Formulating a proposition on how to tap the opportunity of digital marketplaces could be one of the more important decisions your company makes. Here’s why.
Much has been made in retail recently about the rise of e-commerce pure-plays, but much less about e-commerce marketplaces, though the latter are profoundly reshaping global retail.
What is the difference? Well, let’s just say Jeff Bezos had the brilliant idea in the 1990s to sell a book online, but later the equally brilliant idea to have many others sell that same book on the same site and on the same product detail page!
Now over four out of 10 items sold on Amazon are from marketplace sellers and the commission it receives on those four items makes for a profitable marketplace model. And there are numerous examples of e-commerce marketplaces operating at scale that are highly profitable, such as Alibaba or the more niche or local players like Farfetch, NotOnTheHighStreet.com and Etsy.
In fact, at a dinner recently, I asked the founder of a very strong global pure-play retailer to name one retail pure-play without an e-commerce marketplace offering that had successfully scaled to more than $1bn in revenue and had sustainable profit returns. He found it very difficult.
Customers are very receptive to marketplace models as they are aligned with modern shopping behaviour - exploring a range of goods, comparing prices, browsing across all devices and ordering with minimum friction. The depth of products and global reach marketplaces offer makes them too powerful to ignore.
One way into ‘marketplace mode’ is to set up a marketplace on your website. Imagine offering salmon from a local fishmonger or exclusive clothing normally found in bricks and mortar stores.
Tesco, among others, is exploring this concept with Tesco Partners, offering goods from brands like Mamas & Papas and Maplin. A major retail brand CEO told me he makes more sales through the Tesco marketplace than through his own website in some key niche categories.
The second option is to test on an established global marketplace. Rakuten, for instance, is already an established marketplace in Japan. Why pour money into setting up your own branded site for a region when you can test out opportunities by offering your merchandise via an established local player?
‘Test and learn’ should always be a working mantra and there is a lot to be said for collaborating with online marketplaces, tapping their established audience and their mindset of innovation, adaptability and agility.
Action today will save playing catch-up tomorrow.
Peter Fitzgerald is country sales director at Google UK