The global ecommerce marketplace: friend or foe?
For some retailers, it has become an article of faith that commerce will eventually be dominated by a few global marketplaces. In fact, our recent research based on an Economist Intelligence Unit (EIU) survey of 150 C-level retail executives across Europe, revealed 26 per cent of respondents see globally competitive marketplaces as one of the most significant shifts in dynamics that will have the greatest impact on retailers and their ability to reach their goals over the next three years.
Friend or foe?
While marketplaces are viewed as an ally and a partner today, our EIU research highlights retailer’s nascent concerns as their influence continues to grow. Research by ChannelAdvisor demonstrates the incredible reach that Amazon and eBay have achieved, suggesting that 85 per cent of retailers use these channels in the US and Europe. In China, Alibaba accounts for a phenomenal percentage of transactions and this is set to expand into Europe more aggressively following their recent spate of senior hires.
The danger lies in the scalable, pay-as-you-go model, which means that marketplaces have reduced the barriers to entry, providing the support and infrastructure that allow new players to gain an initial foothold to extend their reach in a global market. It’s not unusual for people to begin selling through eBay then graduate through Amazon to their own commerce sites, albeit perhaps with the majority of their transactions still coming through marketplaces. One pitfall of this channel distribution is that marketplaces remove the sense of brand from the product. Amazon, for instance, presents product results in tiles – these all look the same and are incapable of conveying a company’s brand. This is a challenge with other channels too, but with online marketplaces, brands have limited, or no, mitigation options, such as displays and associate training. For brands that spend a huge amount of time and money on building a brand identify, this is a concern.
By providing this foothold in the market for a huge number of small players, marketplaces also narrow the market at key points, particularly the discovery phase. Just look at which apps people have on their phones: Amazon and eBay consistently rank amongst the most downloaded applications across all platforms. This stalling point on discovery is what has brands and retailers worried. If marketplaces own the primary access points to commerce, they have a great deal of influence over the behaviour of the consumer. They also have much greater access to data about these consumers, a resource of growing importance. It’s the very low-friction experience and ease of discovery that marketplaces offer consumers, which give them a great deal of power and access to incredible customer insights.
However, history shows us that systems and platforms which narrow consumer access and hold control of consumer reach are rarely sustainable in the long term. Take the early days of consumer internet, when the web was less consistent and more difficult to navigate than it is today. Providers wanted an attractive, easy to use experience for their customers, and recognised that acting as a gateway to those customers presented an additional revenue opportunity. The portal or ‘walled garden’ was born. Almost every ISP, fixed and later mobile, had their own version. As broadband replaced dial-up and users became more savvy, this model rapidly lost its appeal. The most attractive feature of the web was its diversity, and trying to control and monetise customers’ access to the many riches of the web was a recipe for disaster. Customers began to abandon AOL for open service providers in their millions.
When it comes to search, Google today remains many people’s gateway to the web. In search alone, Google’s position is increasingly unassailable. But search isn’t the only way to navigate the web. Human and computerised curation of links and recommendations became an alternative route to discovery - and responsible for a growing proportion of traffic. Even Facebook - arguably a new ‘portal’ - is now facing challenges to its dominance in developed markets, with active users reported as flat or declining, especially in younger demographics. While it remains far and away the largest social network and will do for some time, there is strong evidence it will not be the permanent fixture many originally believed.
Marketplaces of the future
For retailers concerned about the growing dominance of marketplaces, the reassuring news is that the weight of historical precedent, and the current behavioural trends amongst the youngest millennials means it is hard to see them establishing a sustainable, dominant position. Marketplaces will retain a significant role, but they will not be the primary interface between brand and consumer.
Instead consumers will drift back to a more diverse range of entry points into the commerce market. Enhanced search, social, and perhaps web apps will begin to displace native apps. The best strategy for retail brands is therefore to engage with the marketplaces today but do so in a fashion that does not place too much emphasis on their importance.
As the global common market continues to evolve, retailers will need the agility to quickly respond to changes they see in the diversity of social communities and proliferation of brands and channels. Any interaction between store and marketplace must be constructed so that it can be redirected or extended to new channels and routes in the future. This means developing a flexible digital backbone that allows retailers to rapidly scale their business and adapt as alternatives become available.