Creating e-commerce marketplaces to stay relevant in an Amazon world

When people think about creating e-commerce marketplaces, Amazon often follows by mental association, and with good reason.

The retail giant enjoys almost half of the entire US e-commerce market share, and it’s safe to say that a majority of US consumers have probably purchased something from the store at some point.

The word association is so strong that many incorrectly assume that setting out to start an e-commerce marketplace, and attract sellers to it, would be futile given Amazon’s dominance over both facets of online selling.

Marketplaces are actually becoming more affordable to set up and operate, and the barriers to entry are diminishing so much that, increasingly, online storeowners are rolling out their own and enjoying success in building catalogs and growing revenue.

Done well, creating e-commerce marketplaces can allow operators to capture revenue from industry giants and help brands stay relevant in an Amazon-dominated world.

Is it a David and Goliath battle in some respects? Yes. And, at least at the time of writing, it’s definitely a battle worth fighting.

The Amazon flywheel effect: Platforms matter

Anyone who has observed a flywheel in motion knows that it generates its own momentum over time, becoming easier to speed up. As Newton once put it: “a body in motion will remain in motion.”

The analogy has often been applied to Amazon to describe how, once active, the marketplace has been observed to perpetuate itself and accelerate, as brand recognition grows and sellers rush to gain pixel space where their competitors are active, whether they are joining the program as Fulfillment by Amazon (FBA) or Fulfillment by Merchant (FBM) associates. This can be demonstrated by the steady growth of third party sellers on Amazon – 58% and climbing, according to this recent letter to shareholders.

As more merchants are drawn to the platform, the selection of products increases, as does competitive pricing. This draws in more buyers, creating a virtuous cycle: merchants want to be where consumers are, and consumers want to be where price and selection are best.

Amazon doesn’t have a patent on this concept – it applies equally to the very concept of marketplace selling as whole. As merchants grow more accustomed to the idea of selling through third party online stores, it becomes the new normal and merchant inertia diminishes.

This kind of disruption isn’t just being seen within e-commerce. In the internet era platforms (services which create the infrastructure needed for an ecosystem consisting of buyers and sellers to form) are achieving dominance and have quickly entrenched themselves as the business model of the future – think Uber, AirBnB, and Netflix.

By contract, pipelines — in which businesses sell to consumers strictly through their own managed channels without any kind of reciprocal feedback loop — are the remnants of yesterday. It’s about two-way relationships and more widely distributed selling channels. For would-be marketplace operators, this means that getting the ball rolling is easier and more urgent than ever.

Challenges of e-commerce marketplace selling

Starting a marketplace has many advantages, but let’s take a look at some of the challenges brands can face in starting these.

Curation: Marketplaces are brands in their own right, but they also need some kind of central ethos and look-and-feel that reflects the parent company operating them.

For that reason, curation is particularly important. Marketplace entrants must pay attention to the merchant signup process, and institute checks and balances to ensure that appropriate merchants sign up to the marketplace. This might require developing sets of merchant qualification criteria, and deploying staff members to assist in the screening process of new signups. Merchants that don’t provide proper customer support or actively maintain an inventory on the marketplace are likely to damage the reputation of the website.

Onboarding and administration: Attrition is the bane of marketplace operators, and onboarding is the most delicate phase during which careful relationship management with prospective merchants is a must.

Marketplace operators need to invest in a satisfactory customer experience and closely guide merchants during the signup process to ensure that they will not give up when attempting to upload their inventory and establish a presence on their marketplace. Operators must remember that, in the Amazon era, the ease of the onboarding and maintenance processes for their marketplaces will constantly be judged against the high standards set by the leader.

Customer experience: The marketplace needs to have a customer experience (CX) that will impress both its customers and merchants selling on the platform. A marketplace that’s backed by inadequate customer support and success functions is unlikely to succeed. Paying attention to the functionality and scalability of the platform right from the beginning is important – if your marketplace isn’t easy to use and manage, growing it will be difficult.

Top considerations for brands considering creating e-commerce marketplaces

Marketplace-launchers also need to consider:

Transparency: Marketplaces differ in how they present the fulfillment options they can operate with to merchants participating in the program. The optics of this, from consumers’ perspectives, can have important ramifications. Some typical configurations include:

• A transparent mixture of direct selling and selling from third parties
• “White labeled” third party participation in the marketplace
• “White labeled” fulfillment of own products through third parties

Customer Service: Post-sales service is another critical area which prospective market operators need to pay close consideration.

Marketplace owners may wish to attempt to enforce Service Level Agreements (SLAs) which supersede those of the merchants listing on the website, or alternatively let them set their own.

In the latter case, marketplace owners must be transparent with customers about reasonable expectations for service and post-sales support. This is another reason why ensuring the integrity of the sellers taking part in the marketplace, maintaining open channels of communication with them, and having well managed governance standards is critically important.

Change Management: Selling as “one-to-many” is a very different proposition than selling “many-to-many”.  Organizations need to adequately plan for the development, implementation, documentation, and governance of the new business processes required to successfully operate a marketplace, and will frequently need outside help to do so.

Poorly implemented marketplaces mean big problems

When creating e-commerce marketplaces, brands need to adopt a mentality of “do it well, or don’t do it at all.”

Poorly implemented and executed marketplaces can have massively detrimental effects on brand image. In a streamlined marketplace environment, customers are often not even cognizant of that they’re buying from a fulfillment partner rather than the marketplace itself (assuming it operates its own distribution channels). Just consider Amazon, whose branding is so strong and associated with the marketplace that the two have become synonymous in the eyes of most buyers.

This means that if a customer has a poor experience as a result of a marketplace seller, they’re likely to remember the brand behind the marketplace, rather than the seller who actually supplied them the goods, in an unfavorable light.

Finally, unless support and service SLAs are well delineated and communicated, marketplace operators can easily find themselves stuck down a rabbit hole of responsibility trying to remedy the defects of marketplace partners. If they haven’t been properly vetted, dealing with these issues could easily monopolize the time and energy of a brand’s in-house support resources, causing a chilling effect on the overall CX.

Getting it right can pay off

On the flip side, operating a successful marketplace presents enormous opportunity for brands to grow revenue and widen distribution channels. In the Amazon era, brands of all sizes need to adapt to life selling across the platform rather than down the pipeline.

Setting up a successful marketplace allows brands to:

• Drastically increase the product categories they’re able to sell to customers (consider Best Buy’s decision to begin retailing kitchen goods)
• Break into new demographics and target new buyer personas who may be interested in the brand’s direct inventory

Creating e-commerce marketplaces: Act with urgency

Amazon shouldn’t be thought of as having monopolized the marketplace space; rather it’s created an industry disruption. While many brands can benefit from this rising tide, not all will.

Thanks to new technology and partners, rolling out marketplaces is more accessible to enterprises of various sizes. However, no one can say how long this window, open wider than ever before, will stay that way.

While the long tail of marketplaces is growing, brands that don’t become marketplace operators in time will logically be relegated to marketplace sellers soon thereafter.