Mostyn Goodwin, Partner, OC&C Strategy Consultants
Just fifteen years ago, the biggest threat to traditional commerce was the internet. Brands that were quick to launch transactional websites emerged as victors as consumers readily embraced the convenience afforded by transacting online. Now, however, the ecommerce giants face losing out to the dominance of online marketplaces. The disruptor has become the disrupted.
OC&C Strategy Consultants’ new report, titled Trading Places, which has examined over 20 product & travel categories (worth over 40% of total consumer spend) where online marketplaces have a tangible presence, predicts that by 2025, spending in online marketplaces will become as large as direct online retail. In the West, they are projecting a 15% year-on-year growth, and by 2025 they will account for 45% of online spend, becoming a dominant online distribution channel. Given their commissions commonly range from 15-25%, that’s a huge transfer of value away from the traditional players.
The growth of the online marketplace model has almost gone undetected by consumers, with many not having a full understanding of the different propositions on offer. They have evolved in all shapes and sizes and have become increasingly sophisticated in what they provide to customers and suppliers. For customers, they bring convenience, choice and value, while suppliers benefit from access to a large customer pool and a slick user interface, without the costly investment of online ecommerce infrastructure.
Associations are most frequently made between online marketplaces and retail, thanks to the virtually ubiquitous presence of Amazon in consumers’ shopping habits. However, digital marketplaces have also made significant headway across other sectors such as travel, food delivery and even gym memberships. These offerings are also becoming the primary port of call for tradesmen, with plumbers, builders and electricians using websites such as MyBuilder to bid for jobs.
European marketplaces struggle to compete with the U.S. powerhouses
Amid this seemingly unstoppable rise, the runaway success of the likes of Amazon and Expedia have created a highly consolidated landscape in which the top 10 marketplaces account for approximately 70% of marketplace gross merchandise value (GMV) in Western markets, with each of these virtual trading places processing a GMV of over $20 billion.
Today, this dominance is confined to the U.S., accounting for 8 of these top 10 markets. European marketplaces on the other hand, despite the likes of Zalando running highly successful and profitable operations, make up just a quarter of the top 50 grossing markets, with all of these falling outside of the top 10 and accounting for just 5% of the top 50 GMV.
The growth of the model is showing no signs of slowing down. In 2020, the OC&C report found that established marketplace categories accounted for $15tn (40%) of total global consumer spend (excluding China), and despite the U.S. seeing a first ever dip in year-on-year Black Friday spend, Amazon reported record breaking Black Friday-Cyber Monday sales. The data supports predictions that trends witnessed since the onset of Covid-19, where consumers were largely confined to online transactions, appear to be sticking for the long-term. Indeed, only one established marketplace category – DIY, Gardening and Pets – did not see an increase in online or third-party transactions during the first stages of the pandemic.
A developing landscape means further change is on the horizon
Considering this backdrop, observers could be forgiven for thinking the online marketplace model is something of a closed shop. However, outsiders can rest assured that changes are incoming.
Firstly, the biggest sea-change could be the disruption of the current U.S. supremacy in the West by Chinese players, namely Taobao, Tmall and JD.com. As three of the four largest e-commerce marketplaces globally, their stronghold has created an incredibly insulated and consolidated Chinese market with almost no room for other players. This dominance has yet to migrate into the West – of the top 100 Western marketplaces by GMV, only a handful of smaller sites are Chinese. However, Taobao, Tmall and JD.com are all predicted to make headway in Western markets by 2030, with JD.com already announcing new store concept plans in the Netherlands that will put them in direct competition with Amazon.
Secondly, we will see the expansion of the marketplace phenomenon into adjacent categories. These include the real estate sector, automotive, B2B services, financial services (where online comparison portals will continue to strive for customer ownership, akin to brokers) and the second-hand goods economy.
Thirdly, retailers will continue to jump on the bandwagon themselves and create their own third-party marketplaces. Next have done this successfully with their online aggregation business LABEL, which in 2020 accounted for over 25% of Next’s UK online sales.
The growth of online marketplaces over the past decade has been clear to see. They are increasingly serving all categories, from retail to utilities, bringing benefits to consumers and retailers alike, and their penetration of new and existing categories will only grow further. Although the current landscape underlines the scale of market monopolisation by U.S. and Chinese giants, change is certainly afoot, particularly as regulators increasingly step in to create a more equal playing field. What we can be sure of, however, is that online retailers and traditional ecommerce players will be mulling over the same question: if we can’t beat them, we may as well join them.