Six Degrees of Separation and Separatism: Marketplace vs. Sellers | What Separates marketplaces from each other?

Are all marketplaces the same?

By definition, yes they are all the same in the sense that they do not hold inventory and are only facilitators of the e-commerce transaction between the buyer and the seller.

But are they, same?

By operations, no they are not even close to same. Each marketplace has its own model of operations which makes them quite different from each other.

Before we venture deeper into this thorny territory, we need to understand what does this ‘model’ mean. By model I mean how a marketplace manages its sellers inventory, logistics, discounts & returns etc. This includes all components of marketplace and seller interaction.

To be more clear, few examples of control would be:

  • Ebay, Amazon, Shopclues encourage buyer seller interaction while Paytm, Snapdeal, Flipkart do not.
  • EB, SC, AM give greater catalog control to sellers and also about choosing modes of fulfillment (like Dropship, Self-ship, FBA etc.) while others mostly enforce the same.
  • Only Amazon allows control of Refunds.
  • Ebay, Amazon, Shopclues also allow way more control on Catalog than others.

Some marketplaces are more open while some are quite closed, some work on hybrid model some are purebreds. This degree of openness or alternatively the degree of control a marketplace wants to exert on its seller’s becomes their differentiating factor. I believe this degree governs their evolution and even some part of their audience or buyers eventually.

Major Indian Marketplaces on Line of Control (0 being least controlled and 10 being most)

So, top six marketplaces in this market are separated by Six Degrees, hence the title. Everybody exerts a different degree of control on their sellers.

On extremes you can see that 0 level of control results into OLX or classifieds model more or less and 10 results into own website to sell online or what I have previously called Stand-alone where the seller has full control. In a way zero control is also full control, its like any number divided by 0 is infinity, so lets put a stop to this right here.

As you can see towards left more open marketplaces are eBay, Shopclues and Amazon while Snapdeal, Paytm and Flipkart are more towards the right or larger control. So immediately conclusion comes to mind that greater the control bigger the marketplace.

Seems like it, but for how long? What is the cost of this control? Another direct co-relation that can be seen from this LoC is amount of losses they are making. Though control would not be the only factor towards that loss, but I can safely say that its a major one.

Marketplaces are defending accumulation of losses by arguments like we are building the market etc. and they are right to an extent but again at What Cost?

So when all marketplaces are accumulating losses who the hell is profiting? The Seller.

So why don’t marketplaces become sellers? They want to but:

1. FDI in multi-brand retail is not allowed.

2. It is not possible to hold so much inventory by one company by which they can do equivalent GMV that they sell right now by the way of thousands of sellers. They have indirectly created “their own” sellers like FKs WS Retail and Amazons Cloudtail but again the more obvious reason is to make available more products on their platform at cheaper prices by buying in bulk and directly from brands by investing 100s of crores of capital which a seller generally cannot do and that stuff too they sell at losses.

So why don’t Amazon or eBay or Shopclues want to control their sellers? It can be understood by working our way backwards, and assuming a possibility that because marketplaces on the right are investing the most in promotions, discounts and advertising therefore, their natural instinct is to have more control on sellers to protect their investments and minimize the losses by trying to sell most possible which they cannot do if seller has more control.

There are a lot of smaller things like these which defines the overall degree of control. I feel that middle or hybrid is the best way to go forward, closest to which are Amazon & Paytm (but their marketplace product is very immature still). While the ones on the right are busy investing or burning in deals and discounts and advertising, the ones on the left and specifically Amazon is busy investing in Infrastructure (It’s all relative).

eBay is happy as is, it has defined audience, it has defined kind of sellers, it has left them on a platform with well defined policies for all matters and whatever revenue it must have made before the war started, it invested in Snapdeal to be a part of the “modern marketplace ecosystem” as well. Shopclues is big in Tier 2 and 3 cities and its catalog has mostly unorganized and unbranded stuff like you find in local market and hence “Ye Mall nahi hai Market hai”.

Though FlipKart has seen most success with controlled model but that was when 80-90% sales were done by their own arm WS retail, once due to law they started adding more sellers, the controlled environment worked but I doubt it will work in long run against Amazon’s less controlled model, towards profitability.

The more you try to control seller’s business, the more operational bottlenecks there will be. Marketplaces should mind their business rather than the seller’s. Due to these inefficiencies and forced operations lot of sellers make losses and ultimately withdraw from the marketplace because a seller has NO INCENTIVE to sell at a loss except in one exceptional case i.e. to rank the listing or to jack number of orders and lower defect rate. A seller is not getting any advantage of the assets being created i.e. brand & buyer, that is the asset marketplace is creating for themselves by operating at a loss.

This is where separatism comes in. Wikipedia says, Separatism is the advocacy of a state of cultural, ethnic, tribal, religious, racial, governmental or gender separation from the larger group. While it often refers to full political secession, separatist groups may seek nothing more than greater autonomy.

When a seller withdraws from marketplace and opens their own website, they desire autonomy or greater control which in this case becomes 100%, they want better policies so that they can create a sustainable profitable trading business nothing more. After opening own site or trying to do so is where the seller understands, cost of running own website, technological challenges, marketing costs, and overall a marketplaces predicament but still they are happier selling from own websites than fighting over useless things from controlled marketplaces who sometimes go against their own policies or the policies just fall head first on themselves. Basically, they implode.

The sellers end up wanting a separate site because they feel that if they are selling so much on the marketplace with such thin margins and even end up making losses sometimes they can maybe increase profitability by building own website and selling as much or even more and add an extra sales channel, and create assets as well, but as separatism goes, its not so easy. Some are able to survive and operate and scale own stores but mostly end up shutting them down (they become a failed state after separating :p)

To Marketplaces: Keep your Sellers happy, they will keep your Buyers happy.

Thoughts?

P.S. An excellent article by IOS http://indianonlineseller.com/2016/02/marketplace-or-inventory-led-which-ecommerce-model-works-best/

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