inefficient, there’s plenty of revenue from volume.
Walmart, on the other hand, by focusing on quality over quantity can foster meaningful relationships with its sellers through granular advising, and ensure it’s able to drive significant amounts of revenue, even if the user base is significantly smaller.
#Retail businesses must adjust to the rise of #marketplaces and develop strategies that involve either competing or participating with the entities.Click to tweet
RetailDive contributor Dan Alaimo reports that online marketplace revenues are expected to double by 2022, from $18.7 billion in 2017 to $40.1 billion in 2022. This revenue comes from much more than household names such as Amazon and eBay. Much of the income is attributed to marketplaces such as TaskRabbit and HomeAdvisor which enable users to find and book services.
Alaimo reports that traditional retail marketplaces must adjust to these new business models or ignore at their own peril. Walmart, a legacy retail company, for example is working to stay relevant in the era of Amazon by offering third-party products on its digital properties.
Additionally, Alaimo mentions the increasing popularity of resale marketplaces, or properties, also known as “re-commerce,” which provide an avenue for sellers to differentiate their inventory from the rest of the pack. In particular, this is popular with the apparel sector.
Given the current shifts in the retailing and merchandising space, these statistics shouldn’t come as any surprise, especially considering the rise of the sharing economy and the fact that it’s now as easy to purchase services as it is to purchase goods.
Amazon Prime’s 100 million subscribers are more than 2x as likely to be daily online shoppers than non-Prime shoppers, according to @Feedvisor @bthauClick to tweet
Although Amazon is viewed as a retail giant, Barbara Thau reports that marketplace sales on the property amounted to 42% of the company’s sales in 2017. This is up from 24% in 2010. The reason for this shift? It’s a classic case of, “If you can’t beat ’em, join ’em.”
There’s a bit of tension between the giant and the sellers within the ecosystem. Amazon is a hybrid marketplace where marketplace sellers are competing against the behemoth which leverages economies of scale to offer lower prices than the competition. In fact, Amazon has been accused of luring merchants into the Amazon ecosystem, only to undercut them over time.
Why is Amazon dominating the marketplace space compared to sites such as eBay and Walmart’s Jet.com? Sellers are attracted to Amazon’s 100 million Prime subscribers, many of whom are twice as likely to be daily shoppers than non-subscribers.
A Bi-Weekly Newsletter Focused Exclusively on Online Marketplaces