Marketplaces reach tens of millions of shoppers every day. While they have had a significant role in online commerce for well over a decade, these selling environments have captured the attention of many more customers, manufacturers, and merchants in the past few years.
This post summarizes how marketplaces operate, lists some of the major players, the pros and cons of this sales channel for brands, and the key factors driving recent surges in their growth. We’ll also discuss how these marketplaces are altering the affiliate landscape and what we can expect in the years ahead.
What are eCommerce Marketplaces?
Digital marketplaces aggregate the offerings of a variety of sellers and make the products available in a single digital venue. When shoppers visit marketplaces, they can see all the offerings of various businesses and more easily compare features and prices across sellers. Advanced search functions help shoppers quickly zero in on the specific items most likely to interest them.
Different marketplaces attract visitors in different ways and are designed to meet different business needs.
On-Demand Services Marketplaces like AirBNB sell services to customers, dramatically simplifying product comparison and standardizing information available for review.
Product Marketplaces like Amazon Sellers manage all aspects of a transaction, from ordering to transactions, fulfillment, and returns. They make driving e-commerce sales more turnkey versus creating a website and fulfillment infrastructure. Some such marketplaces require merchants to use these fulfillment services, while others offer a menu of engagements that let merchants choose how many functions they outsource.
Community-Driven Marketplaces like Etsy focus on a specific class of merchants and customers, creating a community around salient characteristics.
There are other subsegments, but the tripartite market view provides a good, high-level picture.
The Major Shopping Marketplaces in North America
The number of generalist and niche marketplaces has exploded in recent years. A list of the top marketplaces includes both multi-category and specialist selling platforms in the US. Some examples include:
Alibaba - Millions of manufacturers leverage Alibaba to sell goods at low prices without creating a sales and fulfillment infrastructure. Much of Alibaba’s business is B2B versus B2C in the US. Monthly website traffic (SimilarWeb): 100M.
Amazon Sellers - Large and small companies leverage the traffic and merchandising tools available on Amazon to sell goods and (usually) fulfill through their vast distribution network. With Amazon, the merchant is charged a commission on a sale and may also pay for sponsored listings in search results. Monthly website traffic: 2B.
Bonanza - A popular alternative to eBay, Bonanza offers unusual and unique items versus more typical commodity merchandise: Traffic: 5M.
Etsy: Fast-growing Etsy concentrates on handmade or vintage items and craft supplies. Etsy is a transaction engine but does not offer fulfillment services. They provide a system for order shipping labels that trigger shipping alerts to the buyer. Monthly website traffic: 400M.
Facebook Marketplace Fast-growing Facebook Marketplace gives merchants tools to build store pages, list items, and advertise. Merchants can transact through Facebook for a commission of 5% or 40 cents for any shipment under $8. Facebook’s monthly website traffic is 20B. Naturally, shopping traffic is a fraction of that, but the scale of the total Facebook customer footprint provides a view of this platform’s commercial potential for merchants.
Mercari is a Japan-based marketplace for second-hand goods. Monthly traffic: 175M. Sellers are responsible for shipping and fulfillment.
Offerup is a peer-to-peer marketplace where customers buy and sell goods locally. Monthly website traffic: 20M. Sellers are responsible for shipping and fulfillment.
Overstock: Once a site focused (or at least positioned) on selling closeout merchandise, Overstock now offers a marketplace where manufacturers and retailers can list and sell goods. Manufacturers can fulfill themselves or leverage Overstocks logistics services for additional fees. Monthly website traffic: 28M.
StockX; Stockx focuses on providing a marketplace for collectible and in-demand goods like the latest sneakers, watches, collector cards, and fashions. The site operates with a modified auction model, featuring asking and bidding prices, which enables buyers and sellers to get a transparent view of the true price/value of goods. Monthly website traffic: 30M.
