The next generation marketplaces: Challenges and Opportunities
By definition, a marketplace is where a group of people gather to purchase and sell a large number of goods and services. The world of digital commerce experienced a huge leap forward by modernizing the definition of the marketplace after the massive adoption took place in the late 1990’s. At this time, buyers and sellers switched from the local square to their own PCs. Giants like Amazon and eBay were the pioneers of what is considered now, to be marketplaces 2.0.
Throughout this text, we will highlight a bit of these platform, data, and facts that show the current scenario of this segment, its problems, and what we can expect for the future of marketplaces. Read more!
The current context of marketplaces
Nowadays, neither physical location or operation hours are a limitation for millions of people to browse and purchase items online. Despite providing shoppers with an exceptionally convenient and effortless buying experience, online shopping has created several issues which come into play at times, such as dishonest sellers and customers receiving poor quality, or even damaged items.
Marketplaces behave as a middleman between the buyer and the seller to handle payments, dispute settlements and provide shipping directly to the end customer. This centralized business model proved to be highly efficient, and both Amazon and eBay remain among the most established, trustworthy, and powerful eCommerce businesses.
The huge power these companies have comes as the result of leveraging small & medium-sized online shops, which pay a multitude of fees for services such as listing, payment, dispute, and marketing. Sellers sometimes end up paying up to 30% of GMV to these “middleman” platforms as fees. Both sellers and buyers end up being affected in terms of pricing.
Not to mention data transparency, which is also a big concern between buyers and sellers with giants corporations. Consumers often have very little, to no control over their own data. Technologies based on Blockchain through decentralized processes could play a key role in the next generation of marketplaces and online shopping.
Vendors and shoppers stand to benefit greatly from the development of large and scalable marketplace systems. The aim is to bring more transparency throughout the whole buying journey with very low fees, that enable all parties to enjoy the functions of centralized marketplaces.
Actual facts about its scenario
Cross-border eCommerce growth
According to Forrester, the Asia-Pacific region will experience the greatest growth in terms of online sales. Cross-border eCommerce will be outpacing domestic growth with a compound annual growth rate of 17% between 2017 and 2022, compared with 12% for overall B2C eCommerce.
Indeed, shoppers are continuing to look beyond local/domestic online stores for better offers and product selection. Improved logistics, faster shipping, and a wide array of payment options are compelling consumers around the globe to purchase goods from vendors abroad. According to Nielsen’s Connected Commerce Report, 57% of online shoppers have made an online purchase in the past six months from abroad retailers.
Sure, selling worldwide brings in many challenges for vendors, especially when discussing SMBs sellers. One of the main concerns for foreign buyers is to trust vendors abroad. Reviews and research on companies are often done by buyers before making any purchasing decisions. Besides trust, we could identify language barriers, currency exchange, and localized marketing as important hurdles when looking to purchase abroad.
We must emphasize the opportunity for stores to use marketplaces from other countries to expand their operation and thus help in this growth of eCommerce cross-border.
High commissions and dominance of big marketplace players
Most of the time, SMBs find marketplaces the easiest way to start selling in the eCommerce market. The broad range of facilities, marketing-friendly product listings, the large buyer audiences, secure payment processing options, and customer support aspects are some of the services offered by the huge marketplace players, and these make them very attractive to vendors.
When a new international online seller wants to expand their global reach, they often see Amazon or even eBay as the first and sometimes only choices. Consider China, for example. In 2016, the number of sellers on Amazon’s marketplace from the Asian giant grew 1300 times. ⅓ of all new seller accounts that were opened in 2017 were from China, and Chinese sellers contribute to 25% of all Amazon sales.
Many times, brand credibility is a key role player that positions marketplaces among the best options of where to start. At the same time, that comes with a hidden price of paying higher fees, which could potentially range from 20% to 30%, to work with these big players.
Some current issues
Giant eCommerce platform companies have unrestricted access to all shopping activities that happen on their sites. They collect and analyze the shopping behavior data to gain insight into each customer’s profile and better promote items while boosting sales.
Marketplaces generally don’t allow the vendors on their ecosystem to have access to the same amount of data that they have (for a number of reasons). Thus, sellers are continuously unable to have a clear understanding of how shoppers react to their product detail page. Occasionally, marketplaces will use their unlimited access to data to their advantage, which allows them to identify which items are popular and then sell those products at much lower prices to compete with the existing sellers.
Amazon owns a tremendous amount of data, such as lists of customer email addresses and browsing histories that its marketplace sellers are prohibited from accessing. While this practice ultimately benefits the marketplace, the lost transparency of data usage and the manipulation of data negatively affects both buyers and vendors. By retaining these lists, Amazon and eBay gain a competitive advantage and limit the seller’s’ ability to have closer relationships with customers.
Online buyer’s trust is expensive
As a seller, you can create an online store with a nice UI/UX design and sell quality products. Yet even then, potential customers will still be wary to shop with you because you don’t have a well-established reputation.
The increasing incidents of phishing scams and poor-quality customer service make consumers more cautious of purchasing online than ever before. It’s extremely important for an online seller to demonstrate their trustworthiness to their customers as soon as shoppers arrive at the retailer’s site.
To achieve optimal reliability, some sellers would need first to invest a lot of their budget on advertisement to attract their first group of customers with the intention of these customers leaving positive feedback about the online store for future customers to see.
Other strategies include buying social ads to expand their brand’s exposure. With a positive outcome, this method allows prospective customers to see the experience others have had with the brand. At the same time, however, this path could result in losing money and it can take months or even years before trust is established over the internet. At that point, it remains to be seen if the brand would even retain relevance.
Existing problems described previously could be traced to the core business logic of traditional eCommerce marketplaces. The traditional internet cannot support real-time value transmission nor irrevocable contracts, which makes intermediaries an unavoidable piece of the transition.
The profit-seeking nature of intermediary companies makes achieving profit the primary goal, instead of providing a truly efficient and fair trading environment. Using blockchain technology to realize the true decentralization of the eCommerce marketplace is the only way we could fundamentally solve these problems.
These facts might bring us some evolution in the way we trade globally and do eCommerce. Therefore, we very well may be experiencing the next generation of marketplaces even sooner than expected, in the near future.