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FBA Seller, Tired of Storage Fees, Launches 3PL

Mark Taylor is a former Fulfillment-by-Amazon seller weary of paying expensive long-term storage fees. His solution is Warehouse Republic, a 3PL serving mainly Amazon sellers, which he launched in 2018.

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Prime Day 2022 Recap: Sales, Categories, More

Amazon’s Prime Day has evolved into an industry-wide event. Since 2017 we’ve published an annual analysis and recap. Our 2022 installment looks at U.S. growth, average order values, and more.

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SEO: Amazon Keyword Research Tools

Consumers conduct more product searches on Amazon than on any other site, including Google. Hence understanding those search terms on Amazon informs merchants not just on that platform, but for Google optimization, too.

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Ecommerce Briefs: Google Marketplace; Walmart; Drones

This installment of “Ecommerce Briefs,” an occasional series, includes developments on Google ecommerce, Walmart fulfillment and infrastructure, and drone deliveries.

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Network Effects Drive Ecommerce Marketplace Growth

The “network effect” refers to a customer or user who adds value to a product or service. Network effects made Etsy, eBay, and Amazon successful, and they can work for emerging ecommerce marketplaces, too.

For example, Amazon is a two-sided marketplace, bringing together buyers and sellers. Each group is directly connected to Amazon and indirectly linked to one another.

The marketplace becomes stronger when a brand adds products to it, creating a little more variety and a few more reasons for a shopper to buy.

Likewise, every new shopper makes the marketplace more promising for merchants.

Thus merchants and shoppers drive the marketplace’s utility and value. As both groups grow, the marketplace improves and becomes more resistant to competitors. This phenomenon is the network effect.

Business and Math

The network effect has its origins in mathematics and economics. It works a lot like graph theory, wherein nodes and links comprise a network.

In the case of the Amazon marketplace, merchants and shoppers are nodes. The links between them are indirect since each relies on Amazon as an intermediary.

Image of a graph of interlinking nodesImage of a graph of interlinking nodes

A network incorporates nodes and links. Nodes are buyers and sellers in two-sided marketplaces such as Amazon, eBay, and Etsy.

A network with many links has a high density.

Often, dense networks experience the effect to a greater degree than low-density ones.

Hence an ecommerce marketplace wherein shoppers collaborate by linking to each other to get discounts from merchants could have the opportunity to grow more quickly and face less competition. China’s Pinduoduo is an example.

Growth and defensibility are competitive advantages to a marketplace.

A Tipping Point

But achieving the network effect is not easy A marketplace must first hit a tipping point or reach critical mass.

“The critical mass of a network refers to the point at which the value produced by the network exceeds the value of the product itself and competing products. This can happen at different times depending on the type of a network,” wrote James Currier, General Partner at NFX, an early-stage venture capital firm.

Currier’s company invests in businesses that benefit from network effects because, according to Currier, “network effects have been responsible for 70% of all the value created in technology since 1994.”

A marketplace grows dramatically when it achieves critical mass for a network effect. Suddenly, there is no stopping it.

Think of it like this. It is difficult to compete with Amazon because it has reached critical mass. There is such an abundance of buyers and sellers that it is hard for consumers to resist.

The need for critical mass is a challenge for a new marketplace. It needs a pool of buyers to get sellers to list products. But buyers need something to purchase.

It’s the classic chicken or egg dilemma.

The network effect’s natural enemy is congestion. It happens when adding new nodes slows the network down or makes it less efficient. A marketplace loses value and utility when congestion is present.

Marketplaces

Imagine that you want to start a new ecommerce marketplace.

The benefits found in network effects, the potential challenges of reaching critical mass, and an understanding of congestion can collectively be your guide.

Think about how you would make it dense. How could you connect buyers and sellers? Are there other potential nodes? For example, what about a B2B marketplace that includes logistics companies who bid on deliveries in real-time as buyers and sellers close deals? This arrangement might be particularly dense.

Marketplace relationships are not the only possible links. Other network effects include physical infrastructure, personal utility, relationships, data, technology performance, and language. Can some of these be designed into the marketplace, too?

