Posted by Brian Walker on May 15, 2012
It seems online marketplaces are cropping up everywhere. Retailers, software companies, media companies, and consumer electronics makers are using marketplaces as a means to enhance and augment their own offerings with products made, owned, and distributed by third-party retailers, distributors, developers, and brands. The most successful examples of these today are of course Amazon’s Marketplace, eBay, Apple’s App Store, and Valve’s Steamworks. But based on numerous inquiries of late, soon we will see many, many more marketplaces online. Key reasons why we are seeing the proliferation of marketplaces in the next 18-24 months:
- For retailers, it’s about growing the assortment without the inventory risk. Larger scale pure-play online retailers and multichannel retailers look to the significant growth of Amazon.com’s marketplace — which today comprises approximately 35% of Amazon’s gross retail sales — and wonder if they could also benefit from a marketplace. Adding a marketplace provides the opportunity to extend the product assortment and available pool of inventory without taking on the inventory risk and expense of merchandising, buying, warehousing, and shipping an assortment in unproven categories. For some it may be even a way to bring licensed products under a brand umbrella. Amazon’s model is to take roughly half the margin of the products sold — based on expected margin by category — as the fair value of driving that demand, but they bear none of the inventory sourcing, carrying, or logistical costs.
- For media companies, it’s about monetizing traffic. The traditional advertising model for media companies has come under threat. Tablets and smartphones are accelerating the disruption of media businesses. For media companies, marketplaces offer a way to capitalize on their site traffic and monetize it in an additional way: By taking a share of transactions. At the same time, consumers stay on the site longer, increasing the value of media companies’ advertising spaces and products. Linking their editorial to the marketplace may be a tricky proposition for some, but magazines and newspapers also have an opportunity to enable contextual shopping, leading to a whole new “where to find it” approach for fashion, food, and enthusiast titles.
- For software and consumer electronics firms, it’s about enhancing the core experience. Software and consumer electronics makers of smartphones, tablets, e-readers, computers, computer software, televisions, and other devices are interested in marketplaces primarily as a way to enhance the experience of owning a device, and drive recurring revenue from apps, games, and content. The proliferation is notable: The Wireless Industry Partnership (WIP) has listed over 100 mobile app stores listed for mobile developers. As interactive TV and web-connected appliances proliferate, there is an opportunity for these software and gaming app stores to multiply even further and for the manufacturers of TVs and connected devices to create more demand for their products.
But of course, building a positive customer experience in a marketplace that drives significant incremental value is not easy. It took market leaders like Amazon many years to see their investment in technology, operations, and user experience in the marketplace to pay off. With our latest report, “How To Build An Online Marketplace,” we focus on what the characteristics of a strong marketplace are and what you need to build a successful third-party marketplace, such as catalog and product content management, third-party inventory management, distributed order management, customer service tools, and reporting and analytics. In the report we also go on to identify and explore the available solutions in the market to support third-party marketplaces. I hope you enjoy and get value from the report.