Global Acceleration. Retailing in the Age of Digital Marketplaces
The following are some of the reasons why I predict, online marketplaces will foster a new age of global acceleration among retailers: the first-to-foreign market advantage, the democratization of marketplace technology and the rise of an early majority of cross-border sellers.
The First-to-Foreign Market Advantage
I had an interesting conversation with the Director of the Network Dynamics Group at the University of Pennsylvania, Dr. Damon Centola. Our dialogue was mainly about virality in networks and its impact on online marketplaces growth.
His research using web-based social sciences and computational models revealed when a behavioral change affects 25% of a given community, this change rapidly becomes a dominant behavior for the entire population.
Concerning the prior statement, Dr. Centola said: “The sooner the more people adopt a behavior, the more believable it is that the behavior is beneficial, or it is worth the cost of adoption. Additionally, the excitement associated with adopting a specific way of acting increases with the numbers of others who adopt it.” You can read more about these findings in his book entitled “How Behavior Spreads. The Science of Complex Contagions”
“The sooner the more people adopt a behavior, the more believable it is that the behavior is beneficial, or it is worth the cost of adoption.”
Online marketplaces usually show a high level of customer loyalty. A leading research firm conducted a global survey of 2,520 consumers shopping on multiple online marketplaces in the US, the UK, France, and Germany, the vast majority of them (90%) said they would shop with the same marketplace again when purchasing a similar product.
The combination of rapid market share growth (after reaching the 25% tipping point mentioned earlier) with a low customer acquisition cost due to the viral diffusion of the desired behavior and the inherent high level of customer loyalty seen in online marketplaces creates an almost no-fly zone for late competitors; which explains the strategic importance of entering a foreign market first.
The Democratization of Online Marketplace Technologies
The technology to build an online marketplace has become increasingly more accessible to more retailers.
In this regard, Juho Makonnen, co-founder and CEO of Sharetribe (www.sharetribe.com) — a leading platform that anyone can use to easily create their own online marketplace — told me the following:
“ Sharetribe’s software solutions help entrepreneurs and organizations create their own online marketplaces and sharing economy platforms (like Airbnb or Uber) quickly and with a relatively low budget. Our mission is to democratize the sharing economy by making platform technology accessible to everyone. A bigger and bigger part of e-commerce is happening through online marketplaces. Such businesses can scale extremely quickly since the company operating the marketplace doesn’t need to have their own inventory, and they can be quite defensible due to network effects. It’s likely that more and more industries will be disrupted by marketplaces in the future, so it’s a good move for companies to jump on the bandwagon now before they get left behind. We have developer partners around the world, to help our customers wherever they are to successfully embrace what you call, the age of global acceleration for retailers.”
“It’s a good move for companies to jump on the bandwagon now before they get left behind.”
Online marketplaces are low capital intensive; so in the unwanted case of failure during the international expansion, the negative impact on P&L is more moderate. This is very good news for a sector that usually works with comparatively lower levels of profitability.
They are also an excellent source of data since operators have access to the documented behaviors of the participating buyers and sellers. This data by itself is a significant early win because it can be used to reduce the risk of launching more capital intensive formats such as walk-in stores and/or e-tailing operations in the foreign market within the future.
The Rise of an Early Majority Cross-Border Sellers
It is expected that about 20% of the worldwide e-commerce will be provided by cross-border sellers by 2020. This figure might grow even faster due to technological advances in the global supply chain. In this regard, I had an interesting conversation with Aleksey Matyushev, the co-founder and CEO of Nautilus — a California based startup that specializes in manufacturing 747 sized self-flying drones.
These drones will provide inter-continental cargo delivery services while helping significantly reduce current air freight costs.
He shared with me the following: “We believe that reducing the cost of airfreight by 50% will enable cross-border e-commerce to flourish as we have never seen before.”
The increasing number of cross-border sellers can provide those retailers expanding their marketplaces overseas an early majority of suppliers, which will contribute to generating the initial liquidity needed in the foreign market while the domestic sellers join the new initiative as well.
In conclusion, we are rapidly approaching an age of global acceleration for retailers. In this regard, leading retailers should not only consider the integration of online marketplaces into their business models but also, the expansion of their marketplaces overseas as soon as possible.