There are a just handful of brands who attract the lion’s share of global online sales. Among the most popular are those using the marketplace model; online shopping platforms offering a large number of products from an ecosystem of third-party sellers. One brand widely held in the top position is Amazon, which excels in both reach and revenue. Amazon.com currently attracts 2.45 billion monthly global visits and in 2020 had an annual revenue of $386 billion (that’s up 38% since 2019)**.
While Amazon dominates in online retail sales, Amazon’s marketplace attracts almost twice the sales as Amazon retail boasting 6.2 million total sellers globally, 1.5 million of which are active sellers. Let’s dive into Amazon’s marketplace model – as they’re not always as they seem on the surface. This is particularly the case when you look at how they work with third-party sellers. Some of the criticisms include:
- Amazon replicates popular products. Amazon has been accused of using data to copy the site’s most popular products to develop competitive, private-label products - effectively pushing some third-party sellers out of business*.
- Lack of product oversight. The Wall Street Journal reported that Amazon is not effectively governing its sellers resulting in a marketplace filled with thousands of counterfeit, banned, unsafe or mislabelled products *** . Many major brands have cut ties with Amazon as a result **** .
- Sellers are too reliant on platform. If a seller finds themselves suspended from the platform they must navigate a bewildering appeals system while their business faces severe financial repercussions ***** .
- Competition is fierce. Many sellers purchase items from wholesalers or suppliers in bulk to resell.
This results in many sellers offering the same products and they’re forced to slash prices to
- High cost of operations. Amazon currently takes a cut of about one-third of an item’s sale price,
plus sellers must pay a monthly fee and hefty warehouse storage fees*.
Despite all its success, these shortcomings don’t put Amazon in a favourable light and should give potential Amazon sellers a few good reasons to pause before signing on to the platform. But it doesn’t mean the marketplace model is unworkable. Quite the opposite. Because just as the Amazon model faces criticisms, a new type of marketplace model is rising up that overcomes these problems to satisfy the operator, seller and customer too. And it opens the possibility for retailers to launch their own online marketplace. Introducing the vertical marketplace model Businesses of all shapes and sizes are getting in on the action and replicating the success of big players by creating marketplaces that cater to their own niche-specific audiences.
For example, Bike Exchange is an online shopping destination for everything cycling. Once a social network, today Fishbrain has evolved into a fishing retailer marketplace for anglers. Or Providoor, an online marketplace that gives. eager foodies access to top-end culinary restaurants.
The vertical marketplace model (and the technology behind them) allowed these brands to evolve, supporting them to turn suppliers into sellers, rapidly expand with new product ranges, create endless aisles and offered more relevant shopping choices for consumers.
Some of the benefits of this marketplace model:
- Less competition. Vertical marketplaces are good for the operator because there are fewer competing stores and marketplaces in any given niche. So while you can still offer diversity of choice, you can also position yourself as an expert in your niche. For the sellers, they no longer have to compete in a broad, vague marketplace against thousands of similar brands. Instead, their products are showcased alongside other complementary brands.
- Creating meaningful communities. Operating within a vertical means you know your target market inside and out. When selling to a niche, you can solve customers’ needs and inspire trust and brand loyalty by serving their unique demands.
- Improving customer experiences - By focussing on a narrower product range, you can invest time and energy-boosting the customer experience and better serving your customers.
The vertical marketplace technology foundation
Launching a marketplace may seem like a daunting experience. But it’s not. At least, not if you have the right technology platform. Marketplacer’s application is modular-built and feature-rich, and integrates with a number of partner systems to provide all the foundations you need to launch your marketplace. This includes integrated 3 rd party drop shipping, seamless seller and order management, endless aisles, and tools to help you market and generate sales.
Whether you have an existing commerce site and would like to add marketplace functionality, or you’re looking to launch a marketplace from scratch, our marketplace technology can be deployed using a connected or headless solution. The connected option connects the Marketplacer Core back-end with your existing eCommerce engine. Headless uses your own custom developed front-end, while the Marketplacer platform delivers both the core backend plus the shopping cart, search and checkout functionality. Either way, you will be able to quickly add marketplace functionality to your current site without needing additional development or compromising the investment in your existing eCommerce solution.
Contact our team today to find out how easy it will be for your business to implement Marketplacer’s technology and maintain - or reinstate - your position as an eCommerce leader.
* Marketplace Pulse (2021), Number of Sellers on Amazon Marketplace [ONLINE]. Available here.** The Balance small business (2019), Major Problems With Selling on Amazon and Advice for New Sellers
[ONLINE]. Available here.
***Business Insider (2020), House antitrust report accuses Amazon of using third-party seller data to copy popular products — something the tech giant has repeatedly denied [ONLINE]. Available here.
****CNBC (2020), More brands are leaving Amazon, but the strategy could backfire [ONLINE] Available here.
*****The Verge (2018), Prime and Punishment [ONLINE]. Available here