Adapt or Die: Why Retailers Want to Be Like Amazon

As you likely know, Amazon looms large in the ecommerce space. It’s the largest digital marketplace on the planet. You may think of Amazon as one of the original ecommerce retailers. But the brand that we all know and love is only part of its strategy and business model. The company generates a significant amount of revenue not only from product sales, but also in all of the services that it provides its merchants. Amazon, and other ecommerce platforms and marketplaces like it, sit between the supply side and the demand side, giving it unique leverage to generate value for both sides. In fact, you can argue that the merchants selling on these marketplaces are just as much the “target customers” as end consumers like you and me. This shift in revenue drivers is changing the dynamics of digital marketplaces and you may not even realize it. In this article, I’ll break down the strategy that brands like Shopify, Walmart, and Amazon are pursuing online and what it takes to win in this environment.

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Why is everyone trying to become a marketplace?

Think about it: digital marketplaces let you buy anything from anyone, anywhere. For merchants, the value of a marketplace is the opportunity to get your products in front of the most amount of people. People are more likely to regularly shop from a website like Walmart where they know they can find almost any product from shops all over the world than they are to go to a brand’s owned retail website where they can only find products from that one seller. 

For customers, marketplaces can serve as a one-stop shop. I can go to Amazon and buy a new t-shirt and a box of dog treats without going to multiple websites. They also set the standard when it comes to reliable shipping times and a seamless customer service experience that allows for easy returns. Shopping from a mix of different websites means navigating a web of shopping policies with varying expectations for consistency and service.

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The business case for marketplaces

First and foremost, the marketplace model allows companies like Amazon to offer far more products than they would be able to if they were only listing their own offerings. This is great for attracting a wider customer base because it is far more likely that any given shopper finds what they are looking for. As this model scales, there are significant cost synergies that emerge, pushing down the cost to serve each customer. Systems are built to efficiently onboard new suppliers. Larger warehouse facilities and fulfillment centers are built that decrease logistics costs. Distribution and shipping infrastructure is established to manage last-mile delivery. 

This scale also creates more revenue opportunities. Of course, more products means more customers which, ultimately, means more sales. But these marketplaces can provide services to other companies based on the customer base and the infrastructure that they have constructed. With so many eyeballs on their website, they can sell advertising. Their logistics networks can be sold to other online retailers who don’t want to build their own warehousing and shipping foundations. In other words, the viability of these digital marketplaces hinges upon their ability to scale.

At the end of the day, marketplaces bring buyers and sellers together, sitting right in the middle. The more customers a marketplace attracts, the more brands want to be there. And with more brands, even more customers come flocking. It's a virtuous cycle. But, it’s a cycle that requires special attention on wooing merchants.

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An industry shift to merchant-focused services

Amazon isn't the only player in this game. Competition is stiffening as companies like Walmart and Shopify continue to hone their business model and add additional services and features that compete directly with the marketplace giant. Over the last 5-10 years, we’ve seen most platforms and retailers undergoing an Amazonification of sorts.

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Shopify’s move into the digital marketplace space

Shopify was initially founded in the mid-2000s to be a platform for ecommerce brands to build their online retail footprint. It helped established and fledgling brands alike in designing their digital storefront, handle online payments, and fulfill orders. It actually wasn’t a consumer-facing brand and instead sold its services to businesses.

However, in 2020, Shopify announced its rebranded Shop App. This app brings together all the “Powered by Shopify” brands into one app that consumers can scroll through to find recommended products just for them based on past purchases. This added even more value to the merchants that leverage Shopify’s ecommerce infrastructure because it gets their products in front of consumers that may not have found their brand on their own.

With more and more merchants joining Shopify’s ecosystem, the company has also expanded to provide even more services for its merchants, mimicking a number of Amazon's offerings. They have slowly developed their own fulfillment network that its merchants can leverage to handle warehousing and shipping of products to customers. Of course, for a fee. Other revenue drivers that hinge on amassing more merchants include Shopify Payments and Shopify Capital, which assist in payment processing and provide alternative financing options for entrepreneurs, respectively. These mirror Amazon Pay and Amazon lending.