Next, ask how the marketplace will achieve critical mass. Will it discount or offer free services? Will it combine similar wholesalers or retailers into one group for mutual benefit?

Finally, think about what sorts of challenges will cause congestion. What would happen during a peak holiday selling season?

Just as Amazon grew because of network effects, so will the next new and emerging marketplaces.

Will Amazon Convert Shipping Expense into Profit?

Amazon is poised to become the second-largest package delivery carrier in the United States, perhaps transforming a cost into a profit center.

In 2021, Amazon’s burgeoning logistics service had a 22% share of the U.S. small parcel delivery market by volume, making it the third-largest carrier in the American market, according to a May 23, 2022, Pitney Bowes report.

This report states that Amazon’s network — made up of company-owned facilities and vehicles, an army of delivery service partners, and Uber-like Flex drivers — moved about 4.8 billion boxes and envelopes in 2021.

Surpasses FedEx

Amazon delivered more parcels in 2021 than FedEx in the U.S. — a significant milestone. Several transportation analysts doubted Amazon could do it.

A 2018 article in a Memphis business journal, for example, said that the “chances of [Amazon] ever making the network profitable or in any way, shape or form a serious competitor to FedEx is dubious at best, a pipe dream.” (FedEx, it’s worth noting, is based in Memphis.)

The quote addressed Amazon’s Delivery Service Partners, a network of independent contractors who own or lease Amazon-branded vans and make deliveries exclusively for Amazon. But there might be a lesson here about doubting the company’s abilities and tenacity.

In 2022, analysts expect Amazon to pass UPS in parcel volume, making it second only to the United States Postal Service in the number of small packages delivered in America.

Cost Center

Some have pointed out that Amazon’s market share is just 12% when revenue — not parcel volume — is in view. But that fact is beside the point.

Fulfillment and shipping are cost centers for ecommerce operations. Amazon’s Q1 2022 results, released on April 28, showed that the company spent more than $19.5 billion on shipping.

The parcel delivery network Amazon is building is likely to reduce the company’s fulfillment and shipping expenses relative to using other carriers. UPS and FedEx’s profit margins are Amazon’s cost savings opportunity.

Pitney Bowes reports that Amazon had 12% of the $188 billion parcel delivery market in 2021. That translates into roughly $22.5 billion in delivery revenue.

Profit Center

One could argue that Amazon is on the verge of transforming one of its most significant expenses into a profit center.

The company is already deriving revenue from third-party sellers on its Marketplace. In the first quarter of this year, Amazon’s third-party seller service fees, fulfillment, and shipping revenue were more than $25. billion.

That figure could grow if the company’s “Buy with Prime” initiative succeeds.

Announced on April 20, 2022, Buy with Prime puts Amazon’s “fast, free delivery, hassle-free returns, and a seamless checkout experience” on any ecommerce site. Participating merchants must use Fulfillment by Amazon and the company’s parcel delivery network.

Effectively, Amazon opened up its delivery services to ecommerce sales originating not just from its Marketplace but from any store. Buy with Prime is a back door to scale its delivery operations and become a profitable parcel carrier.

UPS and FedEx generated $2.6 billion and $1.1 billion in profit in their most recent fiscal quarters. Amazon presumably sees that profit as an opportunity.

Amazon Web Services

Amazon has done this before.

Data centers are typically a cost center for large ecommerce enterprises. But Amazon long ago transformed this expense into profit.

Amazon Web Services started as low-cost digital storage but has grown into a massive cloud computing business. AWS now includes database offerings, animation solutions, natural language processing, machine learning, and more.

AWS generated more than $6.5 billion in profit in the first quarter of 2022 on $18.4 billion in revenue. What’s more, AWS is growing more than 30% per year.

Advertising

In a way, Amazon used this same tactic on its website, too. The company has become a leader in retail media.

Its advertising services business produced $7.8 billion in revenue in Q1 2022.

Instead of seeing its website and marketplace as somehow proprietary, Amazon has long since seen it as an opportunity to generate more profit.

