Originally featured on Salmon.com
PART ONE - MARKETPLACES ARE CHANGING THE WORLD, AGAIN!
A BRIEF HISTORY ON MARKETPLACES
Mankind has traded goods and services since the dawn of time. It didn’t take long for our ancestors to create centralized areas to exchange items and services of value. The first marketplaces, bazaars, have been recorded around 3000 BC (some 5000 years ago), though it is believed that the existence of marketplaces goes back in time even further. Bazaars and marketplaces thrived and grew exponentially once trade routes were established between cities, civilisations and later on even continents.
In the 16th century the Bazaar of Tabriz was the Amazon of that day, attracting and connecting traders from around the world. This bazaar wasn’t just a place where people came together to trade products and services, it was much more - a place where people could find anything for their needs at the time, one place that had it all.
This bazaar solved many problems for all kinds of people; as a farmer, you could sell your surplus of livestock for gold that was needed to pay taxes for the king’s rented land, or buy rare, exotic spices hard to come by as an innkeeper. The bazaar even functioned as a supermarket for the commoners, doing their daily groceries, finding their products for the right price and quality. Bazaars and marketplaces were also social, cultural places where new ideas and innovations were shared, and these ideas and innovations would eventually change the world.
Marketplaces are cultural and social places that solve problems for sellers and buyers
Physical marketplaces are still out there but play a less prominent role in our Western Europe daily lives. Supermarkets, malls, shopping districts, retailers, wholesalers and certainly websites have taken the upper hand when it comes to buying and selling. Today, with our busy lives, precious free time and mobile technology, we prefer not to walk and shop for hours anymore. We don’t even enjoy endless browsing and hop from site to site. Nearly 55% of people start their product searches on Amazon just out of convenience or to save time, and 37% of the online total spend is with the same marketplace giant.
Arguably then, digital marketplaces are changing the world once again. According to trend watchers and analysts (such as Eric van Hall, Mediaweb) digital marketplaces are a hot topic this year as a channel for business growth. You could say that the decision to host or join a marketplace can no longer be ignored.
So, what’s the big fuss all about? Marketplaces like eBay and Craigslist have existed for over 20 years. Why, all of a sudden, are digital marketplaces such an interesting business proposition for retailers (B2C) and wholesalers (B2B) in 2018? And why should you get involved with this model? Should you start your own marketplace, sell via existing one, or do nothing at all, expecting the hype to blow over?
Before we dive further into the hype of digital marketplaces, let’s first have a look at what exactly a digital marketplace is, starting with a definition….
What makes Marketplaces unique is that they allow brands and sellers to inherit the demographics and seasonality of the channel. Brands can appeal to entirely new customers and verticals.
THE ECOMMERCE COMPARISON
Comparing the marketplace definition with that of a regular website, the only real difference is the word ‘sellers’ – it’s plural. Does this mean that you can turn your own site into a marketplace? Basically yes, but unfortunately not many ecommerce platforms come out-of-the-box with typical marketplace features that, for example, support multiple (re)sellers, auction-price mechanisms or are able to cope with tens of thousands of products in your inventory. But even if you can turn your ecommerce platform into one, a marketplace is much more than just software and features; it’s a different business model that can hugely impact your organization and expand appeal to customers.
Marketplace vs Traditional Webshops
A marketplace isn’t just another sales channel or touchpoint; it is a different business model that impacts the organization dramatically.
PART TWO - TO BUILD OR NOT TO BUILD A MARKETPLACE?
THE BUILDING OF A DYNASTY
It is safe to say that starting a marketplace is far more difficult than to connect to an existing one. Just think about how to attract and onboard third parties? How will you arrange and secure payments? How will this affect your current business processes like fulfilment and services? Still, there are some good reasons to start your own marketplace; just think about:
Are you able to attract a large audience or group of people for your offerings?When it comes to building a marketplace, there are some things to consider that will increase the chance for success:
- Are you able to sell all the branch offers (long-tail) or all specialised branch offers (vertical selling)?
- Are you able to change your business model and organisation rapidly?
- Are you able to own every interface (see also part three: Interface Imperialism)?
Maybe the most important question that needs to be answered when starting a marketplace is what problem it is going to solve. A successful marketplace solves a real problem.
THE MARKETPLACE ENABLEMENT
Marketplaces and marketplace enablers tell companies in their ads that it is easy to connect with their platforms and success will follow shortly. Though this may be true, you have to consider that making the connection isn’t the challenge, it’s what comes next! How do you become successful selling your products on a marketplace? Do you have the right price and content for your offerings? How can you be sure your products are on top of the search results pages? Some marketplaces offer different ways to enable your products on their platforms. Three most common examples are:
- The marketplace operator enables and sells your products on your behalf
- A third-party reseller onboards your products to a marketplace and sells your products on your behalf
- You do everything yourself
PART THREE - INTERFACE IMPERIALISM
THE WAR OF CUSTOMER ATTENTION
So, what should your marketplace strategy be? Doing nothing isn’t an option, because the ecommerce landscape is changing rapidly. Why is it changing rapidly? Because of the battle for customer attention which can be explained as follows.
