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In 2021, we saw a wave of blockbuster marketplace IPOs, which drove interest in the model, but ever since there has been instability across tech stocks. So how are marketplaces handling the current climate? So far, they’ve endured. In fact, opportunities are expanding, particularly those that incorporate innovative social elements to create a better user experience.
And this trend doesn’t appear to be slowing down. A16Z recently released its Marketplace 100: 2022 report. In it, the authors identify four categories as ones to watch: Ticketing and Experiences, Shopping and Commerce, Games, and the growing world of Web3 marketplaces, along with noting the explosion of NFT marketplaces in 2021.
Given their growing traction and popularity, let’s dive a little deeper into their appeal and look at what will become a defining characteristic of marketplaces moving forward, starting with ecommerce.
Ecommerce becomes more engaging
For almost as long as ecommerce has been around, we’ve seen brands shift their business models from being a single-vendor online store, service provider or community, to becoming multivendor marketplaces that facilitate matches between numerous buyers and sellers. From Amazon to Meta, Shopify to Newegg, there are scores of examples of companies that made changes to broaden their reach — and their profits.
The impending metaverse is one example of fertile territory for expansion that promises to provide us with a wide range of physical world experiences in a shared, social virtual world. It will show that the internet –– and the ways we use online spaces to interact and transact –– is prepping for another fundamental shift.
Ecommerce must go along
Whereas the ecommerce of the past (and for the most part, the present) mainly comprised online stores and marketplaces offering simple “single-player” buying experiences, ecommerce is increasingly trending toward social purchasing. These experiences combine the convenience of online shopping with opportunities to connect with like-minded individuals to add some joy to what could be an otherwise individual experience.
Consider a future where brand communities connect people with shared interests to drive direct-to-consumer sales, and marketplaces enable shoppers to have social experiences that mimic shopping in real life. Imagine being able to interact with your friends and “try-on” outfits without having to leave a site to share pictures. Think about being able to have folks vote on what you should buy or which dress you should wear to an upcoming function. It’s instant feedback and reassurance, which can be a very powerful sales motivator. These scenarios describe the next iteration of marketplaces – one that will prompt even greater success and adoption, one known as social+.
Situating social+ marketplaces
To give you a better idea about social+ marketplaces and how they function, let’s think about the types of online shopping experiences today and their key components. There are traditional online stores, which offer the single vendor, single-player buying experiences we’re all used to. The purchase experience lacks any kind of social element, and growth is largely dependent on marketing and brand awareness. Trust is based on brand reputation.
Then we have brand communities. Although they are still single vendor, they provide some type of socially-interactive buying experience. Buyers are part of the community on a platform that facilitates user-generated content and inter-user communication. Sales remain direct-to-consumer, however, with growth aided by community network effects. Within this type of experience, trust is not forged on brand reputation alone; the community offers validation as well.
On the other end of the spectrum, there are ecommerce marketplaces, which combine multiple vendors with a single-payer buying experience; buyers are not generally socially engaged. The platform may or may not facilitate user-generated content and inter-user communication. Growth happens by way of network effect + marketing, while trust is founded on seller and product ratings, reviews, buyer-seller communication and a platform’s reputation for enforcing its policies (safety, returns, refunds, guarantees, etc.).
The social+ marketplace combines the best components of these shopping experiences to form something new. It is both a multivendor and a socially integrated buying experience. Buyers are socially engaged, and social interaction is a vital part of transactions. On social+ marketplaces, the platform facilitates inter-user communication, and vendors and buyers may interact directly. Growth is based almost entirely on network effects – marketing (in the traditional sense) isn’t really necessary, and trust is founded on social proof.
Why social+ marketplaces are in prime position
As defined by A16Z’s D’Arcy Coolican, social+ companies are those that make social interaction an integral component of their product. Applying this specifically to marketplaces, personal interactions, conversations and connections are the key to online sales. We’re already seeing some incredible experiences pop up internationally.
For example, China’s Pinduoduo has created a “virtual bazaar” that puts a social spin on ecommerce by allowing users to form shopping teams by sharing products with their friends and family via popular social networks like WeChat and QQ. For users, it means lower prices and a social shopping experience that more closely mimics the real world. For Pinduoduo, its built-in referrals translate to reduced customer acquisition costs combined with increased retention.
Others, like London-based Depop, have been able to draw in young users by providing the opportunity to become fashion influencers while selling vintage/pre-loved garments, whether as a side hustle or full-time job. Powered by its direct messaging feature, Depop’s interactiveness has created an active and devoted user base: reportedly 75% of its sales are to repeat customers. Of these customers, it’s been reported that “the average daily user opens the app ‘several times per day’ both to browse things, check up on those that they follow, to message contacts and comment on items and, of course, to buy and sell.” Prior to the pandemic, users were following and messaging each other approximately 85 million times per month, with 80% of customers returning to make repeat purchases within 30 days. These numbers have likely grown even higher since COVID, making a very strong case for social+ marketplaces.
What about the big dogs?
You may be wondering why the big U.S.-based ecommerce platforms aren’t embracing social, if social+ commerce is poised to become such a big deal. The answer is: they are. China, which has been a global leader and innovator in ecommerce for years thanks in part to its tech-savvy, highly mobile population, has a number of platforms leveraging social+. For example, Alibaba’s Taobao launched its livestream sales platform Taobao Live back in 2016, and in 2020, reported over $60 billion in sales. Once viewed as tech copycats, China now trends a few years in front of the U.S. in terms of consumer tech adoption; the fact that its companies and consumers are embracing social+ commerce – and the marketplace model in particular – is a pretty good harbinger of what’s to come.
The U.S. is rapidly gaining ground in the sector, as consumer behavior has necessitated changes throughout the course of the pandemic. Amazon recently launched Amazon Live, which uses influencer hosts to demonstrate products in real time and engage with shoppers via a live chat stream. Many other companies also have plans in the works. By this time next year, expect to see social+ as a defining characteristic of the online shopping experience, be it through traditional ecommerce platforms or modern marketplaces, such as those that sell NFTs along with building strong communities to support the art and interests represented in their tokens.
But let’s be clear: social+ commerce does not mean creating a storefront on an existing social media platform. It means building a purchase experience to which social engagement is fundamental and from which it is inextricable. This translates to investing in delivering the interactive aspect of shopping in the physical world into online shopping experiences.
As companies evolve, social features should be central to their marketplace. They have to find ways to make the shopping experience both social and fun. The best way to do that is by enabling buyers and sellers to communicate directly within the platform.
It starts with great communication and engagement features built into the mobile app or platform. These typically have chat, voice and video capabilities at the root, with engagement functionality such as reactions, stickers and filters. There are mobile communication APIs that can do this seamlessly. Within a matter of minutes, companies can set up public, group and private chats; 1-1 or group video calls; and live stream chat feeds, loaded with engagement features, without having to build the infrastructure in-house. Many offerings incorporate moderation tools as well, taking away the pressure of monitoring massive volumes of communication within the marketplace.
Once companies open up new marketplace experiences, they should expect engagement to spike. And when engagement spikes, so do sales. The social+ marketplace more than pays for the investment in its creation — it cultivates a loyal, active following, which makes it difficult for users to ever want to leave. And isn’t that what every site wants?
John S Kim is CEO of Sendbird.
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