Why Online Marketplaces are Conquering the Internet

Online platforms that host the e-commerce offerings of third-party sellers, such as business-to-consumer marketplaces and online classifieds, have become major drivers of Internet economies worldwide. International majors including eBay, Airbnb, AliExpress, Amazon, MercadoLibre and Avito are able to boast some of the strongest web traffic figures, with maturing digital consumers flocking to perceived bargains and price-comparison tools on offer. The digital middleman platform has become the cash-cow of online enterprise, driving liquidity through commissions, advertising and added-value services. While dealing with the expanding and complex demands of both consumers and businesses remains a challenge, these large consumption networks are well placed to serve new Internet users.

The World’s Top Five Marketplaces by Web Traffic: May 2015

Source: SimilarWeb

US and Chinese players dominate the global physical goods trade

The Internet is being conquered by online businesses that simply provide a meeting place for buyers and sellers. With a revenue model that largely depends on creating the perfect conditions for consumers to shop and businesses to advertise, online middleman platforms are outpacing almost all other Internet segments in terms of web traffic growth:

• The world’s leading consumer-to-consumer (C2C) platforms (such as eBay) and business-to-consumer (B2C) networks (such as Amazon) pioneered e-commerce logistics that are now commonplace. Simple e-payment solutions (eBay’s PayPal for example), specialist postal services and contextual advertising offerings have laid the foundation for the simplification and modernisation of online trade;
• With Internet penetration in developing countries surging from 16.1% of the population in 2009 to 29.9% in 2014, online marketplaces have been well placed to attract the newly digitalised Internet user. Bargains and an additional income are especially valued by the low-wage consumer. China has been able to benefit especially from this demand by transferring its low-cost manufacturing might online. Among the world’s top five most visited online marketplaces as of May 2015, three originated in China;
• As a result, e-commerce has become less about independent websites selling their own products and increasingly more about huge online marketplaces able to offer millions of products from both small and large retailers. Consumers are placing more faith in networks that provide choice rather than the retailers themselves. In the USA, for example, the gross value of merchandise sold via Amazon locally is worth around one-third of the country’s entire e-commerce sector, according to trade sources.

A new age of niche services marketplaces has begun

Building on the success and the ideas brought to the web by today’s horizontal giants, specialist services marketplaces are taking the baton and challenging traditional segments beyond the physical retailing sphere. Vertical players such as Airbnb (home rental), Upwork (freelance services) and even Uber (taxi rides) have essentially focused on bringing an innovative and cost-cutting online approach to somewhat outdated services markets. Catering to a more mobile-oriented audience (over 2.3 billion mobile Internet subscriptions globally in 2014), these platforms can provide 24/7 coverage and reach across the world.

As more segments become “marketplaced”, venture capitalists are racing to find the next billion-dollar platform, the one single brand that can stand out of the pack and become synonymous with the service itself (like an Uber or Airbnb). This flow of liquidity is driving e-commerce to new areas where it was non-existent previously, and spreading the reach of marketplaces across the web.

Market-entry and governance challenges exist worldwide

While online marketplaces are growing rapidly, cross-border trade and newly created segments do face obstacles.

In major emerging economies, local marketplaces are often dominant and make market-entry difficult even for global giants. For example, in Russia eBay has made little progress despite continuing efforts due to the presence of local general classifieds major Avito, while Amazon is unable to compete with long-established players such as Alibaba in China. These two countries combined represented an e-commerce segment value of US$180 billion in 2014.

Adjusting to unique governance landscapes is a particular challenge for services marketplaces. Uber has been fighting a well-publicised legal battle in numerous markets, Airbnb offers officially illegal services in most markets (due to the tax avoidance implications of private rentals) and online freelance services face the obstacle of limits on undocumented e-payments to workers due to restrictive money-laundering laws in many countries.

Nonetheless, if one brand fails to overcome such challenges, another simply adapts and succeeds, and therein lies the organic all-conquering essence of the online marketplace.