Tom McFadyen - Marketplace Best Practices: Transforming Commerce in the Platform Economy

Disruptive innovation can hurt, if you are not the one doing the disrupting.

Clay Christensen, Academic & Author, The Innovators Dilemma

Over 50% of eCommerce happens on marketplacesand not just on Amazon or Alibaba. Dozens of other marketplaces each sell over a billion dollars of gross merchandise value (GMV) annually, while thousands of additional product and service marketplaces are seeing rapid growth. Whether a company plans to operate their own marketplace, sell on somebody elses marketplace, or compete against other marketplaces, they need a marketplace strategy.

Two decades ago, eCommerce started disrupting brick-and-mortar retail. One decade ago, marketplaces started disrupting eCommerce and became a major driver of the retail apocalypse. B2B distributors have also lost tens of billions of dollars of annual sales to marketplaces.

eCommerce has not changed substantially in the quarter century since secure credit card processing was enabled via SSL (Secure Sockets Layer). For the first 15 years, most eCommerce operators could easily be more profitable than their brick-and-mortar counterparts. But the marketplace platform model has proven to be far more profitable and scalable than the old linear pipeline model of eCommerce.

Outsourcing much of the traditional eCommerce responsibility to third-party sellers enables asset-light marketplace operators to offer more, sell more, and learn more while generating higher margins. They scale more quickly, minimize expenses, increase agility, and create a more robust supply chain. Jeff Bezos used the flywheel effect phrase to describe the virtuous cycle of marketplaces that continue building upon their success as they gain more sellers, products, sales, data, and customer satisfaction.

The platform economy (see Chapter 1) has enabled young marketplace companies that are just a decade old to displace century-old companies. For example, in about a decade the Airbnb marketplace has grown to offer far more lodging rooms than all US hotel chains combined (Marriott, Hilton, Hyatt, etc.). In the retail domain, compare Amazon to the fate of century-old retail stalwarts like Sears, Lord & Taylor, Hechts, etc.

This transformation is affecting both B2C and B2B organizations. If a major B2B brand is not selling their products on a marketplace, it is likely that somebody else is (either an official partner or a grey market seller). B2B distributors and manufacturers need a marketplace strategy for both offense and defense. A distributor that has to physically stock all goods it sells simply cannot scale as fast as one with a flexible network of third-party sellers. As marketplaces become the preferred customer shopping destination, many are selling private-label products and displacing name-brand manufacturers.

Marketplaces are enabling new business models beyond traditional B2C and B2B. C2C (Consumer-to-Consumer) and C2B (Consumer/Contributor-to-Business) marketplaces are enabling the gig economy. In C2C marketplaces like Uber, TaskRabbit, and Etsy, individuals sell their services (or goods) to other consumers. C2B marketplaces like Fiverr and Shutterstock allow individuals sell to businesses.

Marketplaces are disrupting and creating new business models in the commerce value chain. This book helps the reader be the disruptor, not the disrupted.

This book was written to provide an understanding of the what , who , and how of marketplaces. Chapters are organized into three major segments:

What is a marketplace? (fundamentals, economics, models)

Who operates a marketplace? (case studies)

How to operate a marketplace? (platforms, people, partners, processes)

While the bulk of the content is in the How segment, to be successful it is important to understand the fundamentals of marketplaces ( what ) and learn from successful case studies ( who ) in order to make an impact.

This book is based on 15 years of experience designing and building dozens of enterprise-scale marketplaces that cumulatively generate billions of dollars of GMV. McFadyen Digital has supported many clients from initial strategy definition to marketplace design and implementation to long-term support and growth.

Our experience includes both B2C and B2B clients, as well as marketplaces for products and services. Many of the solutions we have built have scaled to over a million products or SKUs. We have built marketplaces from scratch, and we have leveraged commercial marketplace platforms as a starting point. Many of these marketplaces are internationalized, global solutions deployed to a multitude of countries, languages, currencies, payment processors, tax calculators, fulfilment systems, etc.

McFadyen Digital employs over a hundred marketplace experts, many of whom shared their hands-on experience in the writing of this book. Our challenge was not creating sufficient content, but instead trimming it down to fit into a reasonably sized business book. Many of the chapter topicsAmazon, user experience, marketing, CRO, data, metricscould fill a book by themselves.

What we are most proud of is that our clients have received awards for the great marketplace solutions that we have collaboratively designed and launched. Many clients have also presented their success stories at a dozen national and international conferences before thousands of attendees.

More information about McFadyen Digital is available at the end of the book and at www.mcfadyen.com. The website also contains many frequently updated white papers on the rapidly changing marketplace trends. For the latest marketplace updates, subscribe to our newsletter at www.mcfadyen.com/blog .

An annual report on the evolving marketplace platform vendor landscape is available in the Marketplace Suite Spot report. To read the most recent assessment of platform vendors visit http://www.marketplace-suite-spot.com/ .