The growth in time customers spend with digital interfaces is much slower than the growth of digital commercial offerings.
War for Customer Attention
The amount of time that customers will spend online and with digital interfaces isn’t growing as fast as it used to, as almost everybody is digitized in some way now. Studies reveal that our behavior of spending time with digital interfaces such as mobile apps or browsing on laptops isn’t increasing at the same pace it used to. Sure, people are spending twice as much time online compared to ten years ago, but this is fueled by the increasing use of tablets and smartphones, which is now commonly embedded in our society. With no sight of a revolutionary invention, such as the smart phone, we can assume that the growth will not increase as rapidly as it did in the last ten years.
On the other side, we see that commercial digital offerings are increasing rapidly.
Digital offerings are growing fast because:
- Everyone has gone digital
- Everyone wants to own the customer interface (or should do!)
- Of globalisation: everyone wants to sell everywhere!
Just think of the car manufacturer Ford, who want to start selling their cars on Alibaba. Only 15 years ago we thought that selling clothes online was a crazy concept – how wrong we were! Maybe it’s good to assume that in the next 10 years buying a car online will be just as common as buying a television. It’s to be expected and accepted that you can sell everything online, whether products or services. Imagine buying a house online – it’s no longer so ridiculous.
If you own the interface, you own the customer; if you own the customer, you own the data and if you own the data, you own the future.
THE INTERFACE IMPEDIMENT
So, how will this impact brands, retailers and wholesalers? How will they get the customer’s attention when there are more and more offerings to view, compare and to buy? Simply put, it’s by owning all the interfaces, something we call “Interface Imperialism”.
And if you can’t own all the interfaces? Well, you join those who can! Amazon as a marketplace operator is clearly an example of an interface imperialist. Its eco-system is built to own every digital interface and to create a great user experience, whether it’s visible on a screen or accessed by voice.
MARKETPLACE MODELS THAT WORK
As I’ve stated, inaction is not an option in today’s markets. Yet starting a marketplace seems a significant investment in time and money – so, is engaging via a marketplace the only option? What strategy should you pursue? If you lack experience with marketplace operators or setting up a marketplace and wish to move efficiently and at pace, you could opt to work with skilled agencies like Marketplace Ignition or a marketplace vendor like Mirakl, both of whom offer deep, specialised marketplace experience.
There are multiple strategies and models that make it possible to start your own marketplace. Three models that work in practice are:
1. The new start-up: Find investors and create a new company with a digital-first approach and new fresh-minded employees, and become an agile software driven pure-play. This is the only way to avoid years of change management, debating on cultural differences and carrying the burden of legacy processes and software. You’re starting with a clean sheet that enables you to shape a company the way that fits best your market. The model works well in niche markets.
2. The buy-in: Team-up with manufacturers or even the competition. Start a co-op marketplace with other players in your market and provide a long-tail offering that other vendors can’t offer. Share costs and revenue but increase market share. This model works well in markets where the competition is fierce.
3. The expander: This appeals to market leaders that are afraid of losing chunks of market share to disruptors. Turn your current ecommerce website into a marketplace platform where others - smaller players - can sell on. You have to play the long game and it demands quite an initial investment in processes and money, but traffic and conversion will increase over time.
WHAT’S NEXT: THE FUTURE OF DIGITAL MARKETPLACES
Digital marketplaces appear to have a bright future and respond well to the trends of customer demands today and in the future - just like the bazaar of Tabriz grew and prospered due to the trends and demands of customers at that time. Digital marketplaces appeal to consumers just like the bazaars of old.
They offer a fantastic experience and solve problems normal websites can’t: they save time, offering convenience by bringing products and services from all over the world together, and sharing experiences, innovation, ideas and thoughts of brands, manufacturers, buyers and sellers. We can only assume that marketplaces will become more social and more personal in the future due to the growth in, and application of, data and machine learning. Looking into a crystal ball, Salmon sees two possible options:
1. Everyone will own or integrate with a marketplace. Effectively then, marketplaces will replace the traditional ecommerce model but since everyone connects this is effectively a zero-sum game.
2. The more likely scenario: “the winner takes it all”, where a few big players will survive the interface race and a few major platforms dominate the internet. In some verticals and niche sectors there will be space for specialist marketplaces - but only a few. (Notably, those with unique brick & mortar experiences or service are demonstrating that they can survive and thrive). The consolidation will go on. The rest will need to connect with an existing leader (with less attractive market appeal) or run the risk of going out of business fast.
Digital marketplaces are here to stay, reclaiming the prominent role they once fulfilled at the dawn of civilisation.
Salmon has enabled major clients to sell their products on the world’s leading platforms as well as build their own, supported by strategic consultation, with help at every stage of the journey.