Target Plus: Target Plus is by invitation only for merchants but will likely open up soon. Expect services and fees similar to those charged by Walmart Marketplace. Target charges fees for targeted ads based on customer browsing and searches. Monthly website traffic: 175M.
Walmart Marketplace: A full-service marketplace offering, Walmart Marketplace provides listing, sponsored listing, inventory fulfillment, and shipping services. Walmart is investing heavily in this business as part of its strategy to challenge Amazon on multiple fronts. Monthly website traffic: 400M.
Wanelo: A popular marketplace focused primarily on fashion, accessories, and home goods, Wanelo has 550,000 participating North American merchants and indexes 30M+ items. Monthly website traffic: 60M.
Wish is an app-centric discount shopping marketplace serving about 100M shoppers every month. Their format emphasizes visual versus text-based shopping. Founded in 2010, it is one of the older marketplaces, and its distinctive visual format has attracted about 1M merchants. Monthly traffic: 35M.
Popular Specialist Marketplaces
Houzz: This home decor and decorator marketplace connects consumers with professionals and sellers. Sellers must source, ship, and handle returns. Sellers can purchase ads, as can design and construction professionals. The company offers professional digital services like project management and project visualization software. Houzz charges a 15% commission and offers paid listings and other promotional opportunities. Monthly web traffic: 20M.
Newegg: This leading, electronics-centric retailer offers a marketplace with a variety of service options. Standard merchants can sell up to 5,000 SKUs in various categories, paying an 8-15% commission. They can also purchase ads and sponsored listings. Premium merchants can sell more items and get more promotional tools. Newegg also offers optional fulfillment, inventory, and return services. Monthly traffic: 30M.
Poshmark: A marketplace for fashion, beauty, and home decor items. Sellers can offer both new and second-hand merchandise. 89M people have registered for Poshmark, and 300M items have been listed. Monthly web traffic: 45M.
Ruby Lane: Focused on vintage, antique, and collectible items, Ruby Lane is a bit smaller than other entries listed here. Small monthly store fees plus commission rates of 6.7%, capped at $250 per item. Monthly web traffic: 15M.
What About Google Shopping?
Google has struggled with building a successful shopping offering over the years, and the rise of Amazon product searches and marketplaces has heightened the urgency. While Google dominates every other search type, the number one venue for product searches is now Amazon.
Google Shopping is not a marketplace. While Google Shopping indexes the goods of thousands of vendors and offers a shopping-optimized search algorithm, it is not a marketplace. It is an ad product. Merchants pay to have their products listed in Google Shopping search results. They are usually redirected to merchant sites to consider and transact when they click. Most Google Shopping impressions come from units on Google search results pages.
Google’s first significant foray into Shopping was Google Product Search, which later rebranded Froogle. The Froogle model was built around a shopping search destination. When the company rebranded again to Google Shopping, it switched to integrating visual product ads in standard Google search results pages.
Versus Amazon, Google Shopping is a distant second in terms of sales generated, but merchants are reporting solid growth in sales driven by this offering in the past two years.
While merchants can use the Buy with Google engine to manage transactions, the service connects the customer to the merchant’s transaction platform. On the plus side, they charge no commission for this offering. Google does not provide fulfillment, inventory, or return services.
How Merchants Work with Marketplaces
While processes and rules vary, most marketplaces use data feeds from merchants that include item information and keywords to power search results. Merchants can use tools from individual marketplaces or sign up with services that power listings across multiple marketplaces. Ads and merchandising can be purchased on separate platforms or via tools that automate the process across multiple marketplaces.
Some of the most popular product feed automation and optimization companies include Feedonomics, which Big Commerce acquired, and other players, including ProductsUp, Vesta, Store Automator, Channel Advisor, and Channable. That list just scratches the surface of this growing solutions provider category; the Shopify app store offers 21 different apps from different providers.
Marketplaces are driven by adherence to product categorization taxonomy, keywords, and accurate, well-formatted data feeds. A merchant must have this rich data foundation to “win” in these highly competitive environments. As is often the case in digital, successful outcomes usually go to those most adept at leveraging technology to meet their growth goals.
