With almost a year since the economic fallout due to the pandemic, digital commerce has reached an inflection point. And online marketplaces are the biggest contributors reaching a table-turning USD 5 trillion evaluation last year.
Nearly 60% of the global adult population is now online, embracing a shift to the digital age while offering key momentum to the e-commerce industry. Today, we have more than 370 marketplace unicorns (billion-dollar enterprises) with 81 new additions since January 2020.
This explosion of marketplace unicorns (globally) demonstrates the future of e-commerce. While record-pouring global VC investments suggest e-commerce marketplace domination, the true potential is yet to be realized, with several sections of consumer spending still undigitized.
Existing online marketplace experiencing BOOM in sales
Several existing marketplaces have blossomed during the pandemic showing no signs of stopping anytime soon. For instance, Amazon.com—a retail giant, registered a 43.8% year-over-year (YOY) growth in the first quarter of 2021. Revenues generated from online sales touched $108.52 billion. The rapid growth of Amazon will continue further as analysts estimate revenue between $110 - $116 billion in Q2 2021, ending in June.
The growth of Amazon is a direct result of investment in infrastructures (such as data warehouses, vans, and trucks), a boom in demand due to the change in consumer shopping behavior amid the pandemic, availability of a wide range of products in the marketplace, and more. The team led by Jeff Bezos heavily invested in the structure and laid a solid foundation, thus enabling them to handle such an unprecedented situation with minimal or no downtime.
Also, companies specializing in grocery delivery, such as Instacart, have witnessed a surge in demand amid the pandemic. It took only a year to change traditional grocery shopping habits among US households.
According to a report released by the Instacart team “Beyond the Cart”, there are several—new shopping habits—transformed during a pandemic that might stay even after the pandemic. The report highlights six key trends:
- Instacart in-app and text chat registered a 300% increase in the use of positivity emojis (like clapping hands, starry eyes), a 13% bump in thank-you messages, and more.
- Almost half of all Americans started planning for the 2020 holidays earlier than usual as searches on keywords like “Christmas” registered a 745% YOY growth.
- The marketplace witnessed a 9% increase in seniors (over the age of 60) using Instacart taking the total to 300K+ seniors with a rise in 1000 senior customers daily.
- Weekdays orders grew by 8%, while orders placed between 9-5 PM increased by nearly 32% last year. And, early 2021 analysis showcases that even though few consumers have shifted to weekend routines, several others are still ordering midweek.
- The demand for baking supplies like flour increased by 2-fold and yeast by 10-fold. Also, new grocery habits such as stockpiling hand sanitizers, soaps, and more will continue to remain post-pandemic.
- Nearly 77% of customers surveyed by the Instacart team said they would continue ordering groceries online even after the pandemic.
These key trends highlight the changing grocery shopping habits and how Instacart or any other grocery delivery marketplace is witnessing a boom in demand/sales.
Apart from this, the demand for liquor ordering/delivery online increased drastically. The team at Drizly—a popular liquor marketplace, now acquired by Uber Technologies—predicts that the online alcohol marketplace share in the US (currently at 5%) will reach 20% over the next 5 years. Molson Coors Beverage Co., another popular brewery marketplace in the US, registered a 230% YOY growth in online sales in November 2020.
The team further plans to spend 4-times more on the eCommerce unit in 2021. Further, marketplaces like Thirstie, SpeakEasy, and more have witnessed a significant jump in online liquor sales which is bound to increase even further.
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Similarly, several new marketplaces have been launched during the pandemic citing rapid growth and shifting consumer habits. Woolworths, for instance - Australian supermarket giant - has invested heavily in launching a highly-curated marketplace initially called “Everyday Market”. It will focus on range extension in everyday categories like homeware, clothing, and more.
Another notable example is Hudson’s Bay, a departmental store chain and the oldest (surviving) company in North America, inviting several third-party sellers to register and sell on its marketplace. Quickly adapting to the changing consumer demand in Canada, Hudson Bay’s team predicts the addition of 500+ independent retailers on its platform by the end of this year.
As businesses worldwide adapt to the new normal, we are more likely to witness substantial investment in e-commerce marketplaces.
The online marketplace business model is more sustainable
The covid-19 crisis accelerated the global adoption of products and offerings digitally by 7 years (on average), marking a huge change in the e-commerce industry, according to McKinsey. More than 75% of first-time users surveyed by the McKinsey team indicated their preference for online shopping even post-pandemic.
