The new year is the perfect opportunity to reflect on the past and plan for the year ahead.
For us here at Shieldpay, it’s the perfect time to think about the change that’s been going on in online marketplaces. There have been some fascinating recent developments and a sense that change is sweeping through the industry, especially in the way that online marketplaces now make their money.
Change is no longer something on the horizon. It’s happening right now, with huge consequences for businesses and consumers.
Behemoths like Craigslist, eBay and Amazon have dominated the marketplace landscape for decades, enticing users onto their platforms to buy and sell a wide range of things. This model has worked well, with millions of users generating a large amount of traffic for these sites.
Traffic has been key. By gathering a vast amount of rich data (interests, demographics, buying habits) on buyers and sellers, platforms could incentivise advertisers to pay for highly targeted exposure. Thanks to advertising revenue, platforms operated relatively low-tech, low-cost businesses, charging sellers a small fee but allowing most buyers to browse and buy for free.
This model has greased the wheels of the industry for a decade, buoyed further by the advent of mobile and social media. Platforms didn’t need to make a commission from each transaction as users were being monetised in a number of other ways, some that they weren’t even aware of.
But the greased wheels are coming off the advertising gravy train. Key developments have negatively impacted this model.
Firstly, consumer attitudes toward data have changed. Recent high-profile episodes involving Facebook and other big tech companies means that people are less comfortable having their personal details harvested and used to generate tailored advertising. Faith in this model has been further damaged by recent scandals and people are losing trust in businesses who use their personal information in this way. Now there is more choice, if a consumer doesn’t like a company’s data policy, they choose another service.
Second, advertising rates have dropped, especially for media companies, like Buzzfeed, and marketplaces, like eBay. Marketplaces can’t compete with the quality and depth of data that the likes of Facebook and Instagram gather. User attention spans have shifted so far towards social media that marketplaces aren’t as attractive for advertisers and the market rate has dropped.
Third, the rise of niche marketplaces means that the hegemony of platforms like Amazon and eBay is over. Agile startups now offer a platform for all products and services. Consumers have more choice and there is no dominant platform (other than, perhaps, Amazon) so all platforms are having to think how their offering can outdo the competition.
Finally, the biggest social media beast of them all, Facebook, launched its own marketplace in 2016. Before the launch of Marketplace, 450 million users were already buying and selling via Facebook each month. The platform formalised the process and is Facebook’s move e-commerce that will challenge the likes of Amazon, eBay and Craigslist even more.
Given these factors, the traditional model - with low costs for buyers and sellers, a few big players dominating the industry and advertising revenue fuelling growth - has changed entirely.
Given how more platforms now exist and fewer break even with advertising, platforms are having to earn commission off transactions. Major players know this, with Amazon, eBay, Uber, Airbnb and Etsy all now charging a fee for their service. This business model allows them to build more sustainable businesses that grow revenues by offering a good service for users and are less reliant on advertising revenue. Becoming transactional is a key pillar of this transformation, enabling platforms to deliver immersive experiences and sustain these over the long term. It’s a big mind shift, but one that’s gathering momentum and traction across the web.
Marketplaces are increasingly offering a number of experiences that aren’t necessarily a core part of the experience of buying and selling. On the high street, we’ve seen bookshops become coffee shops... and coffee shops become bookshops. Online marketplaces are doing something similar because if they only earn when users complete a transaction, finding ways to nurture users through the funnel is vital. Just look at the way that Amazon is using top-notch entertainment to attract users to Prime and earn income from ecommerce.
Competitive differentiation, buyer retention, buyer acquisition and social media engagement are more important than ever for marketplaces. Without a first-class user experience, buyers and sellers will choose an alternative.
A year or two ago, online marketplaces were places that were happy to distract you from buying with advertising. This has changed and they have quickly become transaction engines that want to make you buy and sell (and pay them a commission) as quickly as possible. However, in order for them to remain competitive, they’re going to have to become platforms that deliver unique, memorable and secure personal experiences. That’s the future of marketplaces.
Shieldpay protects both buyer and seller in any transaction so that you can deal with anyone, anywhere with total confidence.
How do we do it? We verify the identity of both sides, funds are held securely in the Shieldpay vault and only released when both sides agree they’re happy. If anything doesn’t go to plan, we help out with any disputes!
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