What are the Pros for Merchants
Marketplaces are a great bet if you want an easy and relatively low-cost way to start making sales online. By attracting millions of visitors to their search engines, they can reduce the cost of acquiring new customers. Further, when they manage your ordering and fulfillment, they dramatically simplify doing business online.
Marketplaces are a great way to sell unique and niche products. For example, if you wanted to launch pens for left-handed people, having a presence on major marketplaces could help you reach more of your target through their powerful search algorithms. You could also better target your ad spending by buying sponsored results on searches relevant to lefties.
Savvy companies that write good product descriptions, understand their customers, and use tools to distribute their offers to multiple marketplaces can create a competitive advantage at a relatively low cost. Marketplaces can also help brands enter new markets and regions by taking on tasks like setting up transaction systems, carrying inventory locally, and cost-effectively managing distribution.
The Downsides of Marketplaces for Merchants
Many retailers want to create brand loyalty over time by attracting customers that turn to their web pages and apps first. Marketplaces are generally not great environments for building loyalty. While you can reach many people through them, you must aggressively compete for every sale because competitor offerings will appear right next to your own. You may not pay as much for the first sale as you would by driving traffic to your site, but it may cost you a little more in discount or value-add to make a second sale. And a third.
Further, many marketplaces limit your ability to cultivate relationships with your buyers. They may prevent you from sending emails or other communications. One notable exception is Newegg, which encourages merchants to communicate with customers as a way of growing overall Newegg traffic.
Further, while marketplaces make things easier, convenience costs. Merchants pay fees for services like paid search results, category listings, transaction commissions, shipping and inventory fees, return bills, and other service charges. Brands need to understand the actual cost of working with marketplaces to determine if they will be cost-effective for the long haul. They must also remember that excessive reliance on one marketplace leaves businesses vulnerable to policy changes, cost increases, and service changes.
Marketplaces are more likely to make long-term sense for unique products because you won’t have direct competitors competing for each sale. By contrast, if you make a commodity item, be prepared to offer low prices if you expect to build a long-term business.
Why Marketplaces are Growing
Marketplaces have been part of digital commerce for many years, But growth has exploded in recent years. Rising expectations for personalized products and savvy price shopping are key drivers here. People want products that align with their lifestyles and preferences. And they want to pay as little as possible.
In the US, we can credit eBay and Amazon with helping customers get used to shopping in a single location and receiving items from a plethora of merchants. Further, by centralizing and providing safe transaction platforms, these companies made it possible to transact with unknown merchants without excessive worry.
More recently, several additional forces have accelerated the prominence and growth of marketplaces:
Covid-19 created widespread shortages and out of stocks for many retailers. Consumers began to search more for products across the web to get the goods they wanted. Marketplaces were tailor-made for this sort of challenge. By providing an index of merchandise across millions of merchants. The tools people used to find masks, hand sanitizer, and, yes, toilet paper soon became a shopping launch point across dozens of categories.
Covid-19 also led to widespread temporary store closings as customers were advised to shelter at home. Where shoppers once went to the mall, they started turning to marketplace virtual malls.
Price-savvy shopping. Customers recognize that they can get near-perfect information about available prices and deals via digital. Marketplaces enable customers to quickly query millions of merchants to find the best price for an item.
Great shopping search tools. Standard search engines are good for finding items across millions of sites, but marketplace search engines are purpose-built for product searches.
Marketing investment and awareness growth. As marketplaces have grown, they have invested in powerful direct marketing and brand campaigns to keep acquiring new customers and become the first step in hundreds of millions of shopping occasions per day. Many marketplaces now pay affiliates to drive new merchant sign-ups and drive traffic to high-volume items in their catalogs.
