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Secrets of Online Marketplaces

December 07, 2012 by Jean-Marc Bellaïche, Thierry Chassaing, and Sunil Kapadia
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In This Article
  • Online marketplaces such as Amazon, Taobao, and Rakuten have built commanding market shares in just a few years and are still growing fast.

  • They are upending the sector with unprecedented speed and reach, and driving e-commerce growth to more than $1 trillion in annual sales.

  • Their success is rooted in consumer choice, convenience, and transformative economics, and they will continue to bring new categories of goods under attack.

  • Both retailers and suppliers need to decide now whether—and how—to fight or join.

 

Four waves of e-commerce disruption are sweeping across the consumer goods and retail industry. The third and the biggest so far, the rise of online marketplaces, is nearing its apex. It is transforming retail economics, creating enormous value for some players and huge challenges for others. This article looks at the drivers of success behind, and the impact of, one of the most far-reaching online phenomena.

Retail regularly undergoes transformation. In the eighteenth and nineteenth centuries, it was the rise of department stores. In the twentieth, first catalogs and mail order, then big-box stores and hypermarkets, changed how consumers—particularly Western consumers—shop. The first radical wave in the twenty-first century—online marketplaces—is upending the sector again, and doing so with unprecedented speed and reach. Companies such as Amazon, Rakuten, and Taobao, among others, have built commanding market shares in just a few years and are still growing fast. Amazon is already a roughly $50 billion business and growing at 40 to 50 percent per year. The gross value of merchandise sold on Rakuten has doubled since 2007 to more than ¥1 trillion. Marketplaces will drive e-commerce growth to well over $1 trillion in annual sales in a few years’ time.

As with previous upheavals, this phenomenal success is rooted in consumer choice, convenience, and transformative economics. On the basis of their successes in books and electronics, the pioneers of online merchandising (Amazon was founded in 1994; Rakuten, in 1997) realized that by enabling thousands of third-party vendors to sell goods through common marketing and payment platforms, they could create significant value for all the parties involved—consumers, sellers, and the marketplaces themselves.