What does the future of your business look like?
Heard about online marketplaces but don’t know how to leverage them for your business?
With marketplaces expected to make up 40% of all online revenue within the next few years,1 it’s time to get up to speed.
With $19 billion spent in 2017 and industry experts predicting this figure to double to $40billion in 2022,2
online marketplaces are fast becoming the future of ecommerce. This online phenomenon isn’t contained to one specific geographical region either, with China and the US leading the way in terms of marketplace sales. In short, marketplaces are revolutionising the world of ecommerce.
So, what exactly do we mean by ‘marketplace’? Traditional players like eBay spring to mind, but the marketplace model is transforming itself to fit the demands of other sectors – take Uber or Deliveroo for example.
Marketplaces can be broken down into 3 main categories:
• Pure marketplaces like eBay, where third-party merchants sell goods.
• Hybrid marketplaces where a traditional retail model exists within a marketplace, like Flipkart.
• Hybrid and physical marketplaces like the US supermarket giant Walmart, where the hybrid model is also accompanied by physical stores.
The pros and cons of the marketplace model.
More and more consumers are shopping on online marketplaces, with fast checkout, delivery and free shipping becoming key sales triggers. For merchants, selling on online marketplaces represents a relatively low-risk/high-gain expansion opportunity, enabling them to easily reach this global client-base without having to invest in advertising.
For the marketplace itself, the model means no inventory risk, higher margins and ease of expansion. Plus, there’s the possibility of additional revenue by selling logistical products and advertising to their merchants.
While it may seem that everyone from the client to the marketplace is a winner, the model is not without its risks and shortcomings.
The very openness of the marketplace that provides customers with a large assortment of goods and prices can also lead to a loss of control for the marketplace owner. They have little to no control over how the merchants behave or the goods they choose to sell. This can potentially lead to a marketplace saturated with counterfeit goods and less-than-satisfactory sellers, which is not only damaging for a marketplace’s reputation but also confusing and seemingly risky for potential customers, which can damage the sales of actual sellers in turn.
Offline versus online.
Despite these problems, the growth of the online marketplace is undeniable. While recent years have seen a decline in physical stores, Amazon sales have quintupled in the US alone in the last 6 years. Industry experts point to the rise of the mutually beneficial “hybrid + physical marketplace model” previously mentioned. This is a logical next step for offline retailers struggling to contend with the online juggernaut but also enables online retailers to improve engagement and customer service in a physical retail environment.
It is perhaps this desire to improve engagement that has led to loyalty programmes like Amazon Prime in recent years. In fact, eBay have gone one step further, fully embracing the hybrid model by teaming up with Nectar Card to offer their users a truly online and offline loyalty experience.
Cutting out the middleman.
Once again, nothing is certain in this ever-evolving sector. A shift away from more traditional business practices towards more peer-to-peer selling is predicted. The rise of apps like Shpock is a good example of this trend.
Effectively, the marketplace model is calling into question the need for ‘middlemen’ like estate agents and car salesmen. Arcadier use the example of Singapore’s Carro: “a marketplace that allows car owners to directly list their vehicles for sale, at the same time providing related services like vehicle valuation and financing, clearly disrupting their predecessor sgCarMart is a site where agents sell second-hand cars. Similar shifts in behaviour can be seen in the property industry.
The rise of B2B.
Business models are quickly evolving to take advantage of this growth, along with businesses that help marketplaces and their users. Take the concierge start-ups that help Airbnb hosts manage their short-term rentals, for example. Arcadier foresee businesses like this continuing to grow across other sectors of shared economy – marketplaces included.
“Because marketplaces themselves may not be able to provide all the relevant services to support all the needs of potential buyers and sellers or the friction they face with regard to user experience, it will spur the growth of new start-ups whose value proposition is to solve these issues for buyers and sellers.”
When it comes to the factors that drive consumers to online marketplaces, large product selection and better prices, businesses are just like other shoppers. The real difference is in market value, with B2B ecommerce tearing ahead, Forbes predict that by 2020 B2B ecommerce will be worth $6.7 trillion.
Businesses are starting to trade online with one another as the emergence of B2B marketplaces such as LeNewBlack (fashion) and ePorta (furniture) show.
The online marketplace is here to stay, and the very definition of a marketplace is constantly evolving and shifting. What’s more, the marketplace model is shaking up and redefining traditional verticals and business models. For buyers and sellers alike, the online marketplace is a place of choice, freedom and expanded possibilities.
PayPal is championing the growth of marketplaces by providing solutions adapted to selling on many of these platforms. Read on to find out what influential marketers have to say about the longevity and future trajectory of marketplaces.