Looking across the eCommerce landscape, it’s easy to see how Amazon has influenced merchants — first by teaching them the benefits of being in a marketplace, and then by giving them the tools to promote themselves and compete for business. That crash course in commerce appears to have worked, as an estimated 56% of sales made on Amazon today come from third-party sellers.
An unintended consequence of leading the way, though, is increased pressure on Amazon itself, according to Scott Galit, CEO of Payoneer — or, at least, as much pressure as can be applied to a company that handles over half of all domestic eCommerce sales. Armed with the knowledge of how to differentiate themselves, advertise and acquire customers, merchants have been increasingly diversifying their channels, including building their own digital storefronts and entering other marketplaces.
“Amazon, in many ways, has taught them how to do that, has actually forced them to figure out how to develop those skills,” Galit told Karen Webster in an interview on PYMNTS TV. “And they’re now deploying those skills in other places.”
The Emerging Off-Amazon Opportunity
Galit noted that “diversifying” does not mean leaving Amazon’s marketplace — “it’s such a powerful platform that it’s still often the most efficient place for these small businesses to acquire customers,” he said. But the number of merchants around the world deploying their own online stores “has grown really dramatically,” he noted, with the growth rate exceeding that of marketplace sales.
Even firms that make a business out of acquiring and accelerating brands that sell on Amazon are working to diversify and broaden their selling channels, even if they won’t say so publicly, said Galit. In private conversations he’s had with these companies, executives say Amazon is a great starting point that gives access to a wide number of consumers, but building brands requires looking in other places, too.
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“That’s increasing, in many ways, the professionalism of the competition on Amazon, which means it’s going to be harder for certain sellers to compete in certain categories, which will then create even more pressure for them to diversify and build their own customer base,” Galit explained.
By building out its advertising business and showcasing how powerful advertising and commerce can be when paired together, Galit said Amazon has also put “a tremendous amount of pressure on what used to be advertising-driven platforms.” Google, Facebook, TikTok and other social platforms went on the defensive to prevent the eCommerce giant from eating their lunch — but also found an opportunity to embed commerce into their platforms.
“There are more channels and more places for merchants to actually embed themselves in experiences and contexts that consumers are looking for,” Galit said. “That relevant context is driving a tremendous new wave of buying activity, and a shift in where and how people are actually engaging in commerce.”
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Galit likened the trend toward contextual commerce and meeting consumers where they are to a modern-day QVC that blurs the lines between entertainment and commerce. “People are seeing things from people that they trust or like or are engaged by,” he said. “They’re now having a much shorter distance to travel virtually to buy the things they see — and they’re now seeing those things in the context where they’re spending time.”
Hollowing Out the Middle
Galit told Webster, though, that this isn’t the beginning of the end of the eCommerce marketplace. “I don’t think there’s any replacing the convenience and efficiency of marketplaces for a whole lot of activity,” he said.
Rather, the internet has begun to push eCommerce to two opposite ends of the spectrum: merchants and marketplaces that are able to get very large and drive scale, breadth and scope more efficiently than before, and merchants that aggregate around interest, specialization and providing a one-to-one feel.
“So, I think the not very differentiated, middle-of-the-road merchants that have a bunch of different goods — but not the breadth and scope of an Amazon — and aren’t particularly differentiated and don’t have anything that can connect to a consumer are going to have a hard time,” Galit predicted.
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While Amazon clearly has a handle on the size and scale aspect, the company is also moving toward the differentiated small business end. In January, the eCommerce giant acquired Selz, an Australian rival to Shopify — and earlier this month, reports surfaced that Amazon’s Project Santos is developing a point-of-sale solution for third-party retailers.
“I think they can tell by the way Shopify and that ecosystem is growing quickly that this is a bit of a threat,” Galit said. “Not because I think it’s going to eat a lot into what they’re doing today, but because it chips away at where the growth vectors will be in the future.”