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What's next for online marketplaces?

Monday March 30, 2015 | By Dan Hawkins


by Dan Burnham, Head of Customer Success at Volo

 

For the past few years I've been observing the growth of online marketplaces or, more specifically, the speed at which they've been growing. Amazon in particular was, for some years outstripping the general growth of ecommerce by more than double. But at the end of last year, both Amazon and eBay announced disappointing results (eBay’s marketplaces business grew by a miserly 2% while Amazon announced net losses of $214m). To be fair, Amazon does invest heavily and those losses don’t reflect a 20% increase in net sales.

If we take a step back, for me the attraction of eBay and Amazon has always been that they fit perfectly with the desire for simplicity and ease when shopping. I am a big subscriber to the sentiment expressed so well by internet guru Jacob Nielsen, “People just want websites to get out the way.

 

Marketplace advantages

Marketplaces are one stop shops with comprehensive product ranges, unified checkouts and strong buyer protection schemes. As a shopper, I know how the checkout works, where all the information is and I can get free next day delivery with Amazon Prime. As a shopper I don’t care about Seller fees or how my DSRs will affect my products’ visibility, I just want to be able to find what I'm looking for and get it quickly and with the minimum of fuss. Even for me, as a keen advocate, the shine has started to come off. Stories of tax avoidance, hacked passwords and various technical glitches have led me to shop further afield. Their recent split from Paypal also added to this disruption and I know that eBay were hit fairly hard when Google changed their search algorithm. More recently, a number of eBay sellers have reported sales down by as much as 30%.

At this point, I should state that Volo’s data doesn't support the view that this is an overarching trend. While growth does seem to have slowed, we show same store sales up 3% year on year. What’s more, Webretailer cites that 3.9% of eBay sellers make over a million dollars per year.  Amazon’s net sales in Q4 2014 were $29.33 billion.

There are a number of potentially disrupting elements around the corner: Google, Facebook and Twitter have all been experimenting with ‘Buy Buttons’ over the last year and may well turn themselves into online marketplaces in the near to medium term; but I would argue that it’s platforms such as Pinterest with their ready-made networking community and emphasis on visuals that would be best placed to expand into multi channel ecommerce should the desire to do so - it’s a world away from Twitter, Facebook and YouTube and will be perfect for brands to advertise their products in feeds, without making it look like a hard sell. The images will be there to help users accomplish DIY projects, complete outfits and recipes, amongst a whole lot else. Having a ‘Buy Button’ here will help with the connection from search to a sale.

 

The future

Other players are also poised to enter the market. Alibaba.com saw a 50% surge in stock price since it floated and sold $8bn of stock and Rakuten.com purchased both Play.com, Price Minister and Buy.com and is busy trying to unify these platforms. Social commerce sites like Shopa allow online customers to quickly discover relevant brands and products through other customers’ recommendation. Amazon and eBay aren't standing still. Amazon is, as we know, testing delivery drones and already have one hour delivery in New York. eBay bought a delivery tech company called Struq with the same goal and have introduced click and collect. These players have the muscle to fight back and remain an attractive proposition.  It’s also reported that 1 in 4 UK retailers plan to use online marketplaces in the next year.

Cross-device is also coming into play, as more and more customers expect to be able to move across ecommerce channels and devices effortlessly. They research their product, look up sizes, read reviews making mobile purchases often impulsive. A customer on a laptop or tablet would have more time to search for and complete their purchase through a basket and card payment process. The multi channel online marketplaces that will grow will be the ones that embrace this need for interchangeability.

In reality, the picture is far from clear (and becoming less so) but the good news is that there are likely to be more opportunities for multi channel sellers not less. While incumbents such as eBay and Amazon may find their worlds disrupted, sellers who are smart and nimble will find other channels for their wares. Diversification is what’s needed and sellers should look to be on more than one channel and shouldn't put ‘all their eggs in one basket’. Volo knows that selling on multi channel ecommerce marketplaces doesn't come without complexity. However, placing your products on multiple ones drives resilience and growth. Consequently multi channel ecommerce sellers should ultimately embrace this complexity to thrive.