Amazon, Google and the Battle for Marketplace Dominance

Freed from the shackles of traditional in-store retail, online retailers have a unique ability to develop new models that revolutionize the industry. There's no better proof than the power of the e-commerce store to offer an endless shelf. And, as Amazon.com has proven, the most effective, fastest and least risky way to build out this endless digital shelf is with a robust marketplace community. In effect, the marketplace has emerged as the digital department store. It's the platform of the future.

Eating the Feast. Leaving the Scraps Behind.
As 360pi’s research on Amazon’s product count has shown, Amazon itself is the actual seller on only 3.5 percent of its listed assortment; Amazon Marketplace offers the rest. The key to Amazon’s success is its mastery of conversion; its 3.5 percent product count accounts for a whopping 50 percent of total product sales. Amazon does this by competing aggressively on high-volume, high-value products, while leaving marketplace sellers to fight over the rest and fill in the product gaps it intentionally leaves behind.

Don’t Share the Risk; Avoid It.
Beyond marketplace size and assortment breadth, Amazon relies on third-party sellers to bear the risk and cost of price, product and inventory decisions as they battle each other for the almighty buy box. With an observed average 1 percent price differential on the same 750 best-sellers between Amazon proper and Amazon marketplace, one can surmise another key use of marketplace sellers is that they allow Amazon to hone its own pricing strategy with minimal risk. Amazon lets others set the pace, and then follows along. When it identifies categories or products that are becoming highly profitable, it joins in and beats those marketplace sellers at their own game.

Amazon is making it increasingly easy for marketplace sellers to compete on its turf, but it’s no accident. For at least nine consecutive quarters, Amazon has ceded exactly 1 percent of its sales share to its marketplace sellers. It's slowly but surely becoming more retail channel than retailer.

Who Else is Playing?
Of course, the marketplace approach isn't unique to Amazon. Wal-Mart’s recent $3.3 billion acquisition of Jet.com, a site known for its low-price seller network capabilities, highlights how strategic Wal-Mart deems its marketplace to be to the company’s future. Wal-Mart clearly intends to broaden its online assortment, appeal to more third-party sellers and accelerate the attainment of its stated ambition to add 1 million products a month to its digital shelf.

Google, on the other hand, goes one step further with Google Shopping by only being a marketplace, never an actual seller. Google Shopping performs a unique function for Google compared to other marketplace platforms in that its value isn’t to supplement a retailer’s own assortment. Instead, it reinforces Google’s value proposition as the go-to source for not just information seekers, but product hunters as well. Just like Amazon or Wal-Mart/Jet.com, the Google Shopping platform allows consumers to find products for sale from a host of online merchants, with search results featuring product SKUs, information, prices, stock availability and merchant ratings.

Why Search Matters
Data shows that 55 percent of shoppers start their product searches on Amazon, while a whopping 84 percent are expected to head straight to Amazon’s site this holiday season. The stakes are especially high for Google here, as it makes the majority of its revenue today off of paid search. How long would sellers continue to throw advertising dollars at Google Shopping campaigns if the majority of customers are shopping elsewhere, notably on Amazon? Beyond that, what would be the impact of this defection of seller ad dollars on Google’s core search business? Would advertisers outside of retail still rely predominantly on Google?

These questions likely explain Google Shopping’s highly competitive price position on 750 of Amazon’s own self-reported best-sellers across nine categories. 360pi research found that prices on Google Shopping were cheaper than Amazon listings 59 percent of the time, with Amazon winning on price a mere 25 percent of the time. In order for Google Shopping to fuel profit for Google itself, it needs to be the starting point for consumer searches. As Amazon moves toward a less retailer-centric model, Google’s efforts to position itself as the go-source for shoppers and retailers could make for one of the most influential battles in retail in recent memory.

The Retailer Impact
While their underlying motivations differ, Amazon and Google are on a collision course to be the de facto retail channel (vs. retailer) of tomorrow. The value of participating in one marketplace or another varies for every retailer, but there's one thing that's certain for all: marketplaces are the platform of the future, and retailers need to continually hone their marketplace strategy, as the stakes are high.

Jenn Markey is the vice president of marketing at 360pi, a retail price and product intelligence solution.