Takeaway

Amazon’s fulfillment and delivery operations and its success with AWS and retail advertising could hold an exciting lesson for ecommerce companies.

What is a cost today could become a source of revenue.

Fed-up Toy Company Responds to Knock-offs

Having founded Viahart, a manufacturer of educational toys, in 2010, Molson Hart learned his products were being illegally produced and sold by others. He realized the problem, intellectual property theft, extended far beyond Viahart. And that prompted the launch of his second company.

He told me, “I founded Edison Litigation Financing in 2017 with my brother, a computer science guy. Our company finds businesses experiencing intellectual theft. There are a lot of crooks knocking off products.”

Edison locates potential infringements, contacts the infringed party, and arranges lawsuits for damages. It earns a fee for that service. Viahart sells mainly through Amazon. It recorded nearly $9 million in sales in 2021.

Molson and I recently discussed both companies. The entire audio of our conversation is embedded below. The transcript is edited for clarity and length.

Eric Bandholz: Tell us about your business.

Molson Hart: I founded Viahart in 2010 as an educational toy brand. For the most part, everything we sell is about inspiring confidence and capability in children. Our primary sales channel is Amazon, although we do have an ecommerce site. We sell a building toy called Brain Flakes, which does things that Lego can’t. It’s for kids between three and 13. We also sell Goodminton rackets and Tiger Tale toys.

I have a second company, Edison LLC, that does ecommerce-focused litigation financing for intellectual property theft.

We’re based in Austin, Texas.

Bandholz: Let’s start with Goodminton. How did you come up with the name?

Hart: When selling online, you’ve got to have a brand. One of the best ways to create a good brand and to take full advantage of word of mouth is to have a catchy name that sticks with you. We were selling a racket game similar to Badminton, and I thought, “Can we make a name that’s funny, memorable, and makes people laugh?” We decided on Goodminton, instead of Badminton.

Bandholz: What are the pain points of selling on Amazon?

Hart: Sometimes Amazon falsely identifies sellers as doing search or review manipulations — a pain point that happens probably quarterly. If we’ve got a hero SKU like Brain Flakes, our bestselling product, Amazon says, “Yeah, we’re going to put that in position 32 when customers search your brand name because you manipulated search results.” There’s no recourse, and there’s no explanation for how you can solve that issue.

If you’re starting, it’s pretty brutal because shipping costs are high. For us, it’s not bad because we’re scaled up. When shipping from Asia to the United States. We’re using 40-foot containers, so we have reasonable shipping prices.

We used to be able to do an email blast for reviews and stuff like that, and now there aren’t early review rewards on Amazon, so you need pay-per-click ads and sponsored advertising. It can be expensive. We don’t do paid social marketing to drive customers to Amazon. We only pay for ads on Amazon. Launching a new product needs to be differentiated and innovative in some way.

Bandholz: How do you handle knock-offs and intellectual theft?

Hart: I used to have an office in China. The first knock-off we ever had was before our trademark was registered. Someone in China used our trademark, Brain Flakes, for an interlocking disc product. I couldn’t do anything because our trademark hadn’t been registered. It turns out it was someone in that office, one of my Chinese employees. I ended up suing her, and then two years later, she did it again, and I had to sue her again. I found out that another employee was doing it, too.

I had three employees in China, and two of them were counterfeiting me and selling our brand’s products on Amazon. The third guy wasn’t. When I finally found that out, he and I weren’t working together. I sent him $5,000 to say, “You’re the man for not doing that when the other two were.” He’s a good guy.

After suing my employees, I was able to stop infringement. I knew that other people had those problems, so I founded Edison Litigation Financing in 2017 with my brother, a computer science guy. Our company finds businesses experiencing intellectual theft similar to what I just described. There are a lot of crooks knocking off products.

We connect brands dealing with infringement with a lawyer, who does the filings. The brand doesn’t have to pay any money. We take a percentage of the money that comes back. Our business evolved and now offers reporting, which is cool because we sign up lots of clients to pay us for reporting, and when we notice an opportunity for a lawsuit, we can use our reporting data in the case. We have a growing SaaS reporting business, and since my brother is good at programming, we have an excellent tech suite. Our lawyers use it, and increasingly, our customers do as well.

