ANALYSIS The growing role of marketplaces in the evolution of retail media

Marketplaces are booming globally to become one of the most significant parts of global digital commerce. The biggest digital marketplaces are colossal. With their scale, marketplaces like Amazon, Airbnb, Alibaba, Uber and so on have become household names across the globe.  

The largest online retailer in the US is not Amazon, but the Amazon Marketplace. Its total gross merchandise volume (GMV) was $700 billion worth of goods in 2023. The marketplace doubled in two years – from $200 billion in 2019 to $390 billion in 2021. 

If sales by Amazon sellers were compared to country gross domestic product (GDP), the Amazon marketplace would be the 37th-largest economy globally, behind Denmark and ahead of Malaysia.

Two thirds of the global digital commerce transaction volume are concentrated within the top 6 players – most are Marketplaces. 

Activate Consulting visualised the power of marketplaces in their 2024 Technology and Media Outlook report.

Where do marketplaces ‘fit’ into the world of digital commerce?

Marketplaces such as Airbnb, Uber and Just Eat have revolutionised industries such as travel and food.  New marketplace categories are appearing every week catering for niche markets. But where do marketplaces ‘fit’ into the world of ecommerce? 

There are six recognisable digital commerce channels – and three of these channels are marketplaces. 

• Brand.com means selling direct to the customer from the brand’s website – an ‘online store’. The brand owns the customer experience end-to-end, including customer service, order processing and delivery.
• Retailer.com covers websites that sell products from a large number of brands. They are often brick-and-mortar outlets as well. They are also called eRetail or ‘Storefront.com’. They are online department stores using supply chain or scale advantages.
• Social commerce: Social channels such as Facebook, Instagram and Pinterest are now creating the opportunity to get products in front of potential customers, or for product discovery. Each of these social channels is actively putting together a comprehensive ecommerce capability.

Types of marketplaces

• Horizontal or mixed marketplaces offer a large selection of products across many different categories. Amazon.com is the clearest example of a horizontal marketplace, existing as a one-stop-shop for sellers to provide many categories. Here, brands own the inventory but make their products available through marketplaces; in many cases, they also ship directly to customers. Marketplaces such as Amazon are now offering branded online stores similar to Retailer.com but within the Marketplace.
• Vertical, pure or curated marketplaces focus on one particular market or industry, for example travel like, AirBnb or Faire, the B2B marketplace for fashion catering to SMB fashion retailers.
• Quick commerce –as the name suggests it’s all about speed. Quick commerce generally means consumers can expect delivery within one hour of placing an order. The Q-Commerce operating models are changing rapidly, ranging from offering brands storefronts on aggregator platforms, and partnering with firms who offer logistics and courier services.
• Retailer run marketplaces are marketplaces that can be either mixed or pure and are set up and run by retailers within their existing online offering or as a separate entity. They are used to augment and extend what the retailer sells, usually adding allied products to its core offering. A prime example is B&Q in the the UK. The DIY store runs a marketplace that runs as part of its own website, selling items such as water features and specialised homewares that chime with what its customers are looking for, but not usually carried by the retailer. In this way it can expand its reach, offer a whole host of new products to make its offering more attractive and, in some cases, expand into new markets and new territories, all without a massive investment in securing and storing goods. The suppliers/sellers do that for it.

Marketplaces and society

Marketplaces are now part of society’s wider trends in society of entrepreneurship and the gig economy. 24% of Amazon’s total revenue in 2023 was attributed to third-party sellers. There are nearly 2 million small and midsize third-party businesses selling on Amazon. These entrepreneurs are making a big impact on the Amazon business — in fact, 70% of SMB Amazon sellers are third-party sellers. 89% of Amazon sellers are profitable, and 63% are profitable within a year of launching their business. In addition, 22% of SMB sellers surpassed $10,000 in average monthly sales.^[1]

According to Marketplace Pulse, approximately 350,000 sellers exceeded $100,000, 60,000 sellers sold over $1 million, and over 3,000 had more than $10 million in sales in 2021. More than half of those sellers sell on Amazon.com in the US. The rest, on one of the other nineteen marketplaces.

Marketplace distinctions

There are distinctions to be made within marketplaces.  Some marketplaces have effects that span the globe. For instance, Airbnb, is a single global network with buyers and sellers all over the world.  However, many Marketplaces are focused on one country, or regionally focused in high population areas, due to the requirement of physical fulfilment to consumers.  

For example, Match.com is essentially a one-sided marketplace; 100% of people on Match.com are both buyers and sellers. But their geographic densities require different dynamics. 

