🤯The Problem & its data

The two symptoms revisited

There are two (2) problems that every marketplace, today and throughout history, have exhibited. From the Great Bazaar in Istanbul to Sears & Walmart, to Amazon and more modern variants such as cDiscount, Meesho, etc....

• Rising sale/final value fees: When an item is purchased, marketplaces keep a portion of sales as a fee. In the US, CAN, UK and the EU, it averages ~15% whereas elsewhere it's ~8%. These fees have been rising over the past decade and continue to rise.

• High Attention (Ad) Fees: Some marketplaces charge sellers to show up at the top of the first page of results and elsewhere on the page. Based on the search results algorithm, shoppers don't usually get past that first page. So goodness forbid 😱 that a seller gets buried lower down the page OR worse yet in the "obituaries" on page 2 of the search results 😫! Some marketplaces (like Meesho and Etsy) co-opt sellers into an ad model. In 4Q22, Amazon & Etsy collected >15% of each sale just on Ads. That "15%" figure is growing fast. At Amazon, it was 11% in 1Q22. Today, it tops 30%, with an average of 18% per seller. Flipkart, Target, Walmart, Best Buy follow the same model and continue to raise their advertising rates. Globally, all marketplaces push this model as well.

It's growing to be $1T+ Global 🌏 Problem!

In NA, CAN, UK and EU, in 2022, e-commerce marketplaces collected >$300B in fees on $1.1T in third-party seller marketplace GMV (this does not include direct to consumer sales). When accounting for global marketplace e-commerce, total fees collected exceed $600B. By '30, even at slower growth rates, total fees collected will exceed $1T in US, CAN, UK and EU and >$2T worldwide.

It's mind blowing 🤯 that it's more expensive to buy online than in a brick & mortar store!

Have a drink🚰 & let that sink in! How did this happen?

How did this happen?

The combination of the below elements is why we are in the current state of affairs.

Shopper Fatigue

Today, it is easy to go to Costco or a local thrift store and find prices that are consistently lower than buying the same item online. This is the price of convenience (or time as some allude to it). It's an opportunity cost play. It favors those with more money and disadvantages those who are mentally fatigued to go shop or find the lowest price item anywhere (online or in a brick and mortar store).

Furthermore, prices on Amazon and other marketplaces consistently change multiple times per day/week depending on data analytics driven by A|B experiments whose goal has been to figure out what might work to maximize the timing for higher prices. Shoppers with no assistance will never have the mental fortitude to beat a machine's relentless and tireless efforts at finding when prices are lowest versus the machine's ability to changes up the pattern.

The Setup: "Bait & Switch"

About two decades ago, online marketplaces used comparison shopping as a way to attract use attention. Shoppers found massive selection & prices became very competitive. Over time, as marketplaces gained shopper and fatigue set in, marketplaces practiced the art of surgical subtle policy changes and seller fee hikes.

Looking back, marketplaces managed to create a strategic position of being the go-to place to search for items for shoppers, and by mobilizing the logistics infrastructure to offer more rapid delivery and return logistics, shoppers came to rely on fast delivery and online convenience. It's easier than going shopping after a long day of work or during weekends when foot traffic can peak.

Now sellers were stuck. They could either accept the policies they had no say in, or they could go to direct to consumer.

Direct to consumer: A painful expensive gamble!

The cost for a seller to move to a direct to consumer model required deep pockets to out-compete other more capitalized sellers in gaining shopper attention in today's high noise environment. Consider Warby Parker (and similar outfits, such as Allbirds) whose gross margins were negative for a long time & whose net margins continue to operate in the red. How can less capitalized sellers compete? Many who dare and try (through Shopify) are quick to realize that they have jumped out of the fire and into a frying pan.

Similar to the often circulated (but scientifically untrue) story of the boiling frog; shoppers & sellers started to adapt to the slow but rising cost of marketplace convenience and the pain of going it alone elsewhere. Today, ony those who are well capitalized employ strategies such as seller aggregation (buying out other sellers, or targeting them specifically) to buy out their businesses. Sellers no longer feel they can change marketplace behavior. They've turned into gladiators in an arena with a last-person standing objective.

The Root Cause: Incentive Misalignment

When e-commerce marketplaces found success at delivering value, they sank resources into supply & demand acquisition. Fueled by investments, marketplaces acquired customers by essentially "paying" high prices for users. The strategy marketplace operators would go on to employ is to change policies slowly after shoppers and sellers became habituated. Primary amongst them were hiking selling fees, co-opting advertising and increasing convenience features that at first the seller paid for, but ultimately the shopper would pay for as well. The result: Amazon, Flipkart, eBay, Walmart, etc...

No seat at the table

Those policies changed because... well, sellers and shoppers had no say in how the business was run. While shoppers and sellers were selling & buying products, for marketplaces, sellers and shoppers played no part in making policy decisions. They were elements of an experiment to maximize liquidity and profit. The incentivized was to introduce any tool whose purpose was not entirely understood by shoppers and sellers since they had no seat at the table making those changes.

The path to the solution

We simply asked:

"How can we start, grow and operate a marketplace with sellers and shoppers in control, without destroying the marketplace balance and still serving investors. And what kind of investors are we talking about?"

The solution design it turns out, while seemingly complex to explain, was simple for sellers & shoppers to experience & use!