Third-Party Marketplaces Defined, and How They Can Benefit Your Business
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Third-Party Marketplaces Defined, and How They Can Benefit Your Business

CIO Review

Jim Stirewalt, President, Marketplace US

If you work in eCommerce you’ve experienced first hand the tremendous growth, and pressure, the past 15 months fueled by COVID-19 pandemic-mandated lockdowns and its impact on online ordering. eMarketer predicts e-commerce sales will account for 18.1% of all retail transactions up from 13.% just two years ago, and expects the global ecommerce market will reach $4.89 trillion in 2021.

Pure-play e-tailers and brick-and-mortar companies have focused on re-imaging and enhancing their online consumer experiences with new features and technologies, such as augmented reality (AR), voice search capabilities through in-home digital assistants, on-site personalization, and flexible payment options – all designed to make online shopping frictionless and more pleasant for consumers.

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What Is A Third-Party Marketplace?

An emerging technology trend in e-commerce are online marketplaces that aggregate, showcase and sell products and/or services from multiple third-parties. This concept has accelerated the past 12 months due to pandemic-fueled online shopping and technology advancements with headless commerce and API-driven platforms for easier integration.

With a third-party marketplace, the operator processes all purchases without having to own the inventory, and participating third-party sellers deliver and fulfill each transaction. Third-party marketplaces are ideal for bringing together buyers and sellers with common interests, such as golf, cooking, rock-climbing, etc, where buyers can also share tips and other content among like minded people. .

According to a recent report in Retail TouchPoints, the number of marketplaces grew 81% year over year (YoY) in the fourth quarter of 2020, a figure more than double the already-impressive growth rate of e-commerce worldwide. An increasing number of retailers and brands are harnessing the power and effectiveness of marketplaces, but the trend isn’t relegated just to retailers.

When I asked Bobby Amézaga, VP, Commerce Cloud Product Marketing at Salesforce his opinion, he said, "Last year, the world completely shifted to digital overnight and it's here to stay. Marketplaces are a natural next step in the evolution of ecommerce. When they are pre-integrated with an agile and scalable platform like Commerce Cloud, companies will be able to launch marketplace experiences quickly, reduce IT overhead, and accelerate growth in this next generation of commerce."

The Evolution of Third-Party Marketplaces

Marketplaces have come in a variety of forms but their collective purpose has remained the same: provide an easy, convenient location where multiple sellers can gather and offer customers a curated selection of products or services.

Phase 1: Needs-Based Marketplace

From the advent of early civilization, when the bazaar was the primary mechanism for buying and selling goods, marketplaces were formed to satisfy customers’ basic needs: ease, relevance and convenience. An attractive quality of a third-party marketplace is the delivery of these three important benefits to consumers.

Phase 2: Classified Marketplaces

At one point, print classified ads existed as the main sources of revenue for publishers. Then Craig Newmark and his email distribution list came along in 1995 and changed classifieds (and journalism) forever with the largest online classified marketplace in the world, Craigslist, now operating in 70 countries.

As the internet became more ubiquitous, publishers saw the value in creating and managing specialized marketplaces which featured classified ads for specific categories. As a result, we began to see marketplaces appear across a range of interests, from Zillow and Redfin for real estate, to Monster.com and CareerBuilder for job listings, and everything in between. Such classified marketplaces have become one-stop destinations for customers seeking items in definitive categories.

Phase 3: Mega Marketplaces

From a listings-based classified marketplace, a few power players, most notably Amazon, have built themselves into mega marketplaces. These gigantic entities are prime examples of online shopping destinations which are essentially “all things to all people”.

Without question, Amazon has become the undisputed leader for its ability to satisfy the needs of any customer by selling billions of SKUs across hundreds of categories. The company has reaped tremendous benefits by offering consumers a fee-based “membership experience” through Amazon Prime. Through Prime, Amazon has created real value for its customers beyond the transactional experience offered by eBay and other mega marketplaces.

Phase 4: Owned Marketplaces

Unlike a mega marketplace that seeks to serve everyone’s needs, an owned marketplace is a highly-focused business which owns a specific category, interest or niche, and is often positioned as the main port of call for like-minded consumers:  a one-stop online store offering curated products and category-specific content.

One such example is BikeExchange, an award-winning, global online marketplace for anything and everything related to bikes (and also the inspiration for the Marketplacer business). BikeExchange started in 2010 when co-founders Jason Wyatt and Sam Salter struggled to find a single place to find bike-related products so they set out to consolidate hundreds of retailers and the 800+ brands they represented onto a single online platform to make it easy for buyers to find them and the specific products they sold.  More than 1,500 brands are now represented with 600,000+ products and annual global traffic exceeding 29.1-million.

The Benefits of Owned Third-Party Marketplaces

Beyond their previously-stated ease, relevance and convenience, third-party marketplaces offer many other financial and operational benefits to their owners:

For corporations with established online presences, third-party marketplaces are quick, relatively easy ways to increase top-line sales and bottom-line profits.

They deliver more profitable growth opportunities than traditional e-commerce activities because companies can expand their product arrays quicker and more responsibly than simply doing this with first-party inventory.

They enable operators to capture consumers’ attention for longer periods of time, while serving as an authorized conduit for the collection of valuable first-party data.

They are easily scalable, and can be rapidly modified based on fluctuations in consumer demand.

Marketplaces may now be virtual, but they are evolving rapidly and remain the most popular ways for buyers to find what they need, especially with respect to specific interests, passions and hobbies. Knowing their types and differences and benefits can help you define and improve your company’s e-commerce strategy by creating and implementing the type of third-party marketplace that’s right for your business.

Jim Stirewalt is US President at Marketplacer, a global technology company that empowers businesses to create third-party online marketplaces which bring buyers and sellers together through common interests, passions or hobbies, and generate additional revenue by selling products they don’t own or control. You can connect with him on LinkedIn and reach him via email at jim.stirewalt@marketplacer.com.

 

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