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Walmart launches a logistics business

Walmart has followed a similar path, coming at it from the other direction. It took time and effort to turn the physical retailer that we all know into an ecommerce powerhouse. It started by selling the same products online that it already sold in stores.Through a series of acquisitions, Walmart accelerated its commitment to becoming a digital retailer. They started with ecommerce brands like Bonobos and Moosejaw and Walmart, selling their products on its own website.  

Then, in 2009, Walmart Marketplace opened up to third party sellers. Their pitch is that they focus on Every Day Low Costs (ELDC) to enable Every Day Low Prices (EDLP) for their consumers. This means leveraging their scale and infrastructure to drive cost synergies for their merchants, taking the savings and passing them on to the end customer.

To make this a reality, Walmart has had to simplify the onboarding process for new sellers. It launched Walmart Fulfillment Services, which stores and ships inventory for its sellers. It even offers services for in-person merchants to handle things like local delivery and curbside pickup from their own storefronts. The goal is to position Walmart.com as a go-to site for customers to find anything and everything they may need. These wraparound services make Walmart an attractive place for merchants to hawk their wares.

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Scale AND convenience

These examples illustrate that, to compete in this game, companies have to do it all. They have to provide the marketplace channels to help brands reach more customers. They have to empower these brands through wraparound services, from fulfillment to payments. They have to reach a critical mass of products to attract more demand and, eventually, even more merchants. It’s no longer sufficient to be a one-trick pony. 

For success, these companies must scale quickly to add the most value to all players involved. The convenience that they provide through merchant services attracts more brands. By adding brands that customers love, marketplaces drive more traffic and more purchases. The growth in revenue and product offerings makes it easier and more cost effective to provide even more merchant services.  It’s easy to see how, quickly, attracting sellers is almost as important as attracting customers. And, the two feed off each other.

Walmart’s e-commerce chief, Tom Ward, said it best: “Customers want choice. They want that selection. They want that variety.” Major players are scrambling to attract brands to achieve that variety.

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The arms race for products and merchants

If it isn’t already apparent, there is a flywheel effect that takes place for these marketplaces. A wide range of product offerings attracts even more customers. With more customers shopping on the site, more merchants want to get in on a part of the action. As more merchants and brands are brought onboard, the more likely it is that customers can reliably find the products they are looking for. This makes them think of that marketplace as their go-to for online shopping.

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Amazon’s flywheel in action

In 2009, Amazon launched AmazonBasics, kicking off with a limited number of electronic accessories and expanding to include thousands of everyday items. These products not only expanded Amazon’s offerings, but their affordability and quality also helped engender customer trust around the Amazon brand as a whole and the products that it sells. Improved customer perception brought with it more sales, making it a prime destination for merchants to get in front of customers with a high intent to buy. Amazon thus continued to build out its suite of merchant services, making it easier for any brand to begin selling on the site. As more sellers came online, they increased the number of products for sale, ultimately attracting even more customers. The self-fulfilling cycle has worked out nicely for the company.

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The Amazonification of marketplaces

So, what does that mean for digital marketplaces? Get as many brands to sell on your site as quickly as possible. And, we see this in the strategy. Marketplaces are working to provide services to merchants that add differentiated value to sellers. Many of these brands don’t have the capacity to sell across multiple marketplaces and merchant agreements may prevent them from doing so in the first place. So, if Walmart can capture covetable brands that Amazon can’t, consumers of those brands may be more likely to head to Walmart first.

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Marketplaces face challenges as they scale

With all these products and brands, the challenge becomes making sure marketplaces continue to add real value to both merchants and shoppers. The flywheel only works to a certain extent without introducing some significant tech capability. A marketplace isn't useful if merchants think their products will get lost among thousands of others. And for customers, it’s frustrating to wade through irrelevant options when you’re looking for something specific. As the number of products offered on a digital marketplace proliferates, the company has to pay special attention to the customer experience and how shoppers discover new products on the site.