We take all the risks. So in exchange for earning a chunk of the money when it comes back, we pay all the legal fees, and should you be counter-sued, that’s on us. That’s the value proposition. We are turn-key, so you don’t have to worry about it. We gather all the evidence, and we do all the analysis. I have a warehouse in Texas, and hundreds of counterfeit products go to that warehouse every day. The items get shipped to that warehouse, and we open them up and take photos. Those photos end up becoming the evidence.

Bandholz: So you use your software to scour the web and find infringers?

Hart: Yes. We’re always looking for people who have exceptional cases. When that happens, we’ll reach out. We also have a $99 per month marketplace reporting service. For instance, if you have a brand selling on Amazon, you pay us monthly, and we monitor Amazon and combine the regular reporting with everything that goes into our lawsuits. So you get the best of both worlds.

We monitor all the major marketplaces. We scour Shopify, Amazon, eBay, AliExpress, and Walmart for fake versions of products. One of our clients pays us for 15 different marketplace locations. Each business is structured differently. Some people are like us and mostly use Amazon. Others sell their retail with the big brands.

Another way our business makes money is by handling photo copyrights. People don’t know this, but if you take a photo and register its copyright, and then someone else comes in and uses that photo, it depends on what the context is, but the damages for that are high. If I were to steal one of the Beardbrand photos to sell Molson beard cream, I would get in a lot more trouble than if I buy Beardbrand from whatever store you have and then sell it on Amazon. It’s not cool to steal people’s photos. Photography is expensive. It takes a lot of time and a lot of work. You do get compensated when people steal your photos.

Bandholz: Where can people learn more about you and reach out?

Hart: My website is MolsonHart.com. You can follow me on Twitter, @Molson_hart. We’re also at Viahart and Edison Litigation Financing.

Rivian Write-down Moves Amazon to Q1 2022 Net Loss

Amazon released its first-quarter 2022 financial results at the end of April, and they were disappointing. For the first time since 2015, the company reported a loss. As a result, its stock sank 12%, reaching a two-year low.

First Quarter Results

Amazon’s Q1 2022 net loss was $3.8 billion, or $7.56 a share, owing to a $7.6 billion write-down of its investment in electric vehicle manufacturer Rivian. Otherwise, net sales increased 7% to $116.4 billion in the first quarter, compared with $108.5 billion in 2021. Operating income decreased to $3.7 billion in the first quarter of 2022, a 55% decline from the same period in 2021.

In Q1 2021 the company achieved a profit of $8.1 billion, or $15.79 a share.

Geographic Segments

North American net sales grew by 8% over the same period last year, reaching $69.2 billion vs. $64.4 billion. However, the company incurred an operating loss of $1.6 billion vs. $3.5 billion in the first quarter of 2021. International sales were down 6% year-over-year, coming in at $28.8 billion vs. $30.6 billion last year. There was an operating loss of $1.3 billion, down 202% from the first quarter of 2021 when income was $1.3 billion.

Services

For the first time, Amazon services constituted a majority of net sales at 52%.

Amazon Web Services, which has a profit margin of 35% and is the largest global provider of cloud services, stood out in terms of performance. Its net sales grew almost 37% year over year from $13.5 billion to $18.4 billion. Its operating income increased 57% from $4.2 billion to $6.5 billion.

Subscription services, including Amazon Prime memberships, took in $8.4 billion for Q1, an 11% increase from the $6.4 billion in Q1 last year.

Second Quarter

The company’s guidance for the second quarter of 2022 was downbeat, catching Wall Street analysts by surprise. Amazon expects net sales between $116 billion and $121 billion and contemplates another possible net loss.

Q3 2022 should have better results, as Prime Day will be in July. However, both analysts and Amazon see a decline in ecommerce post-pandemic as shoppers return to brick-and-mortar stores. Amazon representatives said in its earnings call they would focus on driving down costs in the second quarter. The company also announced the closing of six Whole Foods stores in four states this month.