The marketplace momentum gathered during a tumultuous turn of events last year changed the dynamics of the e-commerce industry. And today, as businesses move towards the post-pandemic era, here are a few reasons that suggest the online momentum is here to stay.
1. Disruptive business solutions
Disruptive marketplaces are innovative business ideas borne from existing market failures or opportunities overlooked inevitably. It is a business idea that targets a new section of consumers, suppliers, or distributors who were unable to produce/consume goods or services profitably through previously specified channels.
According to the popular Silicon Valley investor Bill Gurley “disruptive marketplaces create money out of nowhere because, in connecting economic traders that would otherwise not be connected, they unlock economic wealth that otherwise would not exist.”
Airbnb, Uber, and others are popular examples of disruptive marketplaces that created non-producers into producers and matched new supply with demand. As consumers enjoy freedom and vendors greater flexibility in online commerce, new disruptive businesses will keep on emerging, continuing the momentum post-pandemic.
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2. Inherently competitive internal ecosystem
A digital commerce marketplace is inherently competitive, allowing potential buyers to compare different products or offerings all in one place instead of switching from one site to another. While the key challenge often remains on creating and maintaining buyer engagement, the beauty of the marketplace model is - capitalizing on existing demand and scaling up revenues once the demand returns.
The only potential loophole to take care of is - the supply doesn’t die down when the demand escalates. To avoid such a situation, it is important to provide value to the supply side. For instance, offering access to inventory management tools, order management systems, and more help sellers streamline their everyday tasks in the marketplace.
Moreover, constant dialogue with marketplace sellers is required so they do not switch or develop alternative channels.
Also, offering access to an omnichannel inventory management tool could also help.
3. Empowers employment opportunities for local retailers
From small retailers to skilled technicians, online marketplaces connect sellers (including those with minimal or no digital presence of their own) to a wide range of potential consumers generating more employment opportunities in the region. It boosts economies, makes assets more productive, expands the supply chain, and unlocks new demand - potentially boosting consumer spending.
Start an e-commerce marketplace with the right strategy
When starting an online marketplace business, it is imperative for a business owner to select the best-fit strategy to ensure streamlined business operations, sustainability, and growth. Here, we’ve highlighted key business models and strategies to determine your business operations.
Business strategy: Horizontal or vertical marketplace model
A horizontal model caters to a more extensive market, offering goods or services that are in demand and used by a larger audience. Craigslist or Amazon are two fine examples of such a marketplace.
On the other hand, the vertical marketplace model is one where the business targets only a specific audience in the niche market. Airbnb, Uber, and others are prominent examples of such a marketplace.
In the last decade or so, vertical marketplaces have gained more traction due to factors like single and centralized policies, minimal investment, less intensive competition, and more. Yet, both business models are productive, and selecting the best fit depends upon your business requirements.
Growth strategy: Onboarding vendors or sellers first
To begin with, an online marketplace has neither supply nor demand. So, determining whether to onboard vendors first or sellers is a conundrum for business owners popularly termed as the chicken-egg paradox. To crack the code, a business owner should formulate the right business strategy or take hints from its peers such as:
- Amazon, the retail giant that started as an online book store gathered a considerable consumer base before converting its business to an online marketplace
- Airbnb, a billion-dollar marketplace that had no customers or vendors to begin with, sent emails to landlords listed on Craigslist
- And Uber, which focused on onboarding cab-service providers first, started with a goal of getting 30 drivers offering 15 minutes of ETA.
These giants either focused on vendors or customers (or sometimes both) to crack the code.
Development strategy: SaaS-based or licensed-based platform
Another important decision for a business owner is to determine whether to build the marketplace on a Saas-based platform or a licensed-based solution. Software-as-a-Service (or SaaS) based platform is a comprehensive subscription-based platform like Shopify or BigCommerce that comes with technical support, cloud hosting, and more.
A licensed-based platform is a standalone solution inherently designed to deliver comprehensive multi-vendor stores with a fully owned license. Yo!Kart and CS-Cart are two prime examples of multi-vendor platforms that are scalable, customizable, and secure. While both SaaS-based and licensed-based platforms are fairly reliable, to start an online multi-vendor marketplace, licensed-based platforms are more suited considering the long-term benefits such as source code ownership, scalable architecture, and minimum overall development costs.
From disruption in the retail sector in the initial months of 2020 to the great transition to digital commerce, we have come a long way. The last one and a half years have changed the global dynamics as businesses shift to a new normal. The online marketplace industry has reached an inflection point, and the momentum is bound to outlast the pandemic.