Marketplaces in 2021
E-commerce intelligence company Marketplace Pulse has done an extensive review of the (western) Marketplaces in 2021. The site run by Juozas Kaziukenas has for years already done excellent analysis especially about Amazon.
This post intends to summarise some of the most interesting findings from the report. You can find the entire report here. There is a lot of material about Amazon sellers, it’s markets and functionalities.
Advertising is Amazon’s new profit engine
Source: Marketplace pulse
Last year has seen an explosion in the interest towards retailer ad platforms. That has been driven by the success of Amazon advertising platform. During the last five years the company has built a $30 billion revenue generator from the ad business. It is said that Ads are highly profitable and thus many companies, like Instacart, have been active in copying the Amazon playbook in the Ad platform business.
However, the Ad business is not a straight forward solution for a company that has for two decades talked about being customer-centric. According to Brad Stone’s Amazon Unbound book, it was a difficult decision to start promoting products that might not have been searched/preferred by the customer.
The Ad platform is in many ways contradictory to Amazon’s long standing goal of being the Earth’s most customer-centric company.
On the other hand, it has also become increasingly difficult and expensive for brands to get their message through in the Amazon Marketplace. The costs per click have risen at the same time as the space allotted to organic search results has shrinked.
Source: Marketplace pulse
Pandemic boosted Amazon, but Shopify even more
Source: Marketplace pulse
Despite the big sales bump afforded by the pandemic, Amazon’s first party sales did not grow as much as for some other online retailers.
Amazon did see a significant spike in sales during 2020, but that growth has declined back to a historical level of growth.
However, Shopify received a significantly bigger sales bump and has been able to maintain that growth level.
Naturally, Amazon is today much more a marketplace than a first-party seller of products. According to Marketplace Pulse, already 65% of the Gross Merchandise Volume (GMV) on the Amazon platform is coming from the Marketplace sellers.
Source: Marketplace pulse
As a first-party seller, Amazon is significantly smaller than Walmart with $500+ billion in revenues. However, the GMV of the entire Amazon marketplace is already about 20% bigger than Walmart revenue.
As a marketplace Amazon is still trailing the “king of the marketplaces”, Alibaba. It’s total GMV for the fiscal year 2021 (ended in March 2021) was $1,2 trillion, almost double to Amazon’s.
It will be interesting to see whether these two giants will ever compete head to head. Amazon had to retreat from China and Alibaba has not been able to take a major foothold in any western market, at least yet.
Who or what will eventually challenge Amazon?
As Amazon has become dominant e-commerce player in the North-American market and in many European countries, it has become increasingly difficult to compete with Amazon. The company has the biggest assortment and the best logistical network by far. Amazon keeps on reinforcing those capabilities with its immense investment resources. That enables the company to outcompete everyone that tries to compete with them head-on.
“Over that time, it built the largest catalog, fulfillment network, and employee base. Most of Amazon’s resources are devoted to keeping that running. Very little in trying to disrupt e-commerce. That’s why Amazon is not going to bring the future of shopping.”
Amazon has started to look a lot like a Day 2 company, something Jeff Bezos feared for a long time. However, the power of Amazon is also the reason why Walmart or any other big retailer should not try outcompete Amazon in its own game.
Amazon has become a huge incumbent itself. It will eventually be challenged by someone who does things differently to the core strengths of Amazon.
One example could be Shopify. The core of Shopify’s strength lies in the fact that it does not offer anything directly to consumers and thus it can focus all its actions and resources to cater the merchants who serve those consumers. That will be very difficult for Amazon that is at its cultural core a B2C company.
Source: Marketplace pulse
Other potential challengers to the dominance of Amazon will most probably come outside from the Western e-commerce markets. In China (and other parts of Asia) there are number of very interesting companies and ways of selling. Such as the use of social media, live streaming and gaming aspects of selling. All of them are growing in China and other Asian markets in the likes of Shein, Pinduoduo, Shopee, Meesho and others.