The unstoppable rise of the online marketplace model is driving the largest fundamental shift in consumer spending since the emergence of ecommerce in the 1990s, a report by OC&C Strategy Consultants has found.
OC&C’s report, Trading Places, predicts that by 2025, spending through the leading online marketplaces will overtake the vast majority of ecommerce outlets in established retail and travel categories. When considering aggregate spend, marketplaces in those categories are set to catch up with direct ecommerce ahead of 2025. In 2020 alone, marketplaces accounted for over $1tn of total western consumer spend in these categories, and 40% of total consumer spend online.
Across all of these established categories, the report estimates that marketplace growth will continue at 15% per year in the West and become as large as direct ecommerce by 2025, when it will account for c.45-50% of online spend.
The move to the marketplace model is being driven by their increasingly sophisticated offerings. For consumers, they bring convenience, choice, and value. For suppliers, they provide access to a large customer pool and a slick user interface, plus value-added services like fulfilment and payments.
Marketplaces are now very much the norm when it comes to books, food delivery, or ticketing, where they represent at least 25% of consumer spend. They are also continually increasing their share against ecommerce players in the travel, clothing, and furniture sectors. In these established retail and travel categories, it is only grocery where marketplaces, and indeed ecommerce, have yet to make an impact, with offline and online direct spending accounting for at least 97% of overall spend.
These trends have been accelerated by Covid-19. The trading conditions created by the pandemic, where consumers were largely forced to transact online, drove a significant increase in penetration across digital channels, with only one established marketplace category – DIY, Gardening and Pets – seeing a reduction in third-party/online spend during the pandemic.
Mostyn Goodwin, Partner at OC&C Strategy Consultants, comments: “The report offers a striking illustration of the fundamental change in consumer spending habits. Online marketplaces are rapidly becoming the first port of call for both customers and suppliers, and the days of these platforms being a hub for jumbled second-hand stock are well behind us. While Covid-19 has undoubtedly accelerated the shift to online, the inexorable share gain by marketplaces shows no sign of slowing”
US powerhouses dominate European counterparts in the West
Not all marketplaces are enjoying a piece of the pie, however. The extraordinary performance of the likes of Amazon and Expedia has created a highly consolidated landscape in which the top 10 marketplaces account for c.70% of marketplace gross merchandise value (GMV) in Western markets, with eight of the top 10 marketplaces of US origin.
Despite many European marketplaces such as Zalando operating successfully, most are simply unable to compete with their U.S. counterparts in terms of size and scale. While they do not account for any of these top 10 grossing marketplaces, they make up just a quarter of the top 50 but contribute only 5% of GMV.
The largest threat to US marketplaces comes from China, who in Taobao, Tmall and JD.com (owned by Alibaba), possess three of the four largest e-commerce marketplaces globally. All three are expected to expand their presence in Western markets by 2030.
The marketplace scene is continuing to evolve at pace. As well as overtaking direct ecommerce spend in categories such as retail and travel, the report predicts that the next cohort of verticals to benefit from online marketplaces will be those where buyers already use price comparison as part of the purchasing journey. These include real estate, automotive and retail, financial services.
Marketplaces will also grow to scale in new verticals. These include B2B products, where marketplaces are overcoming the longstanding practice in industries built on analogue and relationship-driven interactions by developing a tool that is closely tailored to the specific needs of their verticals. The second-hand goods market is also set to thrive with consumers demonstrating a growing sustainability conscience in their purchasing, which is in turn creating a wider pool of geographically diverse buyer and seller segments.
Finally, the developing regulatory landscape is also presenting opportunities for new players, with incumbents operating in the EU now forced to shoulder VAT processing costs.
Goodwin adds: “Given the sector remains in its relative infancy, there will be no shortage of opportunities for both new and incumbent players to operate profitably. Marketplaces will be springing up across new sectors and the success of ultra-specialist marketplaces like Vinted shows it can be worth carving out a niche. That said, ecommerce giants should be confronting these industry changes head on if they want to avoid the fate of bricks and mortar retailers and travel agencies.”