There are a number of ways in which customers find what they’re looking for, or even things they didn’t know they were looking for. When customers know what they want, they often head straight to the search bar and expect to land on a search results page that features loads of relevant products. They may just go to the homepage or a broader category to browse through the offerings, hoping to be inspired by a new find. If they see a product they like, they may scroll through carousels of other products that are similar or different pieces that customers often bundle together. There’s no one single way that customers shop, so it’s important to present a seamless customer experience that enables a multitude of approaches.

However, improved search and discovery functionality must be done tactfully. It isn’t enough to simply push the most popular products to the top of the list every time. This would significantly disincentivize new merchants from bringing their products onto the marketplace. And what if there are popular or promoted products that roughly fit a search query, but don’t exactly match what was intended by the shopper? These blunders can lead to a cluttered search results page that makes it difficult to find what you need. Customers may think twice before visiting your marketplace again.

Take searching for a "Mid-Century Modern Desk" as an example. On Amazon, that search returns over 4,000 results.

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Walmart.com gives you close to 1,000 options with similar search relevance.

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If customers struggle to find what they’re looking for, they are less likely to buy. They may get frustrated sifting through irrelevant search results or recommendations that don’t fit their style. Remembering that experience, they may be less likely to return to that same site the next time they’re looking to make a purchase. The more products on offer, the more of a problem this poses for marketplaces. With scale, the big question becomes, “How do I ensure that shoppers can consistently find what they want without spending unnecessary time sifting through irrelevant products?

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Enter advanced search and discovery capabilities

Fortunately, tools exist to facilitate more effective product discovery and search for ecommerce marketplaces. It’s all about what products show up where, a similar focal point for traditional retailers. In the physical world, stores are constantly iterating on which products go in which aisles, which ones are displayed prominently at the front of the store, and which ones are presented at, below, or above eye level. These questions differ online but they follow a similar thought process. Which products show up on the front page of your site? Which offerings are on the top row of a search result page? What populates into a “More Like This” carousel? 

As a catalog expands to 1000s of products, a marketplace can no longer rely on simple browsing as an effective product discovery solution - there are too many options to sift through. The data proves this out. Upwards of 43% of ecommerce shoppers go directly to the search bar. And what appears on that first results page can make or break a sale with 70% of Amazon users sticking to the first page of search results when looking for products. Marketplaces want to prominently show each customer products that suit them. Exactly which products those are, though, varies by the shopper. 

There are a few ways to solve this problem. We will review: 

• Implicit personalization at an n of 1
• Blending keyword and semantic search 
• Explicit style personalization
• Personalized shopping assistants

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Implicit personalization at an n of 1

Implicit personalization is one way to solve the intractable problem of search and discovery for marketplaces with thousands of products. The more you know about each customer, the more you can tailor their experience with recommendations and results that fit their purchasing patterns. You can use information like what they have in their cart, past purchases, and past searches to prioritize products for every shopper. You can ascertain user intent using this data and advanced search features to deliver for the customer no matter how they search. 

Vantage Discovery can transform segment-based and imprecise personalization into individualized experiences at an n of 1. By leveraging machine learning algorithms and vast amounts of data, we can create hyper-personalized recommendations and search results for each unique user. We can analyze subtle patterns in behavior, preferences, and context to cater to a shopper’s needs with unprecedented accuracy. This creates a custom-tailored marketplace experience for every single user. This level of personalization can not only enhance user satisfaction but also significantly improve conversion rates and customer loyalty.

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Blending keyword and semantic search

Semantic search allows marketplaces to return search results based on user intent and meaning. It can infer what your customers meant to look for, reading in between basic keywords. For example, if a customer searches for “what to wear to a garden party,” then they likely want to be inspired by a range of options. On the other hand, if they search for “blue tie,” then they are probably looking for just that… a blue tie. 

