Home How Digital Marketplaces Will (Again) Redefine Commerce and Experience

How Digital Marketplaces Will (Again) Redefine Commerce and Experience

Over the past 20-plus years, digital marketplaces have fundamentally transformed commerce and consumer expectations around the world. But although names like Amazon and Uber have become household names at this point, the evolution of and disruption caused by digital marketplaces is far from over.

In 1995, eBay launched the mainstream digital marketplace movement with its unique online auction model. In 2009, the gig economy expanded and supercharged the digital marketplace concept with hybrid marketplaces that combined specialized products and services across diverse market segments, a la Airbnb, Postmates, Lyft, TaskRabbit and the like. By 2020, marketplaces around the world will account for 40 percent of the global online retail market. But believe it or not, by that time, these dynamic entities could look quite a bit different, both technologically and economically.

To understand the digital marketplaces of the future, it’s vital that we understand the current state of these entities, along with their most pressing challenges and near-term growth strategies. Because there’s been precious little research done into this matter to date, Altimeter Group and Kahuna set out this year to get a handle of both the current state and future of digital marketplaces. Our findings revealed a landscape of formidable players on the cusp of their next evolution and a new chapter for commerce, platforms and experience in the process.

Key findings in our research included:

Marketplaces are bigger than we thought. Of the more than 100 marketplace executives we surveyed, the majority of participants represented high-revenue companies. One-third of those companies generated $100 million or more in revenue in the last fiscal year. Further, 38 percent earned $50 to $99 million and 25 percent claimed $1 to $49 million. The majority of marketplaces (35 percent) reported gross merchandise volume (the total value of merchandise sold to customers through a marketplace) of $500 to $999 million. Only 12 percent reported over $1 billion in GMV. In addition, 25 percent reported GMV of $250 to $499 million and 19 percent reported $50 to $249 million.

Competitive differentiation is their biggest challenge. Marketplaces cite four common customer-facing challenges in pursuing growth: competitive differentiation, buyer retention, buyer acquisition and social media engagement. Other challenges that marketplaces faced include shopping cart abandonment (26 percent) and technology resources to scale growth (23 percent). Among the top challenges, only e-commerce companies said competitive differentiation and customer experience are equally the biggest challenges. Among mixture companies, participants said competitive differentiation is the main challenge.

Marketplaces are challenged to retain sellers as well as buyers. The three main reasons for seller disengagement are insufficient competitive differentiation (46 percent), insufficient sales (33 percent) and marketplace service fees (31 percent). Additionally, sellers claim that marketing costs (28 percent) and the lack of buyers (26 percent) are critical business issues. It’s also interesting to see that 24 percent of marketplaces claim sellers leave due to network leakage, where customers leave to transact directly with sellers.

Marketplaces judge their health according to loyalty. Among the many metrics that can be employed to gauge marketplace health, 46 percent of those surveyed place emphasis on tracking customer lifetime value (CLV), which reflects larger and more frequent transactions. At 23 percent, marketplaces are also tracking buyer and seller loyalty. Tied for the third top optimal health metric at 11 percent are peak liquidity and repeat customer transactions. Peak liquidity is a crucial metric as it represents the ratio between buyers and sellers that maximizes transaction value.

Very few are achieving Pareto’s ideal ratio. When it comes to the Pareto principle, experts believe that 80 percent of total transactions should be generated by 20 percent of sellers. The same can be said for buyers: 20 percent of buyers should drive 80 percent of the transactions. But today’s marketplaces aren’t quite there. The majority of marketplaces claim that the concentration of sellers driving 80 percent of transactions ranges between 40 percent to 60 percent. Almost half of all marketplaces say that repeat customers account for upwards of three-quarters of all transactions, and one-third say repeat customers are responsible for half of all transactions.

The Next Evolution of Marketplaces

The above insights are telling with regard to the future of digital marketplaces. In light of current challenges related to competitive differentiation and marketplaces’ near-obsessive focus on customer loyalty and repeat business, we can expect to see a shift in marketplace approach in the coming years. Tomorrow’s most successful marketplaces won’t just be a place to exchange services and goods. They will be experiences unto themselves.

Marketplaces will soon look beyond connecting buyers, sellers and service providers to create unified platforms that deliver complete experiences as the product or service. For example: When customers set out to find a solution for dinner, they don’t set out to simply find a place or book reservations. They set out to eat dinner, whether that’s in the restaurant or through delivery. The process by which they discover solutions for dinner are based on several things that apps, networks and marketplaces solve discreetly, not holistically, for the most part. There are many individual, disparate aspects that add up to the bigger picture, but do not portray the picture in and of themselves. These services include matching personal tastes with options, location, reviews, menus, pictures, videos, reservations, coupons, and much more. Therein lies an opportunity for marketplaces.

How marketplaces develop solutions for these holistic experiences will become the next defining competitive advantage for them — and the next redefinition of the consumer experience.

 

About ReadWrite’s Editorial Process

The ReadWrite Editorial policy involves closely monitoring the tech industry for major developments, new product launches, AI breakthroughs, video game releases and other newsworthy events. Editors assign relevant stories to staff writers or freelance contributors with expertise in each particular topic area. Before publication, articles go through a rigorous round of editing for accuracy, clarity, and to ensure adherence to ReadWrite's style guidelines.

Brian Solis
Editor

A digital analyst, anthropologist, and futurist, Solis has studied and influenced the effects of emerging technology on business, marketing, and culture. His research and his books help executives, and also everyday people, better understand the relationship between the evolution of technology and its impact on business and society and also the role we each play in it.

Get the biggest tech headlines of the day delivered to your inbox

    By signing up, you agree to our Terms and Privacy Policy. Unsubscribe anytime.

    Tech News

    Explore the latest in tech with our Tech News. We cut through the noise for concise, relevant updates, keeping you informed about the rapidly evolving tech landscape with curated content that separates signal from noise.

    In-Depth Tech Stories

    Explore tech impact in In-Depth Stories. Narrative data journalism offers comprehensive analyses, revealing stories behind data. Understand industry trends for a deeper perspective on tech's intricate relationships with society.

    Expert Reviews

    Empower decisions with Expert Reviews, merging industry expertise and insightful analysis. Delve into tech intricacies, get the best deals, and stay ahead with our trustworthy guide to navigating the ever-changing tech market.