Molly St. Louis
June 25th, 2019
Could Hyper-Specialization Be the Future of Marketplaces?
During our recent Platform Players interview, Arcadier’s Chief Commercial Officer, Kenneth Low made a very interesting observation about the history and evolution of the online marketplace.
“Collective buying and selling has always been the way humans behaved. From the days of Angora in ancient Rome and the Grand Bazaar that still exists in Istanbul, Turkey, it’s always about collective discovery and collective transactions.”
Marketplaces have indeed seen this trend throughout their fascinating evolution.
Collective Discovery Throughout History
The early 19th Century saw the emergence of high streets, where people could walk from shop to shop to make all of their purchases within a short distance. Then, shopping malls came about in the mid 1950s, further shortening the distance between customers and all of the things they needed to buy.
And this close proximity thing was not solely because people didn’t have cars or were lazy – it was so they could compare products and prices and find the best deal. Which is what we do online every day!
eCommerce really started taking off in the 1990s and it was a bit of a learning curve, to say the least.
Merchants knew they needed to have an online storefront, but creating one was difficult for the average Joe. To accommodate this demand, platforms like Shopify and Wix appeared to help merchants build these online stores. But there was still a problem, unless the merchant knew about SEO or could invest in an expert to boost their rankings, chances were, they’d rarely be found by a simple search. So, how could people compare with other sites and know they were getting the best deal?
“Merchants started to realize that if they’re not collectively discovered, they’re not going to be found,” Low explained.
And therein lies the power of the online marketplace. Just like the bazaars of the ancient world, the high streets, and the malls that we know and love, online marketplaces tap into the collective purchase behavior of consumers. But now, with so many providers online, the topic of scarcity keeps coming up.
The Race to Zero?
We can shop in the comfort of our homes and compare prices like never before, which certainly makes life easy for the ever-demanding consumer. However, many are wondering if crowded marketplaces are forcing providers into a “race to zero.” For example, if we have the same services as the next guy and he undercuts us on price, do we both keep undercutting ourselves until we’re practically giving our wares away for free?
It’s certainly a valid question. And one that we took the opportunity to ask the folks at Arcadier, who have helped hundreds of thriving marketplaces build their online platform. They work with marketplaces all over the world and were able to give us the scoop on current global trends.
As with any business, marketplaces need to differentiate themselves. For many, that means branding the platform within an inch of its life. Like all great marketing, this is all about selling a positive “feeling.”
Certainly, this is important for sites like Envato Marketplace,
which hocks creative website templates and other assets for online marketing. If their website wasn’t creatively inspiring, success would be unlikely. But because of the inspiring designs and the ease at which users can purchase them, the platform is dominating its corner of the market.
Other marketplaces differentiate themselves by making transacting on their platform so easy that users are compelled to keep coming back. Sites like Voicebunny.com, for example, do this by streamlining the process for the user and eliminating as many steps as possible. A lot of steps go into their process of working with a marketplace full of voice actors and delivering a quality vocal file – but the user only actually clicks about three times throughout the process.
Vertical Marketplaces Are Trending
There are platforms like eBay and Amazon that sell a variety of products from a host of different vendors, and they are very difficult to compete with. According to Kenneth Low, the most powerful new marketplaces are vertical ones.
Horizontal marketplaces, those that sold everything from cars to baby powder, so to speak, enjoyed massive popularity for years. They were the original model for the “big-box store”and the Amazons and eBays of the world are difficult to compete with if you’ve created a new marketplace. This is why the most successful new platforms are doing one thing and doing it well, according to Low.
Customers looking for one particular product or service are now looking towards vertical marketplaces that specialize in delivering that one thing.
A Greater Focus on Local
Low also suggests that many marketplaces are going “hyper-local” to draw and keep customers. Here, “hyper-local” means a particular focus on certain geographies. Rather than focusing on, say, car sharing for the entire planet, a marketplace may focus on a particular city. This narrows down use cases and keeps those who are most in need of a shared ride in a particular area most likely to find it.
This hyper-local trend in marketplaces makes sense in the context of our greater economy, as “shopping local” is increasingly important to consumers. A Nielsen study examining food marketing found that 58 percent of customers say that buying local produce is important to them. A Fundera study showed that this trend goes beyond food marketing, as 65 percent of the American shopping budget still goes to local brick-and-mortar outlets.
A Greater Focus by Demographic
Some hyper-local marketplaces are even more specialized with the customer they are serving. For example, there are Airbnb operations devoted to Christian travelers in Jakarta.
By focusing specifically on certain demographics, they help narrow their focus and allow margins to be preserved without having to compete with several larger marketplaces, as Low outlines.
Marketplaces are also increasingly finding use as components of an organization, as a technological development to drive efficiencies within an organization. Hotels are a strong example. According to Lowe, some hotels will have wholly internal marketplaces around certain supplies like silverware. This allows for large-scale bulk buying and the provision of economies of scale to kick in, providing cost savings across a large-scale operations.
The impact of bulk buying varies, of course, but current studies place the value of bulk buying between 20 percent and 83 percent of purchase prices. It also helps provide standardization of quality across different franchises. That's actually one of the biggest draws in franchising operations: to create a standardized, universal experience.
Governments aren't too much different from franchises on this point, in that they tend to require a measure of standardization to achieve the maximum efficiency.
The Indian Government recently established such a marketplace for its divisions to make purchases as a way to drive transparency in operations. That's not the only reason, of course, but it's an important one; a transparent government tends to have greater support from its people. It also helps in terms of economies of scale; making purchases from the same few places helps ensure that orders are large enough for bulk rates, and it also requires less vetting to ensure that quality is maintained.
A NASPO study found that price breaks from aggregated volume purchasing can represent double-digit figures, so India’s government might soon ignite a bigger trend.
Marketplaces are constantly evolving entities. From the earliest market stall to the latest web-based vendor with visual search and a social media connection, marketplaces change as often as their target markets do, in a bid to meet their customers needs and desires.
And it’s likely that the more marketplaces that join the ranks, the more specialized they’ll need to become.