However, it's important to note that neither semantic search nor keyword search work optimally on their own. The real magic happens when search queries are parsed to consider both semantic meaning and specific keywords. 

Vantage Discovery’s semantic search engine factors in elements like colors, brands, and other explicit terms, while also inferring the broader semantic context, to deliver astounding results. This hybrid approach allows for a more nuanced understanding of user intent, balancing the precision of keyword matching with the flexibility of semantic interpretation. For instance, a search for "casual red Nike sneakers for summer" would leverage both the semantic understanding of 'casual' and 'summer', as well as the specific keywords 'red', 'Nike', and 'sneakers'. This combination creates a powerful search experience that is both accurate and intuitive, catering to the complexities of natural language queries.

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Explicit style personalization

While implicit personalization based on browsing history and past purchases can be powerful, it's not always feasible due to privacy concerns or regulations. In these cases, marketplaces can leverage explicit personalization, where customers directly communicate their style preferences. This approach allows shoppers to tell the platform about their desired look or “vibe”, enabling search results to be tailored accordingly.

Explicit personalization features like Vantage Vibe™ can allow customers to upload images or social media posts to easily communicate their preferences and discover products that align with their personal style. This can be used as inspiration or a reference point for a marketplace to deliver search or discovery results that feel hand-picked for the shopper. This level of personalization can also enhance user satisfaction and substantially improve conversion rates and average order values.

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Personal shopping assistants

AI-powered shopping assistants can also help to streamline the discovery process for marketplaces that have thousands of products. These assistants can allow customers to input natural language queries about their shopping needs, ranging from specific events to general style preferences. Upon receiving a query, the assistant processes the information and generates a comprehensive set of product recommendations across multiple relevant categories. It considers factors such as the occasion, current fashion trends, seasonal appropriateness, and potential user preferences based on available data. The assistant's recommendations are not limited to a single item but span across various product types that might be needed for the specified situation. This holistic approach ensures that users receive a well-rounded selection of items that work together cohesively.

For example, Vantage Discovery’s Shopping Assistant can take a query like "what to wear to a beach party," analyze the context and generate a comprehensive list of product recommendations. For instance, it might suggest a selection of breathable, casual t-shirts in vibrant colors or tropical prints that are perfect for a beach setting. In the board shorts category, the assistant could offer options with quick-drying fabrics and stylish patterns suitable for both swimming and socializing. To protect from the sun, it might recommend a range of beach hats, from wide-brimmed straw hats to trendy bucket hats, considering both style and functionality. For eyewear, the assistant could present a variety of sunglasses, taking into account current fashion trends, UV protection, and face shapes. This AI-driven approach ensures that customers receive tailored, comprehensive recommendations that cover all aspects of their beach party attire, saving time and enhancing their shopping experience.

By providing tailored, multi-category suggestions, the shopping assistant simplifies the decision-making process, saves time, and potentially introduces users to products they might not have otherwise considered. This technology aims to replicate and even surpass the personalized service of an in-store shopping experience, making online shopping more intuitive and user-friendly.

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Conclusion: It all comes down to search and discovery

All of these tools and more can have an outsized impact on customer experience and they become even more important as digital marketplaces scale in the number of products and variations that are offered. Recommendations and search results feel personalized and users spend less time scouring through pages of offerings because they’re shown exactly what they’re looking for from the start. Now, a search for “Mid-Century Modern Desk” returns a finely tuned page of products that can inspire the shopper’s home office remodel.

Digital marketplaces are all about making connections. Amazon, Walmart, Shopify, and others are in the business of providing as many options as possible for their customers. This means they must court the favor of as many merchants as possible by demonstrating that those companies can drive improved business outcomes by selling on their platforms. Advanced search technologies such as Vantage Discovery can help to drive that value as catalogs expand and customers expect to find what they need with ease. The future of digital marketplaces hinges on how well they can connect buyers and sellers, and search and discovery is at the heart of that.

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