Most Ecommerce Marketplaces Will Fail, Here’s Why

Ecommerce marketplaces have become one of the major trends in retail, providing B2C and B2B firms alike with the opportunity to increase their inventory, offer a better experience, and improve the bottom line. Many retailers and manufacturers are setting up their own marketplaces, but most of these are doomed to failure.

Let’s be clear. When a marketplace is approached in the right way, it can be transformative. Amazon is the poster child for ecommerce marketplaces. By 2017, more than half of the units sold on Amazon worldwide were from third-party sellers, and in 2021, Amazon Marketplace sellers listed about 350 million products. Because of the clear business advantages of its marketplace model, many companies have tried to follow suit.

Walmart spent $3.3 billion on in 2016 to help it compete against Amazon, but discontinued the website just four years later. Macy’s is planning to launch its marketplace late in 2022, but when a retailer tries to respond to competition from Amazon, they are usually already in a weak position. Why Marketplaces Can Fail

The Amazon marketplace model is highly attractive, but many issues can arise when starting a new marketplace based on an existing retailing model. Retailers see marketplaces as a route to expand product range, adding new vendors without taking inventory risk.

Too often, they look at a marketplace as if it were a feature, such as adding new search capability on the website. As a result, the marketplace project is set up in such a way that it never can overtake the main business. It’s usually pitched as a 12-24-month project to add, say, five marketplace features or add 100 vendors. The perspective is inside out. It’s never outside in, from a customer perspective.

Another mistake is to view the marketplace as an IT cost center project rather than as […]

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