Seller Fees

On April 28, Amazon imposed a 5% fuel surcharge on all FBA sellers, the first time such a fee was implemented.s Prices from third-party sellers will likely rise to make up for increased costs. Third-party sellers are also grappling with the frequent changes in how much inventory Amazon will allow them to ship to its warehouses and how this affects their rankings on the marketplace.

The Institute for Local Self-Reliance, an advocacy group for small businesses, says that Amazon took a 34% share of each FBA merchant’s sales on the site in 2021, up from 19% in 2014 and that the new fuel charge will push the percentage even higher.

Consumers did not escape price increases either. In the last quarter of 2021, the company increased the monthly Prime fee from $12.99 to $14.99, and the annual membership rose from $119 to $139, a 17% increase.

Buy with Prime

In April, Amazon started a beta test — a “Buy with Prime” service that lets a select group of FBA merchants offer Prime deliveries and other Prime benefits through their own online stores. Amazon said it would expand the program throughout the year to include merchants that don’t use its fulfillment service and eventually to those companies that don’t sell on its platform.

This program would put Amazon into direct competition with UPS. As Amazon is UPS’s largest customer, this move would drastically impact UPS’s revenue. The program would also lessen Amazon’s reliance on the USPS.

Amazon, Walmart and the Epic Battle for Consumer Spending

Two behemoths are locked in a battle for consumer spending and loyalty. For over two decades Walmart dominated brick-and-mortar retail while Amazon ruled online. Now they are on a collision course as each makes inroads into the other’s turf.

What follows are comparisons of their operations and strategies.

Omnichannel Selling

Both companies have embraced omnichannel selling. Walmart shoppers can buy online and have the goods delivered, like Amazon. Walmart customers can also pick up an online order, including groceries, in a store or curbside. Despite coming late to ecommerce, Walmart has rapidly progressed, first through the acquisition of Jet.com and then by beefing up its internal operations.

Fast delivery is an essential part of ecommerce. Amazon’s speedy delivery has been a competitive advantage. However, Walmart has added new delivery options, including the store pickup if needed immediately.

Amazon’s first foray into brick-and-mortar started with bookstores and then small-format cashier-less grocery stores (Amazon Go). It then acquired Whole Foods Market.

Photo of an Amazon Go store in SeattlePhoto of an Amazon Go store in Seattle

Amazon Go is a cashier-less grocery and convenience store, such as this example in Seattle.

Physical Stores

In 2021 Walmart had 11,443 stores worldwide, a decrease from the 11,501 it had in 2020, according to Statista. In the U.S., there are 5,342 Walmart stores and 600 Sam’s Clubs. Ninety percent of Americans live within 10 miles of a Walmart store.

Amazon believes it has to compete with Walmart on the brick-and-mortar front beyond groceries. According to an August 2021 Wall Street Journal article, Amazon intends to open physical retail stores in the U.S. of approximately 30,000 square feet. That size is less than one-third that of Walmart’s conventional stores and one-sixth the size of Walmart Supercenter outlets.

The first Amazon stores are slated for Ohio and California and are expected to showcase the company’s private-label goods — clothing, furniture, and consumer electronics. In early 2020 Amazon opened its first Amazon Go in Seattle. In March 2021, it opened its first physical store outside North America, an Amazon Fresh grocery in London. Since then it has opened five more outlets in England.

Currently, Amazon’s U.S. physical stores include 503 Whole Foods Markets, 12 Amazon Fresh grocery stores, two Amazon Go Grocery stores, 22 Amazon Go convenience stores, 24 Amazon Books stores, and 30 Amazon 4-Star outlets, which sell goods rated 4-stars and above online as well as trending items and top online sellers.

While Amazon will presumably never rival Walmart in the brick-and-mortar arena, physical stores can accommodate customers who wish to pick up or return online orders in person.

Delivery

Walmart is bolstering its delivery service to better compete with Amazon. Earlier this month Walmart announced plans to hire more than 3,000 U.S. delivery drivers and build a fleet of all-electric delivery vans to support its InHome grocery delivery service, which lets drivers access customers’ homes via a smart lock and place groceries bought online in refrigerators.

