GUEST COMMENT Embracing the shared marketplace economy: how tech vendors are changing the face of r
The multi-billion dollar Uber and Airbnb entities are running the always-in-the-headlines, oh-so-sexy shared economy we’re seeing today, and they have tapped into a secret, scrumptious sauce that has consumers renting out their living rooms and sharing rides around town, producing revenues worthy of the Three Comma Club. But that secret sauce isn’t so secret anymore, and the on-demand tendencies of society today have bled into virtually every major consumer-focused industry. If you’ve been paying attention to ecommerce starlet Jet.com lately, you’ll know why online marketplaces (no, Amazon and eBay are not the only ones!) have the power to turn the online retail model as we know it on its head.
Think Amazon. Now think about Amazon’s competition. This booming industry, incumbents and newbies alike, has big plans for a major retail refresh in the way shoppers are able to browse and buy products when tapping into online commerce. Amazon alone sold a staggering two billion items on its marketplace platform in 2014, with 40% of those sold through their marketplace, according to the ecommerce giant.
By 2018, more than 50% of ecommerce growth will be supported by marketplaces .
How can retailers bring the industry’s version of the shared, on-demand economy into their operations, and do so profitably? There are some massive impacts that the online marketplace is bringing to a retail industry in desperate need of restructuring, if they are ever to survive the escalating demands of shoppers.
Levelling the playing field
Just as blossoming Uber forces began taking on the massive taxi/public transportation industry in 2009, a new era of marketplace options are offering alternatives to online commerce Goliaths like Amazon, Overstock and Wayfair. Think competition in this space is doomed due to their monopolies? Think again. Online marketplace startup Jet.com has set out to take on these Goliath companies, having raised more than $220 million in search of a $2 billion valuation.
Jet’s new added-value offering lies in its smart-cart function, which adapts the overall order price depending on whether or not the products are shipped from the same warehouse, etc. With this new model, Jet more closely resembles Amazon’s regular business rather than its Prime club, but it can offer Prime-like prices (5-6% rebates on average).
With all the chatter on soaring company valuations and “unicorn” startups, it may seem easy to pass Jet off as a one-hit wonder, but industry influencers say the rising online marketplace industry is here to stay. By providing broader assortments with lucrative margins, these emerging players are even less onerous to deploy than those in the past, and major U.S. retailers are beginning to see the light. The fact is that as marketplace sales grow, overall sales grow as well, and retailers hosting their own online marketplace eventually outperform those that don’t.
No ownership, no costs, no problems
Inventory and assortment. The bane of existence for retailers with their eyes on the omnichannel prize. Just as Uber helped solve burdensome traffic and transportation issues with a mobile network of thousands of self-employed personal drivers, emerging online marketplaces that compete with the big guns are helping retailers take back control of their inventory and solve their biggest supply chain challenges. Uber owns zero cars, Airbnb owns zero real estate, and Amazon sellers sold two billion items in 2014 that they did not own or even warehouse. The secret to marketplace inventory success? Removing the cumbersome ownership component. Furthermore, it allows retailers to be more experimental and capitalize on seasonal trends.
The costs associated with finding and purchasing merchandise, receiving and handling warehouse inventory, managing fulfillment logistics for that inventory, and then tracking liability for shipments on a case-by-case basis can be astronomically high, and online marketplaces remove those costs completely. While drop ship business models can suffice for a small number of large retailer-manufacturer relationships, innovative marketplace solutions power retailers to onboard hundreds of thousands of SKUs using a streamlined process that fuels the quickest product assortment expansion in the industry. As a result, retailers immediately see more shopper traffic, higher conversion rates, boosted cross-sell exchanges and increased average order values.
Achieving high-growth and high-profitability
When utilizing an online marketplace, a retailer is in the driver’s seat, if you will. Instead of competing with the likes of Amazon and Alibaba, retailers can actually seek out the brands and products they’d like to sell on their site, and anyone that jumps onboard benefits from increased revenues and greater visibility and promotions. According to Amazon, in 2014, 46% of the company’s revenue came from the third-party sellers using their Marketplace platform, so as surprising as it may seem with a commission-based business model, there is no cannibalization for retailers when utilizing online marketplaces.
The Ubers of society have set out to make vast changes to flawed systems, and emerging marketplace solutions have a vision of transformation and modernity for the future of online retail. So, you could say the success of online marketplaces is in the hands of the global retail community. But in all honesty, omnichannel and inventory management success now depends on their decisions to tackle the Goliaths head on, or let the monopolies continue to degrade their revenues. Adrien Nussenbaum is CEO and co-founder of Mirakl