DEEP DIVE: Online Marketplaces: Disrupting Retail

Online Marketplaces- Disrupting Retail1280


This report looks at online marketplaces, which bypass retailers to link buyers and sellers. These companies comprise a high-growth and fast-developing segment within the retail landscape:

  • The top three: Alibaba Group’s Taobao is the world’s largest consumer-to-consumer (C2C) marketplace, selling US$295 billion of goods in 2015. Tmall (also Alibaba Group) is the biggest business-to-consumer (B2C) marketplace, with US$191 billion in sales 2015. eBay is the third-biggest marketplace, based on 2015 gross merchandise volume (GMV) of US$78 billion.
  • Third-party sellers gaining traction: We estimate that third-party sellers on Amazon sold around US$69 billion worth of goods in 2015. We forecast that Amazon will overtake eBay this year in terms of annual global marketplace sales. Additionally, Amazon looks likely to become a majority marketplace this year, as third-party sellers are expected to sell more units on its site than Amazon does itself.
  • Retail marketplaces: In the US, Walmart is ramping up its marketplace by recruiting new sellers, buying and investing in In Europe, Zalando has launched a marketplace model for big fashion brands and has started offering fulfilment on behalf of its third-party sellers.


This report looks at the online marketplace model, with a focus on recent developments, and the advantages it has over traditional, direct retailing. Online marketplaces disrupt the traditional retail model by replacing it with a more direct relationship between buyer and seller. Similar to other disruptors, such as Airbnb, Uber and Facebook, marketplaces are merely platform providers.

We identify three phases in the evolution of online marketplaces:

  • Direct retailing: In the mid to late 1990s, e-commerce in the US and Western Europe was dominated by direct retailing. The major exception to this was eBay, which was the dominant marketplace in Western countries.
  • Marketplace model: Subsequently, in Asian markets such as China and India, e-commerce emerged with the marketplace model at its core. Sites such as Taobao, Tmall, Flipkart and Snapdeal dominate online retail there.
  • Marketplace growth: Now, in the US and Europe, we are seeing marketplaces grow substantially, both in number and sales, as big names such as Walmart and Zalando pile in.

online-marketplaces-001Alibaba Group’s Taobao is the world’s largest consumer-to-consumer (C2C) marketplace, with US$295 billion in 2015 gross merchandise volume (GMV —the total value of goods sold). Tmall (also Alibaba Group) is the biggest business-to-consumer (B2C) marketplace, with US$191 billion GMV in 2015. eBay is the third-biggest marketplace, based on 2015 GMV of US$78 billion.

This year, Amazon looks likely to become a “majority” marketplace, with third-party sellers expected to sell more units on its site than Amazon does itself, and, by our estimates, it is set to overtake eBay in terms of global marketplace GMV.

Walmart is ramping up its marketplace by bringing new sellers on board; it has also acquired and made investments in Walmart is reportedly also looking into investing in Flipkart. In Europe, Zalando has launched a marketplace model for big fashion brands, and has started offering fulfilment on behalf of its third-party sellers.

online-marketplaces-002We note four benefits to the marketplace model:

  • Margin gains: The marketplace model is highly profitable, because the sites can charge double-digit commissions for simply acting as a portal.
  • No inventory risks: Marketplaces are protected from the risks associated with owning stock.
  • Greater choice boosts customer satisfaction: Shoppers are less likely to walk away unsatisfied, as the long tail of product demand can be satisfied at little effort to the retailer, in turn building loyalty and repeat visits.
  • Flexibility in entering new markets: A marketplace model offers an asset-light way of entering new regional markets.


Marketplaces are one part of the wave of industry disruptors that includes names such as Airbnb, Uber and Facebook. Similar to these firms, sites such as eBay, Tmall and Amazon’s marketplaces are purely platform-providers that enable other companies to provide goods or services; they do not provide anything tangible themselves.

Asset-light and inventory-less, marketplaces are not retailers; in fact, they cut out retailers, who hold inventory, curate product and add a markup, in favor of a more direct relationship between shoppers and brands, manufacturers or other sellers. Marketplaces therefore disintermediate the shopping process—at least to an extent, given consumers still interact with the marketplace as a substitute for a retailer.