First launched in fall 2019, the service is now available to 6 million households across the U.S. Walmart says it plans to expand InHome delivery to 30 million U.S. homes by late 2022. The InHome service costs $19.95 per month. Walmart announced a partnership with electric vehicle and service provider BrightDrop, the General Motors subsidiary, for 5,000 vans. This will rival Amazon’s Delivery Service Partner Program, which utilizes a third-party network for last-mile deliveries.

Photo of a BrightDrop electric van in front of a Walmart storePhoto of a BrightDrop electric van in front of a Walmart store

Walmart will purchase 5,000 electric vans from BrightDrop.

Walmart’s regular Express delivery allows customers who buy online to reserve a two-hour home-delivery slot for groceries, pet supplies, and some electronics.

Members of the Walmart+ loyalty program get free delivery. For other customers, a $35 order is required.

Available in more than 600 cities, Walmart’s Spark Driver is a program whereby customers place an online order, and independent third-party contractors do the shopping and delivery.

In August 2021 Walmart created a new line of business — Walmart GoLocal — a white-label last-mile delivery service for companies with large products or complex requirements. Home Depot is a customer.

Employees

Walmart has 2.3 million employees worldwide — with over 1.6 million in the U.S., including those at Sam’s Club. Walmart is the largest U.S. private-sector employer.

For many years Walmart employed mostly part-time hourly workers who received no benefits and earned only a few dollars above the federal minimum wage. Walmart is now moving 67% (two-thirds) of its U.S. physical-store hourly jobs full-time. While that’s up from 53% five years ago, it is still below the 71% average for the U.S. retail and wholesale industry.

Amazon has almost 1.5 million employees worldwide, with 170,000 added in the first nine months of 2021. The company has significant employee churn. In 2019 Amazon hired more than 770,000 hourly workers. John Phillips, the former Amazon global head of workforce hiring, wrote on LinkedIn that 620,000 resigned or were fired.

Wages

Walmart has long lagged its brick-and-mortar rivals in employee wages and benefits. The Covid pandemic prompted mass worker resignations, pressuring all retailers to increase wages.

In September 2021 Walmart raised its minimum starting wage to $12 an hour from $11 and increased all U.S. workers’ pay by $1 an hour. That was the third wage hike in 2021. The average wage for hourly workers at Walmart is now $16.40. In contrast, Costco raised its starting hourly rate from $15 in 2019 to $16 in 2020 and $17 in October 2021. Costco’s average pay for hourly workers is $24 per hour. Target’s starting minimum wage is $15 an hour.

Amazon’s entry-level hourly rate is $16, but in September 2021 it raised the rate for warehouse workers to $18 an hour or higher, depending on the location. Amazon does provide a generous benefits package.

Financials

According to Statista, Amazon’s estimated 2021 ecommerce revenue was $367 billion versus Walmart’s estimated $75 billion, up from $40 billion in 2020.

According to data and software provider FactSet, Amazon’s ecommerce sales (including those of third-party marketplace sellers) surpassed Walmart’s total sales (online and brick-and-mortar) in the twelve months ended June 30, 2021. In that period, Amazon raked in $610 billion from consumers. In comparison, Walmart took in $566 billion, marking the first time it has been outsold since 1990, after which it dethroned Sears as the largest American retailer.

Should Merchants Launch Their Own Marketplaces?

For manufacturers, distributors, and enterprise retailers, owning a marketplace could be a competitive advantage and a key to business growth.

“​​Marketplaces have been hot for a long time. A prime example is Amazon, which is one of the largest ecommerce sites in the world — with 56% of its unit sales coming from marketplace sellers,” said Mike Shapaker, the chief marketing officer at ChannelAdvisor, a software firm that provides marketplace integrations.

“Globally, there are many pure-play marketplaces, such as eBay. Even established retailers, like Walmart and Target, have added marketplaces, so this trend shows no signs of slowing down,” Shapaker said.