However, there is another dynamic in play with many marketplaces – particularly Amazon. A small brand can compete with a large brand on a level-playing field. they are a kind of ‘democracy’, where the brand size outside of the Marketplace ecosystem does not matter. 

Why are marketplaces interesting for brands?

Here are 10 reasons why Marketplaces are interesting:

1. Access to customers: If you want to be where potential customers are, a distribution strategy must include expanding through Marketplaces to reach them.
2. Ease of access to international markets: Marketplaces offer access to new international markets at a much lower cost than if a brand had to establish their own presence in new markets on their own. For markets like China, Marketplaces are the lion’s share of eCommerce – not brand .COM websites.
3. Access to fulfilment services: FBA (Fulfilment by Amazon) or Alibaba’s warehouse management, international shipping and customs clearance service (offered by Cainiao) can lower the cost of warehousing fulfilment and delivery for an eCommerce store.
4. Ease of finding product for consumers: In eCommerce, the term ‘Discovery’ is used to describe the process by which consumers find products. With Marketplaces, products are categorised correctly, so are easier for consumers to find. Features such as ‘customers who viewed this item’ enable faster product research and improve the chances of discovery for smaller brands.
5. Better customer data: Marketplaces are an effective way for brands to identify their most wanted products, study competitors’ pricing, as well as getting direct feedback from consumers through ratings and reviews
6. The ‘halo’ effect: Consumers trust the Marketplace brand, so a new brand on the Marketplace gets the same imprimatur of trustworthiness.
7. Ease of use: Marketplaces such as Amazon, Etsy and even Alibaba have well-structured onboarding processes, and offer easy integrations from existing eCommerce platforms (for example, Shopify).
8. Time to market: Brands can invest years to get a meeting with a retail buyer. On Amazon’s Marketplace, any brand can get on the virtual shelf with a monthly fee, some expertise and a couple of weeks of work.
9. Consumer appeal: Shoppers can compare similar products easily, expect a better price as brands compete for prominence on the product page and can check everything about a product.
10. Marketplaces as a democracy: The biggest name does NOT always win on Marketplaces. This ease of access creates a highly competitive situation, but also allows the smallest operators to compete on a level playing pitch to use the same platform, tools, and techniques, as global names.

Marketplaces and Retail Media

Of the six major digital commerce channels, four can operate Retail Media Networks.  Vertical and Horizontal marketplaces as well as Quick Commerce marketplaces are now spooling up Retail Media Networks to monetise existing traffic.

This should not be surprising as Retail Media offers third party sellers the following benefits:

1. Product discovery: Shoppers search for products, not brands, which offer a better chance of newer brands to compete with more established brands. Retail Media increase the probability of being found, even by those who are looking for a specific product, but do not know the brand.
2. Marketplaces as search engine: Some estimates suggest that Amazon has overtaken Google for product searches in the USA – with between 60% and 70% of product searches starting in the Amazon Search Box. The search box in all retailers and marketplaces serves as an very mechanism for shoppers.
3. Cost effective customer acquisition: Retail Media gives sellers a cost-effective channel to boost visibility and sales, while delivering personalised, advertisements. Most marketplace use sponsored search ad units – and these are always CPC based – which means that advertisers can control their spend and create an ROI and ROAS model that works for their product and budget.
4. Self-serve for control and speed: Self-serve capabilities were the key to Google’s and Meta’s advertising success – they opened the door for the smaller brands to target shoppers. Most marketplaces now offer self-serve advertising leaving the budget, creative, optimisation and insights from analytics in the hands of the advertiser.

What next for marketplaces and retail media?

Retailers are building out Retail Media Networks across the globe. However, there is only so much advertising inventory they can utilise for a given level of site traffic, without increasing ‘ad load’ and ruining the shopper experience. 

The next logical step is for retailers to build out a marketplace which will increase the number of products, the number of sellers, and, in turn, the opportunity for Retail Media advertising.  Marketplaces are another way to monetise existing traffic from shoppers by giving them more products and more selection to choose from. This, in turn, means that a retailer can ‘layer’ their Retail Media Network over the marketplace, automatically creating new advertising revenue sources from the new sellers.

Marketplaces and Retail Media revenue are a virtuous circle that retailer can create and deliver without investing in new warehouses or new delivery systems, and are typically an “opex” rather than a “capex” item in an accounting sense. 

Marketplaces mean more products and more sellers which drive greater traffic, which delivers further revenue for Retail Media.  This combination creates a powerful engine for growth for retailers and brands.

^[1] https://www.junglescout.com/blog/amazon-statistics/