Unleash the power of marketplaces! Ready? Let's cover three reasons why online marketplaces are booming. We will discuss what drives marketplace growth. And how future marketplace operators can apply these tactics and strategies in their platforms.
We will discuss what drives marketplace growth. And how future marketplace operators can apply these tactics and strategies in their platforms.
Why focus on growth tactics?
- Many small businesses rely on online marketplaces to reach a wider audience and to compete with more prominent, established brands. By determining why online marketplaces grow, you'll identify opportunities and challenges you might face when selling on marketplace platforms.
- Further, understanding what drives consumer behavior in online marketplaces can help you develop targeted marketing and advertising campaigns.
- The online marketplace industry can also be highly competitive. Beware! Understanding the reasons for the success of specific platforms can provide insights into the competitive landscape.
The online marketplace industry can also be highly competitive. Beware! Understanding the reasons for the success of specific platforms can provide insights into the competitive landscape.
Pinduodo is an online marketplace, an example of an online marketplace that leveraged the network effect to grow exponentially.
When Pinduoduo launched in 2015, Pinduoduo faced significant competition in China's e-commerce market. A market dominated by J.D. and Alibaba's Taobao-TMall.
Despite this, the platform has seen incredible growth and now has more active users than Alibaba's brands (albeit Pinduoduogenerates less revenue). How?
Pinduoduo took a unique approach to e-commerce by focusing on social interactions and customer behavior rather than competing with search-based platforms.
Pinduoduo took a unique approach to e-commerce by focusing on social interactions and customer behavior rather than competing with search-based platforms.
This approach, described as social commerce, involves incorporating social media and entertainment elements into the shopping experience.
Pinduoduo includes games on its platform and offers team discounts for group purchases. Interested? Millennials have fun!
Part of Pinduoduo's success can be attributed to its use of team shopping, in which a consumer is shown two prices for a product: an individual price and a team discount.
To access the team discount, a shopper can either join an existing buying team or create a new one by sharing a link on social media and encouraging friends and family to join. It makes a game out of shopping!
The shopper can also record an audio message about the product to help promote it to their friend network. This tactic helped almost all Pinduoduo transactions be completed using team purchases.
Pinduoduo effectively utilized its customer relationships to drive its growth, particularly through team prices.
Pinduoduo effectively utilized its customer relationships to drive its growth, particularly through team prices.
For its first few years, the company relied solely on customer referrals to introduce new shoppers to the platform. It saw such success that it had a market capitalization in the billions when it was listed on the Nasdaq in 2018!
Pinduoduo understood the network effect of getting their users to refer others.
Pinduoduo understood the network effect of getting their users to refer others.
Another platform that thrived was Doordash – which leveraged the pandemic to grow exponentially.
The COVID-19 pandemic positively impacted DoorDash's business, leading to significant market share growth. According to market research firm Edison Trends, DoorDash held more than 50% of the U.S. food delivery market by the end of April 2020, up from just over one-third in late 2019.
The pandemic also led DoorDash to expand its offerings to include a broader range of products, including household essentials.
DoorDash also expanded its logistics services to include the delivery of orders placed on other retailers' websites. The company provided delivery services for various companies, including Walmart, Walgreens, and Petco.
DoorDash also expanded its logistics services to include the delivery of orders placed on other retailers' websites. The company provided delivery services for various companies, including Walmart, Walgreens, and Petco.
These are but a few online marketplaces that have experienced exponential growth. Let's explore the principles behind why online marketplaces have dramatically grown.
Buyers and Sellers Multiply Value – The Network Effect
Online marketplaces are booming because of the network effect.
What is the network effect?
The network effect is where the platform's value increases exponentially as more buyers and sellers join or leverage it. The network effect creates a virtuous cycle where more buyers attract more sellers, which attracts more buyers!
The network effect is where the platform's value increases exponentially as more buyers and sellers join or leverage it. The network effect creates a virtuous cycle where more buyers attract more sellers, which attracts more buyers!
For your buyers, the increased number of sellers means they have a wider selection of products to choose from, making the marketplace more appealing as a shopping destination.
For your sellers, the increased number of buyers means they have a larger potential customer base, making the marketplace more appealing as a place to sell their products.
Here are a few of the platforms that have experienced the network effect:
- 830,000 to 7.5 million - that's the growth in Etsy sellers from 2021-2021. The number has steadily increased in that time frame.
- 3,700 new sellers joined Amazon every day in 2021.
- From 4 million to 25 million - Doordash's annual users from 2018 to 2021.
- $0.4 to $2 billion - that's the number of orders processed on Shopee from Q1 2020 to Q3 2022.
Speedy Shipping Brings Success to Online Marketplaces
Fast, free shipping is one of the reasons for online marketplaces like Amazon to grow exponentially.
For your marketplace, your ability to provide free shipping removes one of the last excuses from users not to order.
Fast, free shipping can lead to higher customer satisfaction. This can give a marketplace a competitive advantage over other marketplaces that do not offer this service – also a significant factor in attracting and retaining customers for your online marketplace.
Fast, free shipping can lead to higher customer satisfaction. This can give a marketplace a competitive advantage over other marketplaces that do not offer this service – also a significant factor in attracting and retaining customers for your online marketplace.
For Amazon, Prime (free shipping) plays a significant role in customers' average order value.