How Online Marketplaces Affect Affiliate Marketing
As venues that attract shoppers interested in specific products and services, marketplaces play a role analogous to affiliates in many ways. A marketplace attracts users by making it easy to find the right products and services for their particular needs. Affiliates drive traffic to retailers using information and offers to encourage purchases. There are definite parallels.
They differ in that affiliates focus on marketing activities that drive sales directly to merchants, while marketplaces disintermediate merchants. This disintermediation reduces steps to purchase and likely drives high conversion rates – many merchants say that AMazon’s conversion rates, for example, are high enough to justify the added costs for fulfillment services and merchandising control. But that model makes it more difficult for retailers to create customer loyalty. Instead of visiting a merchant website for future visits, the consumer is encouraged to transact in the marketplace and return when it is time to buy again. Because competitor products and offers will surround the merchant offers on those future visits, marketplaces favor lowest cost sellers and producers of unique items.
A few months ago, Martech Record published an eguide on Amazon Aggregators (part 1 and part 2)-- businesses that acquire growing brands that leverage marketplaces to drive sales and limit organizational complexity. This burgeoning category has discovered the power of marketplaces for quickly and cost-effectively building brands that offer unique products. Marketplaces deliver tremendous and ongoing business when a unique item appears on a marketplace.
Small manufacturers and retailers were among the first movers in marketplaces. For smaller players, marketplaces' traffic and scale advantages are immediate and obvious. But many major brands have been slower to join these platforms, primarily because they had the resources to drive site traffic and cultivate ongoing customer loyalty.
But more and more large retail brands are entering the marketplaces. Their marketing scale and growth trends are simply too big to ignore. And the world's largest retailers -- including Amazon, Walmart, and Target, have created marketplaces to boost revenue and better monetize site traffic. These companies often make more money selling and fulfilling for others than selling their own inventory. And they can't ignore the reality that 7 of the top ten global companies are platform businesses.
Marketplaces may mean fewer affiliate programs from e-commerce businesses because these selling forums may offer a more profitable way to drive sales. On the flip side, the marketplaces themselves often provide their own affiliate programs, compensating affiliate marketers the same way an individual merchant might. Many marketplaces also offer affiliate bounties for new merchant sign-ups.
Affiliate publishers should also note that marketplaces significantly lower the barriers toward establishing brands, and that you should investigate potential advertisers carefully before dismissing them as “unknown.” There are $50M+ brands selling exclusively on marketplaces today, many of which are likely to turn to affiliate to keep growth going. Just because a brand isn’t available in stores doesn’t mean it has limited potential in this new digital-first commerce era.
But marketplaces will likely take marketing investment from "tradigital" CPM-based channels rather than affiliate. They offer a way to drive awareness and direct sales from advertising in ways that pay-for exposure cannot compete with. A wise affiliate marketing strategy, by contrast, delivers outstanding ROI via a channel that helps retailers drive direct visits and encourage long-term brand loyalty. Affiliate can also reach audiences that don't choose marketplaces to transact. Further, content creator entities like influencers and mainstream publishers are vested in working directly with brands to sell goods and services.
I see an analogy to the walled-garden environment exemplified by AOL in the 1990s. There was an AOL internet and an Open Internet. The two existed side-by-side. The affiliate industry can coexist and grow as marketplaces mature. Customers want different ways to buy, and both affiliate and marketplaces help deliver value in this omnichannel environment.
As companies take a more data- and insights-driven approach to all marketing investment, we may see changes to the e-commerce affiliate program model so that partners drive brand loyalty receiving a recurring commission.
Finally, as marketplaces grow in popularity, the costs of advertising, sponsored results, and fulfillment will rise until these environments are too expensive to deliver a return on additional marketing spend. Consider what has happened to Facebook and Google pricing as they grew more popular. At that point, brands that had always relied on marketplaces will need new venues in which to put their money, and affiliate consistently leads in delivering outstanding ROAS.
Would you like to discuss this live and in-person? Attend Martech Record's upcoming event in New York City on May 23rd. See the agenda and register here.
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