We identify three phases in the development of marketplaces, from the somewhat peripheral position of these sites in the first wave of e-commerce in Western countries to the explosion in marketplaces we are seeing today.

online-marketplaces-003A recent trend is the emergence of marketplaces in the US and Europe that focus on offering brands a showcase to sell new product, rather than allowing small-scale sellers a chance to offload their unwanted possessions. The charge into the marketplaces segment by retailers that previously focused on an inventory model is bolstering this diversity: Amazon and Walmart are among the names from the retail world that are ramping up their marketplace offerings.

In this report, we focus our comparisons on five major or emerging B2C and C2C marketplace sites: Amazon, eBay, Tmall (including Tmall Global), Walmart and Zalando. The following sections of this report consider:

  • The total sales of major B2C and C2C marketplaces, including those beyond our five focus companies.
  • Key metrics for our selected marketplaces.
  • Recent developments and themes in the marketplace segment.
  • Four major benefits of the marketplace model, compared to direct retailing.

The report excludes business-to-business (B2B) marketplaces, such as

We provide timelines for our focus companies in an appendix.


We begin by ranking major B2C and C2C marketplaces by GMV—which is the total value of all the goods that are agreed to be sold. GMV typically does not factor in products that are returned for refunds or transactions that are never completed because of cancellation.

online-marketplaces-004Here are some key takeaways:

  • Amazon’s marketplace GMV is rapidly approaching that of eBay, we estimate. We expect Amazon marketplace to leapfrog eBay in marketplace GMV this year, based on the trajectories of the two companies.
  • com is much smaller than its Chinese rivals Taobao and Tmall, which are both owned by Alibaba Group.
  • In India, Flipkart is well ahead of Snapdeal and it is growing much faster. The still-small scale of these players relative to peers from other countries suggests much scope for growth.

online-marketplaces-005We have no data on GMV for Walmart, which ramped up its marketplace this year, or Zalando, which moved into the marketplace format only in 2015., which launched only in July 2015, had a GMV run-rate of US$1.2 billion as at August 2016, according to its new parent, Walmart.


Zalando’s new marketplace is restricted to brands that want to sell direct on its site; small-scale sellers, of the type that populate eBay and Amazon, do not sell on Zalando.


online-marketplaces-007Long-established eBay has a head start in seller numbers. However, because some marketplaces focus only on brands and retailers and not on individual sellers, the comparison is not always on a like-for-like basis.

Walmart’s Senior Vice President of Global Marketplace, Seth Beal, stated the company is aiming to have 1,000 merchants on its marketplace before the end of 2016. However, press reports indicate the company had already reached this target by the end of September 2016.

online-marketplaces-008Just as the types of sellers the marketplaces feature can impact their total seller numbers, so too can their geographical presence. eBay and Amazon enjoy the widest presence.


The figures below are generally those provided by the companies on their respective websites. We expect that major sellers, such as big-name brands, strike their own deals with marketplaces, and that these operate on different fee scales.



We offer full timelines of our selected marketplaces in the appendix. Here, we wrap up recent developments among major global players and identify key segment themes from these.


Enhanced fulfillment:

  • Amazon has begun allowing goods shipped directly from some third-party sellers to be eligible for its Prime expedited, no-charge shipping program. Previously, only goods shipped by Amazon (whether sold by Amazon or by third-party sellers) were eligible.
  • At the same time, the proportion of Amazon marketplace orders that are fulfilled by Amazon is growing. At the end of 2015, Amazon said it was fulfilling nearly half of all third-party sales, up from “more than 40%” at the end of 2014.
  • Zalando is now undertaking fulfillment of orders placed with third-party sellers on its site. Similarly,, launched in July 2015 and recently acquired by Walmart, offers fulfilment of orders.


Cultivating brand relationships:

  • Big-name brands are pushing onto marketplaces such as Zalando and Tmall Global which focus on providing dedicated shopfronts, and so offer brand-building opportunities.
  • Amazon is cracking down on counterfeits with new “brand gating” fees and restrictions on selected brands. Sellers of selected brands must provide invoices from manufacturers or distributors, and pay a nonrefundable fee of US$1,500 per brand.
  • Brands such as Birkenstock are becoming nervous about allowing their brands onto Amazon, due to counterfeiting. In a similar vein, some major brands are reported to limit the range of products offered on Walmart, to protect their brand image in a price-focused offering.


