Marketplaces: should they be part of your eCommerce strategy?

As we’ve discovered, marketplaces are aggregators of products where the shopper can compare and buy goods from numerous suppliers online. Marketplaces are like digital shopping centres, where consumers can browse through thousands of products from many brands and from lots of different categories.

Marketplaces generally do not own any stock/inventory. Instead, they ‘connect’ buyers and sellers together: think of a typical eBay seller clearing out second-hand gear on an eBay store – eBay acts as a connector between the buyer and seller but do not hold the stock or set the price. This is the big difference with marketplaces compared to other forms of eCommerce – no stock/inventory and they ‘connect’ sellers with buyers.

Today, there are hundreds of marketplaces you’ll come across when running your eCommerce business. Many marketplaces are in a specific niche, but the bigger marketplaces sell (almost!) anything.

Marketplaces match demand with supply for which the marketplace gets a ‘cut’ of the financial transaction for finding and matching supply and demand efficiently.

While there are benefits to selling through marketplace channels, things like commissions and transaction fees can mount up.

There are two kinds of marketplaces:

• Vertical: platforms that specialise in only one kind of product category (eg, food or fashion).
• Horizontal: platforms offering a full range of products from many categories.

Amazon, eBay, and Alibaba are horizontal marketplaces.

Marketplaces are booming globally to become one of the most significant parts of global eCommerce. The biggest marketplaces are colossal. With their scale, marketplaces like Amazon, eBay and Alibaba have become household names across the globe. The largest online retailer in the US is not Amazon, but the Amazon Marketplace. Two thirds of the global eCommerce transaction volume are concentrated within the top six players – most are marketplaces.

Marketplaces such as Airbnb, Uber and Just Eat have revolutionised industries such as travel and food. Etsy’s marketplace of handmade and vintage items turns over billions each month. New marketplace categories are appearing every week catering for niche markets, yet they are still booming. For example, there are numerous marketplaces for selling ‘streetwear’ and trainers in the US (StockX and GOAT being two examples).

Some marketplaces have effects that span the globe. For instance, Airbnb, is a single global network with buyers and sellers all over the world. However, most food and drink marketplaces are focused on one country, or regionally focused in high population areas, due to the requirement of physical fulfilment to consumers.

Marketplaces are a different type of eCommerce. Let’s look at how they differ:

• Ownership: marketplaces allow brand owners, distributors, or other sellers, to list products on the marketplace website and ship them through its warehouses. It charges them a fee for this, and it reports the fee as revenue. Marketplaces do not treat the value of the actual purchases as its own revenue, or set the price.
• Competition: marketplaces encourage competition among brands; this provides a better deal for the shopper through increased competition. Marketplaces like Amazon freely allows other sellers to offer the goods at an alternative price and delivery charge. This is a particularly important concept to understand because marketplaces are one of the few environments where the non-brand owner will get ‘equal billing’ and even beat the brand owner.
• Delivery: within most marketplaces, the brand owner is responsible for delivering them directly to customers when ordered. There is a caveat here: the likes of Amazon and (to a certain extent) eBay offer specific logistics propositions (FBA – Fulfilled By Amazon, for example) that take care of warehousing your stock / inventory at their fulfilment centres and pick, pack and send orders to your customers as they come in.
• Customer service expectations: marketplaces such as Amazon enforce a very high level of customer service expectation. This level of customer service may be higher than what a brand can provide. A brand can sell on its own website using whatever customer service policies it chooses, but marketplace algorithms reward brands with higher customer service levels.

Why are marketplaces interesting for eCommerce businesses?

Marketplaces are interesting for eCommerce store owners because of the following reasons:

• Access to customers: marketplaces such as Amazon have hundreds of millions of users – they provide extra reach that an eCommerce store cannot provide on its own.
• Ease of access to international markets: marketplaces offer access to new international markets at a much lower cost than if you have to set up your own presence in new markets. There is no need to set up a store in each country – marketplaces like Amazon allow you to ‘internationalise’ your brand within a few clicks!
• Access to fulfilment services: FBA (Fulfilment by Amazon) or eBay’s Managed Delivery can both deliver to the customer and/or store your products in their warehouses. No need to find your own storage facilities or pick, pack and deliver yourself – the marketplace will do it for you.
• Marketplaces are ‘search engines’: some estimates suggest that Amazon has overtaken Google for product searches in the USA – with between 60% and 70% of product searches starting in the Amazon search box. Amazon has become so synonymous with eCommerce in the UK, German and French markets that over 50% of their shoppers start their online shopping journey on Amazon – not a search engine like Google.
• Compete and win against big brands: the biggest brand does NOT always win on marketplaces. Great news for you and your eCommerce store: a small brand can compete with a large brand on a level playing field. The Amazon Marketplace is a kind of ‘democracy’, where the brand size outside of the Amazon ecosystem does not matter. There is no Amazon buyer who you can meet face to face and offer a special deal. Everyone follows the same process to get on the platform and has the same challenges to make it work. It is this ‘democratic’ aspect of the Amazon Marketplace that makes it very interesting for small brands.
• Consumers like marketplaces: consumers like marketplaces because they have a much wider selection of products than most retailers. Looking at their online market share, Amazon is the clear market leader – it is among the most visited websites in the world, typically behind Google or Facebook!
• The ‘halo effect’: shoppers trust brands like Amazon, eBay and Etsy – so if you sell on these stores, they get the same level of trustworthiness.

Should you sell on marketplaces like Amazon or Etsy or just concentrate on your own eCommerce store? To find out more about what you should do, and strategies for you to be successful on marketplaces, keep on reading!