Marketplaces, the titans of e-commerce

2022. július 14.

The importance of marketplaces in e-commerce is growing almost by the day. In five years, it is expected to account for 60% of online sales. Marketplace models cover more and more markets, offer more and more advanced solutions and are being used by more and more retailers to ensure their growth. The online marketplace has become virtually inescapable for all market players, regardless of size and profile. We spoke to marketplace expert Nick Everitt, Director of Advisory, Edge by Ascential, EMEA region, about the evolution, role and future of the marketplace.

What role does the marketplace platform currently play in trade?

A marketplace (also referred to as a ‘third party marketplace’) is an ecommerce model that connects consumers with sellers on a central platform. Marketplaces enable third parties to set up and sell products on their platform, as well as set their own prices and control content. Marketplaces enable retailers to create a flywheel effect, where shoppers on the commerce platform bring greater viewership and sales. As this flywheel ‘spins’, it creates a virtuous circle of growing users, sellers, assortment, competitive pricing, improved customer experience, and new verticals, gradually increasing competitive advantage. While each marketplace’s flywheel may operate differently, this self-reinforcing concept is what has driven the success of various retailers around the world. The most successful marketplaces in the world have vastly expanded beyond their commerce platforms to improve shopper experience and have greater competitive and financial success.

How might this evolve in the future and what might the growth of the sector mean for traditional stores?

At Edge by Ascential we forecast that by 2027, almost 60% of global ecommerce sales will occur from 3P sellers on marketplaces, up from 56% today, equating to an additional $1.3 trillion in sales.  At the same time, first party share will decline to 41% in 2027, down from 44% today, and from 51% in 2017, when it still retained majority share. This outlook reinforces the importance of devising dedicated marketplace strategies for brands of all sizes and categories. The power of the online marketplace model is evident in the evolution of the global retail order. If we rewind to 2007, the retail market was dominated by physical-first retailers with vast networks of large physical stores. Fast forward to today, and the world’s largest retailers are ecommerce-first marketplaces. Alibaba, the world’s largest retailer, operates predominantly as a 3P marketplace, connecting millions of third party sellers and brands to consumers on its platforms.

Many other leading retailers including Amazon, JD.com and Walmart rely on hybrid marketplace models, meaning that they combine pureplay retail businesses (1P) with a traditional 3P marketplace to fuel growth and scale.

“At Edge by Ascential we forecast that by 2027, almost 60% of global ecommerce sales will occur from 3P sellers on marketplaces, up from 56% today, equating to an additional $1.3 trillion in sales “

By 2027, all five of the leading global retailers will operate a 3P marketplace. Retailers are increasingly prioritizing the 3P marketplace model as a way to drive scale and grow, as well as build a more profitable business model. Traditional stores will still play an important role, but they will have to increasingly be digitally-connected and retailers must ensure their approach is omnichannel – designed to serve shoppers online and offline, wherever and however they want to shop.

What marketplace models exist? What are the differences between them? Can new types of solutions be expected in this segment?

There are many distinct nuances to the various marketplaces around the world. These can be segmented into a few key models, operating at various levels of maturity.  Core marketplaces models include ‘Hybrid’ and ‘3P Only’, and have been developed by the oldest and largest platforms. Hybrid marketplaces like Amazon operate a retail business and third party platform together, while 3P Only marketplaces sell via third parties only.

Emerging models include ‘Group Buying’ and ‘Brand Store/Shopping Mall’. Group buying marketplaces like Pinduoduo enable consumers to club together to receive discounts on group purchases. The brand store/shopping mall model sees platforms organize their assortment by brand as opposed to product, such as MercadoLibre.

Category specialists, also newer to the marketplace scene, include a range of category specialists opening up their platforms to third party sellers, as well as larger marketplace giants setting up dedicated category verticals (e.g. Walmart Flipkart’s ‘Supermart’ store).

Do you think that this market could become saturated? Is there still a chance for new marketplace platforms to gain market share?

Whilst a handful of global marketplaces do account for a large proportion of sales. There will always be the opportunity for new and innovative marketplaces to capture share and sales providing they offer a compelling assortment and can fulfil and deliver orders as required.

What makes a marketplace successful? What conditions does it currently have to meet and how can it develop in the future?

The key attributes of a successful marketplace are assortment, choice, price and delivery speed.  The reason retailers like Walmart and MediaMarkt are expanding their marketplaces is so they can offer even more choice and value to their customers, and the marketplace model is a perfect opportunity to do that.

For a smaller trader who also sells through a marketplace platform, what is the optimal strategy for the future?

The strategy for each trader will be dependent on their category, competitors and customer needs.  However it is important to recognize that not every marketplace is the same and the approach must be tailored accordingly. One option can be to test in one or two markets to start with, capture learnings and then expand based on the scale and investment available accordingly.

Can we expect consolidation in this area as has taken place in traditional trading?

There will undoubtedly be further consolidation in the sector given the importance of scale to drive reach and profitability. Established players like Amazon and Alibaba may look to acquire national or regional players.

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