Competition heats up:

  • Walmart launched its marketplace in 2009, but has been growing its seller numbers very rapidly this year as it focuses on competing with Amazon. As a result, around one million SKUs are being added to the Walmart website per month.
  • Walmart’s acquisition of brought the latter’s 14.8 million product listings, 210 million unique visitors and US$1.2 billion GMV run-rate to Walmart. Walmart has also made investments in in China, taking its stake to around 10.8%. And it has reportedly been in talks about investing in Flipkart in India. These moves are further bolstering its exposure to the marketplace segment.
  • Facebook launched its marketplace on October 3. The marketplace uses geo-location to show local ads, is currently only in the Facebook app, and is focused firmly on C2C transactions.


Marketplaces move onto marketplaces:

  • Amazon opened its own store on Tmall in March 2015.
  • Zalando says it plans to sell its private-label fashion ranges on rival websites, which almost certainly means competing marketplaces. 


Amazon set to become a majority marketplace

A major trend is Amazon’s gradual shift from an inventory-based model to a marketplace one. We are on the brink of seeing its third-party sellers sell more units than Amazon itself does. In the third quarter of 2016, half of total units sold were sold by third-party sellers.

online-marketplaces-013According to a survey by financial services firm RW Baird in the third quarter of 2015, the share of products offered by marketplace sellers on Amazon was as high as 90% in categories such as patio, lawn and garden products, and 89% in appliances.

Advantages Over Direct Retailing

We identify four key benefits to the marketplace model versus traditional retailing: 1) gains to profit margins; 2) fewer risks associated with holding inventory; 3) satisfying consumers through wider choice; and 4) greater flexibility in entering new markets.

1. Margin Gains

The marketplace model is highly profitable, because the sites can charge double-digit commissions for simply acting as a portal.

Amazon typically takes a cut of 15% of the selling price on products sold through its marketplace, although fees vary by category, and range from 7% on computers and large appliances to 45% on Amazon device accessories; and Amazon is likely to strike bespoke deals with major brands that want to sell on its site. This 15% average is a substantial margin, given Amazon’s only obligations are to showcase the product on its site and process the payment. This compares to a 2.1% overall EBIT margin at in fiscal 2015.

For those items fulfilled by Amazon, the company charges additional fees for holding, processing and mailing products out to customers. Amazon reportedly levies an extra 8-15% fee for orders that it fulfils.

online-marketplaces-014Similarly, Zalando has signaled margin benefits from its nascent marketplace model. In the first half of fiscal 2016, the company noted gross-margin benefits from its growing Brand Partners program, although it has not published any specifics.

No Inventory Risks

Marketplaces are protected from the risks associated with owning stock—notably:

  • Write-downs: Where one-time write-offs impact on the bottom line.
  • Markdowns: Where retailers have to take a hit to margins to clear stock.

2. Greater Choice Boosts Customer Satisfaction

For those sites that both retail directly and offer a marketplace (such as Amazon or Zalando), the benefit in terms of the proposition is enhanced product choice. Shoppers are less likely to walk away unsatisfied, as the long tail of product demand can be satisfied at little effort to the retailer, in turn building loyalty and repeat visits.

Moreover, even if the retail side of the operation loses a sale of a product to a third-party seller, the generous margin yielded from that is likely to more than make up for the loss of the sale.

Marketplaces are growing their offerings to provide ultimate choice. Walmart says it is adding one million SKUs per month online, largely through its marketplace offering, and by the end of the second quarter of fiscal 2017 it plans to offer around 15 million SKUs.

3. Flexibility in Entering New Markets

A marketplace model offers an asset-light way of entering new regional markets. When Amazon entered India in 2013, it did so through a purely marketplace mode. This was due to the country’s prohibition of foreign direct investment in e-commerce. Amazon circumvents the FDI restrictions by selling on its own website through a joint-venture company with Catamaran Ventures, called Cloudtail India.

Key Takeaways

  • The marketplace format has established itself as the default
    e-commerce format in fast-growing, nascent markets. It is now seeing a boom in mature, Western e-commerce markets such as the US and Western Europe.
  • Epitomizing this growth is the shift at Amazon, which this year is likely to become a majority marketplace by share of units sold, and which is set to overtake eBay in terms of marketplace GMV, by our estimations.
  • The asset-light marketplace model bestows a number of advantages over direct retailing, including strong margins and the absence of inventory risk.