The average Amazon Prime member spends $1,400 a year! Free shipping not only improves revenue but retains buyers in your platform as well. Amazon is the "prime" example of a free shipping online marketplace (sorry, had to be said).
Free shipping matters:
- 60% of respondents surveyed in 2020 stated that fast delivery would be their tiebreaker if the price of products were the same within two websites.
- 80% of consumers anticipated free shipping for orders over a certain amount purchased.
- 66% expected free shipping for all orders, according to the Q2 2021 Consumer Trends Report by Jungle Scout.
- 71% of products shipped for free on eBay in the U.K., U.S., and Germany on Black Friday.
- 40% percent of U.S. holiday shoppers who responded to a survey said they were willing to wait up to two days for orders, according to this 2019 Statista study.
- ~ 88% of Amazon shoppers stated that free shipping motivates them to shop with Amazon.
With consumers expecting fast and free shipping, as a marketplace operator, you might need to be prepared to offer similar options when you operate your marketplace platform. Free shipping can be done as a paid subscription service like Amazon Prime.
Or it can be done for consumers who meet the minimum spend threshold as many retail websites do.
If not free shipping, there are other avenues you can add value.
Alibaba is implementing a strategy to digitize physical retail stores to assist independent convenience stores with their operations. They provide stores with data analytics to help them know which items are popular and how much they should order. At the same time, Alibaba is integrating its ordering system into the retail stores.
It's not free shipping, but by increasing the insights available to these stores, Alibaba can attract more businesses to order stock through their platform, which leads to more suppliers partnering with them.
It's not free shipping, but by increasing the insights available to these stores, Alibaba can attract more businesses to order stock through their platform, which leads to more suppliers partnering with them.
Marketplaces Leverage Pandemic Purchasing Power
Another reason for the boom in the online marketplace, in general, has been the COVID-19 pandemic.
Marketplaces were in an excellent position to fill this need.
The key here is adaptability and knowing where to shift your focus. When the pandemic hit, sellers flocked to online marketplace because their brick-and-mortar stores were closed.
When they had supply chain issues, Amazon adapted and managed it by prioritizing shipping essentials over non-essentials.
When they had supply chain issues, Amazon adapted and managed it by prioritizing shipping essentials over non-essentials.
By quickly adapting to consumer needs, you can change ahead of many of your competitors.
Many of these pandemic changes are becoming permanent.
- 53% of people cited that it is more important to shop and support local businesses now than before the pandemic, according to research done by Pollinate.
- 16.1% - that's the increase in eCommerce retail share between the first and second quarters of 2020.
- $219 billion has been added to the United States eCommerce sales from 2020 to 2021, according to Digital Commerce 360.
- 55% is the increase in new course creation experienced by Udemy, a global online marketplace for teaching and learning.
- $1.7 trillion - that's the amount Americans spent on eCommerce during the last two years of the pandemic.
The COVID-19 pandemic has presented an opportunity for online marketplace learning platforms like Udemy to grow exponentially during the pandemic.
Udemy has attracted over $170 million in funding and has over 57,000 expert instructors teaching over 150,000 online courses. While the platform was unprofitable in late 2019, the COVID-19 pandemic led to an increased demand for online learning as people looked for ways to be productive while quarantining.
Udemy has attracted over $170 million in funding and has over 57,000 expert instructors teaching over 150,000 online courses. While the platform was unprofitable in late 2019, the COVID-19 pandemic led to an increased demand for online learning as people looked for ways to be productive while quarantining.
Unlike other major online learning platforms, most courses on Udemy are created by everyday experts rather than professional instructors. With the extra free time brought about by the COVID-19 pandemic, these experts are using Udemy to supplement or replace their lost income every day.
This has led to a 55% increase in the number of courses created on the platform!
During the COVID-19 pandemic, Udemy has seen a significant increase in enrollment; 130% growth in the U.S., 200% in India, 320% in Italy, and 280% in Spain.
During the COVID-19 pandemic, Udemy has seen a significant increase in enrollment; 130% growth in the U.S., 200% in India, 320% in Italy, and 280% in Spain.
Further, a 425% increase in enrollments on the platform, or 25 million new enrollments, in Q3 of 2020.
Your marketplace users' needs can change in an instant!
A change could mean you are prioritizing certain products in your supply chain because of high demand, just like what Amazon did. Or as simple as offering sustainable packaging for your items because more and more consumers are supporting the movement.
A change could mean you are prioritizing certain products in your supply chain because of high demand, just like what Amazon did. Or as simple as offering sustainable packaging for your items because more and more consumers are supporting the movement.
Closing Summary
Online marketplaces are experiencing a boom due to various factors, including the network effect, the COVID-19 pandemic, and features like fast, free shipping.
Online marketplaces also experience exponential growth because of the network effect –the reality that online marketplaces become exponentially more valuable the more people use them.
The COVID-19 pandemic also grew online marketplaces. Droves of consumers turned to online marketplaces to shop safely during the pandemic.
Finally, fast and free shipping can be a factor in the success of an online marketplace, as it can increase convenience for consumers and encourage more people to make purchases.
Let us know:
- What other reasons for the online marketplace "boom" can you think of?
- What are the other ways in which an online marketplace can adapt to changing consumer behavior/needs?
- Can you think of things that an online marketplace didn't do so well during the pandemic? What could it have done better?
