"There is no going back, marketplaces have become unstoppable"
Unprecedented events like the ones we experienced last year had never-before-seen consequences at the health, economic and social level. Within this context, where the simple fact of going out was restricted in most cases, consumers had to look for new purchasing channels. These channels found them online and resulted in something never seen before: e-commerce penetration experienced 10 years of growth during the first three months of 2020.
But this exponential growth was not the same for all online shopping models, in the specific case of marketplaces, they experienced a growth of more than double that of the general e-commerce index, since they were considered an opportunity for companies They were looking for new sales channels. Thanks to these platforms, the different companies were able to offer their customers products that were in high demand, such as masks, office furniture, or even fitness equipment for the home.
Taking this situation into account, many businesses are facing a completely new escalation of opportunities since, in Spain, 90% of consumers buy in marketplaces and Amazon is positioned as the main product search engine, above Google. This is because, when users are willing to buy or search for information about a product that interests them, they want to do so by having the largest possible selection of products at their fingertips. In addition to making sure that the price they are going to pay is the most competitive and that they will have an excellent service with a fast delivery. For many companies, achieving this alone is very complicated, if not impossible, and that is why it is so important to have the help of a “partner”. We are not only talking about small and medium-sized companies, even companies of global size do not have sufficient resources to guarantee the traffic and advantages offered by marketplaces such as Amazon or Alibaba.
On the other hand, it would not make much sense to think that, if there had not been a pandemic involved, the current situation would be totally different. Analyzing the situation with a little more time perspective, we find that, to this day, the upward trend of the marketplaces that we already saw prior to the health crisis continues, as a natural evolution that goes beyond the fortuitous.
How has Amazon's evolution been during 2021?
In the specific case of Amazon during this 2021, marked by events that have left their mark on the market such as the crisis of goods in China, it is estimated that the sum of the sale of goods by sellers in the Amazon marketplace reaches the 390 trillion dollars. If we were to calculate the total sales of the marketplace (GMV), including those of Amazon itself, we would be talking about approximately 600 billion dollars. However, the main growth is coming from the sellers themselves. Amazon sales increased 14% while marketplace sales grew approximately 30%.
If we wanted to make a comparison between the sales of Amazon sellers and the Gross Domestic Product (GDP), the “Amazon marketplace” would become the 37th largest economy in the world, just behind Denmark but ahead of Malaysia. This would only be talking about sales and without taking into account the jobs created to make the entire Marketplace structure work, the suppliers or the consumers to whom the products reach.
What has happened to Amazon advertising in 2021?
Advertising on Amazon has also been influenced by all this increase in sales and sellers within the platform and we can see it reflected in the cost per click. During 2021, Amazon’s average CPC was $1.13 compared to $0.85 in 2020.
The rise of on-platform sellers, both from established brands and budget-minded Amazon aggregators, has resulted in increased demand and competition from on-platform advertising, which is leading to time without increasing the number of ads in the search results. All this has resulted in an increase in CPC.
On the other hand, another of the undoubtedly fundamental metrics in the world of advertising on Amazon is the ACoS, which is defined as the total advertising investment divided by the sales from total advertising. The average of this metric in 202 was 22%, while at the beginning of 2021 it was 25% and has been increasing to more than 30%. On the other hand, the average conversion rate, that is, the percentage of clicks that an ad needs to convert into sales, remained stable between 12% and 13%. Taking this into account, the average cost of sale in 2020 was between 6 and 7 dollars, while in 2021 it has increased to 9 and 10 dollars.
Marketplaces are a reflection of digital trends
Have you heard the phrase “watched on Netflix, sold on Amazon”? Series that have created a trend and generated a fever among viewers such as “The Squid Game” have left their mark on Amazon. In fact, during the month of October, the most searched term on Amazon was “squid costume”.
On the other hand, the number one best-selling clothing product on Amazon during the first months of the year, were leggings that went viral on TikTok. This fact generated a search trend that lasted for several months under the term “tiktok leggins”. In fact, some time ago we launched an article on the Década Studio blog explaining how TikTok was revolutionizing sales on Amazon.
Amazon, a saturated market?
Despite the continued entry of new sellers, more than half of the sellers currently on the Amazon platform joined in 2017 or earlier. It might stand to reason that, with this in mind, Amazon is a saturated market, yet new sellers are finding business opportunities and generating incremental market growth.
New sellers are adding additional value and volume to an existing base. Due to the rise in popularity of Marketplaces and the expansion of business, data shows that new sellers can grow without taking sales away from existing sellers. Thus we put aside the idea of Amazon as a saturated market.
Taking this into account and still with a lot of uncertainty in the health context, it is not surprising that thousands of companies are embarking on the great adventure of Marketplaces. As Mirakl, an e-commerce software company, says, “the opportunity to build something great rarely comes in life” and without a doubt we are facing the golden age of these platforms.