Marketplaces are not limited to consumer ecommerce.

“Online marketplaces are an area we’ve seen growth over the last couple of years,” said Paul do Forno, managing director of content and commerce at Deloitte, the international consulting firm. “We see a huge amount of B2B marketplaces. Clients are growing with adjacent products. They’re adding marketplaces where they want to own the customer relationship.”

Marketplace Experience

Marketplaces are popular with retailers and B2B sellers because they may benefit all of the parties involved.

Shoppers, for example, have many reasons to like online marketplaces.

“Marketplaces provide a shopping experience with brands consumers know, making it easier to find products — easier in the sense that marketplaces with massive catalogs have virtually everything. On the flip side, niche marketplaces specialize in certain categories and can bring expertise. With marketplaces like Amazon, the turnaround time is fast so that consumers can have their purchases within a few days or even the same day. Most have guarantees around transactions, which bring a level of safety and comfort to consumers,” said ChannelAdvisor’s Shapaker.

Sellers like them too.

For a manufacturer, distributor, or retailer, a marketplace strategy may lead to more profit, deeper relationships with customers — as Deloitte’s do Forno noted — and a way to separate the business from its competitors.

More Profit

“A marketplace impacts many functions within a company. It allows the [chief financial officier] to look at the gross margin differently because you don’t just make margin reselling products you make or buy. You make margin on being an intermediary,” said Adrien Nussenbaum, co-founder and CEO of Mirakl, which provides a leading marketplace software platform.

“It requires people in supply chain fulfillment to think about what they really need to have in their warehouses. Marketing people need to think about the ability they now have to drive traffic and extend customer experiences,” continued Nussenbaum.

Home page of MadewellHome page of Madewell

Madewell uses Mirakl’s marketplace platform and is an example of a retailer using marketplaces.

Customer Relationships

A marketplace may also help a business deepen customer relationships.

First, there is the obvious ability to offer more products or more options to customers. An omnichannel retailer may offer a few items within a given product category, but a marketplace is likely to have a much larger selection.

Second, related products sold in a marketplace might make it easier for customers to use a business’s core products. Nussenbaum noted that Airbus Helicopters, a division of the France-based airplane manufacturer, had created a private marketplace for its customers to purchase parts, fluids, and supplies needed to maintain a helicopter.

This marketplace was convenient for Airbus customers, and it allowed the company to encourage maintenance and safety and deepen its relationships with businesses that supply those adjacent products.

Home page of Airbus HelicoptersHome page of Airbus Helicopters

Airbus Helicopter’s marketplace helps the company deepen its customer relationships and engage businesses that supply helicopter maintenance items.

Third, marketplaces make it possible to adapt to changing customer needs.

An online clothing store, for example, could offer second-hand items via its marketplace, responding to the demand for more environmentally sustainable offerings.

Competition

If it is true that a good marketplace strategy can lead to relatively more profit and closer customer relationships, it follows that a marketplace could afford a manufacturer, distributor, or enterprise retailer a competitive advantage.

“Marketplaces are a natural extension of commerce — B2C and B2B,” said Nussenbaum. “And marketplaces are a key factor in the future survival of businesses.”

Or, as Deloitte’s do Forno put it, “If you don’t build a marketplace and make it easier for your customer and solve their problem, there is going to be a new place or pure-play that is going to pop up and take your business, your vertical.”

But owning a marketplace, as do Forno and Nussenbaum suggest, does not guarantee success. It can instead add a new level of competition, including competing for sellers.

Adding a marketplace to an existing commerce business requires a company to treat sellers on the marketplace like customers too. After all, they are paying fees. Those fees must be competitive, and the value the marketplace brings to sellers in terms of demand outweighs the distance, if you will, it creates between that seller and the ultimate customers.

As an example, think about the love-hate relationship some marketplace sellers have with Amazon. On the one hand, those sellers use the marketplace to drive sales. But at the same time, they complain about losing touch with customers, relatively lower margins, and the fear that Amazon might use its marketplace data to identify a popular product and copy it.

Thus, successful marketplace owners will need to compete for sellers too.