The bane of the Online Marketplace

When children make a lot of noise, teachers rhetorically ask – “What is this? A Market?”. Markets and marketplaces are usually associated with a lot of noise, confusion, deals, hustles and bustles. The online marketplaces are also not different. Sellers from different parts of the world get onboard a common platform and sell their wares.

The marketplace model – a business model pushed to the forefront by the e-commerce giant Amazon, has had its fair share in building e-commerce as a multi-trillion dollar industry in a short time span. It democratized the electronic commerce channel by bringing the ecosystem to the masses. But what are the banes of the marketplace model? How will it evolve in the future?

The Bane of Choice – More is not always good

The Amazon flywheel is quite well known. “Selection” or the number of products that you sell is a primary agent on the fly wheel. But is it true that “more selection” means it’s always more good? Not really. Choice is essential especially when you are trying to cater to a large variety of user profiles and tastes. But, when there are too many choices, decision making becomes difficult and leads to consumer confusion. This becomes more apparent when there is little that differentiates between the products that the consumer needs to choose from. A simple search of Lightning cable on Amazon gives you 20,000 products to choose from! Its true that search algorithms choose most relevant results for you to get what you want. But the results opens up more variables in the consumer mind – Which brand? What type? How long? Certified or not? What price? How many? What Deals? Shipping? Reviews? Please! I just want a good cable to charge my phone!

Stuck between the Template and User Experience

Amazon believes in giving the online shopper a uniform experience while purchasing products online. This is essential when you have multiple sellers selling different category of products on your platform. But there is limit to which you can push templates. You can’t sell grocery the same way as you sell jewelry. The needs of the user shopping for different product categories are different. When the marketplace tries to force-fit a template on starkly different product categories, the user experience goes for a toss and that is something that you would never want to do.

This is true from the seller side as well. The platform dictates the user experience that you could offer to your customers. Brands get little control over the brand experience that their customers get.

Even when you try to enforce a template, there are limitations to the “uniformity” you are trying to provide the consumer. Especially in the marketplace. The difference that the seller creates in the language, cataloging styles, content and information creates limitations to the “uniform” experience that you wish to create.

Shoppers expect different user experiences. This is one of the main reasons that shoppers start building preferences for certain platforms for purchasing specific product categories

Can Elephants dance?

A marketplace is chaos. The platform tries to bring a semblance of an order to the chaos. To bring that order, you need a large workforce. A really large one. You create rules and then rule enforcers to ensure every transaction is played fair. You need quality control mechanisms and controllers to take care of each online entity such as listings, reviews, catalogues, service levels, seller control, customer control, product control etc. Now this is just the front end. In the backend, there are complex and intricate processes and operations that run the show. Often its the backend that faces the unknown variables thrown in by the horde of sellers that the platforms tries to control. Any variable (such as stockout / quality issue / service issue) that surfaces to the frontend impacts the consumer trust and preferences.

 A simple example from the front end is product reviews on Amazon. Its key to success for sellers and for consumers it helps them buy right. Such a key entity becomes the object of multiple levels of game theory. There is a lot of incentive in leaving fake reviews and in incentivizing reviews. Amazon definitely started controlling the menace by incorporating “rules” to spot fake reviews and removing incentivized reviews. The game carried on and sellers started using the algorithm to their advantage by leaving incentivized / fake reviews on competitor products so that the competitor gets into trouble.

With each passing day, the number of SKUs and the number of sellers increase and the task gets cut out. Complexity increases and you spend more efforts in bringing order to the chaos. Also while bringing order, it is essential to delicately handle the interests of both your stakeholders – customers and sellers. Running such a complex system can make it difficult to adapt fast to changing consumer needs, as is the nature of all digital businesses.

Conclusion

The chaos of marketplace is a complex business problem. Companies started investing in their own unique digital channels to overcome this problem. Marketplaces like Amazon have preferred to move blockbuster products to a much more controlled “Vendor Model” and "Retail Model" to balance the act. The marketplace will continue to remain noisy and act as testing grounds for evolving advanced and better digital commerce channels.