A Strategic Definition of the Business Model 

The COVID-19 pandemic accelerated changes that had been gradually emerging in the world over the past five years. In this context, many companies hastened their investments in eCommerce, marketplaces, digitalization, or automation projects. Looking at the figures, it makes even more sense today to make such investments: eCommerce sales have multiplied, and some customers and consumers may not turn back. 

In this scenario, it is crucial to pause, reflect, and rethink where we want to go with these projects that consume our energy and cash. There are three questions that help define what decisions NOT TO MAKE regarding our digital business strategy:

• In which businesses do we want to compete, even after the pandemic? 
• In which businesses will we definitely NOT compete? 
• What capabilities and competencies do we have to compete in these businesses? 

eCommerce 

Opening Channels to Better Serve Our Customers 

Whether your company is in retail or in a B2B business, it is important to understand who your customers are and how they want to be served. In this regard, if there is an attractive segment that wants to shop online, can your company afford not to serve them through this channel? eCommerce is a channel in the ecosystem to serve customers promptly. In other words, buy wherever you want, receive wherever you want, and when you need it. There are two main paths here. 

1. Own eCommerce 

Having your own eCommerce system, where your company directly manages the relationship with customers. 

2. Marketplace Seller 

Being a Seller on someone else’s Marketplace, where the relationship with your customer is shared with the platform manager. 

While choosing between eCommerce or being a Seller may seem like a strategic decision, the reality is that they are simply options to reach more customers, improve willingness to pay, or reduce transaction costs associated with a sale. Therefore, they should be managed as an additional channel within the ecosystem, and in some cases, it is valid to have both. 

A Business Model, Not a Channel 

Marketplaces are in vogue and are much more than an additional channel. Firstly, a Marketplace does not generate revenue from product sales; instead, it acts as a commission agent. A Marketplace is akin to the agora in ancient Greece, whose literal translation is “place of assembly.” In this place, buyers and sellers gathered to trade products freely, while the merchant paid a commission for the space. Unlike the agora, in a Marketplace, the merchant pays a commission for each successful transaction. 

It is important to highlight that the owner of the Marketplace does NOT HANDLE inventory. Following the example, all the products in the agora did not belong to its owner. The inventory is the responsibility of the merchants, and if products are damaged or spoiled, the merchant bears the loss. The market owner simply loses that commission. 

In its digital counterpart, this business model is advantageous because companies do not assume inventory risks, always generate commission, and, unlike an agora, do not need a physical space for transactions to occur. Moreover, a Marketplace could be a multi-sided platform and merely serve as an intermediary that charges a commission for transactions between buyers and sellers, carriers and warehouse operators, financiers and payment methods, among others. 

However, a Marketplace is a business of scale—large scale, and companies must scale quickly to remain competitive. This is where the concept known as the network effect comes into play: the more sellers there are, the more attractive it becomes for buyers. If there are more buyers, more sellers come in, thus creating a virtuous circle. 

Achieving this scale in the industry is not easy, and many companies have failed in the attempt. It requires keeping all stakeholders in the ecosystem satisfied, as the cost of switching to another Marketplace is very low. Uber, for example, spends 33% of its revenue on sales and marketing promotional activities to keep riders and customers happy. 

Moreover, one must stay at the forefront and invest heavily in R&D to keep all parties satisfied and create barriers to entry. Therefore, companies must constantly innovate in developing new solutions; for instance, Alibaba invests approximately $5 billion annually in new technologies. What is the right model for my business? 

Depends on the Capabilities 

In the example of the agora, it is not the same to be the farmer who produces, the fruit vendor who sells to the customer, or the “commission agent” who facilitates the exchange. Each business requires different capabilities and competencies. 

The business of selling online, whether through your own eCommerce site or as a Seller on someone else’s platform, requires understanding who your customers are and therefore knowing what products to offer them. Selecting appropriate and up-to-date products or services is a necessary condition for selling online, but it is not enough to achieve differentiation. 

1. Marketplace: Two Sides 

Connects buyers and sellers on a common platform. 

2. Marketplace: Multi-Sided 

Connects multiple customers and suppliers across different stages of the value chain. 

The correct selection of products must be accompanied by appropriate pricing for your company to be competitive in the digital environment. Websites like knasta.cl and solotodo.cl allow for quick comparison of prices, technical specifications, and historical information. 

Furthermore, it’s important to go beyond this, as user experience (UX) is key to facilitating sales and ensuring a differentiated, simple, and quick customer journey to reduce abandonment rates. The experience is completed by offering a variety of payment methods, credit options, and impeccable logistics to encourage customers to return. 

The competencies required for a Marketplace are very different from those needed for eCommerce. Specifically, developing a Marketplace requires agility to rapidly scale the network, which many traditional companies lack. For an eCommerce, functioning well may be sufficient, but to gain scale in a Marketplace, you must excel—so much so that Amazon refers to it as customer obsession. To be competitive in a Marketplace, companies must be able to solve problems quickly, create a unique experience at each stage of the process, forge alliances with complementary services, invest heavily in marketing, and frequently develop new versions. All of this is to enhance the experience and expand the solutions offered to the ecosystem of suppliers and buyers to attract and retain them. 

Verdict 

If we believe we do not have the capabilities or cannot acquire them, the simplest approach is to view digital commerce as just another channel in the company’s offering, whether through our own eCommerce, participation in someone else’s Marketplace, or both simultaneously. However, none of these alternatives make sense if leaders do not ask the right questions: in which businesses do we want to be, in which businesses will we not participate, and with which competencies will we be successful in our business? 

Publication prepared by Sebastián Rojas, Project Manager 

Beyond Amazon and Uber

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• Shopify: Marketplace de aplicaciones para potenciar tu eCommerce
• iTrade Network: Multi-sided Marketplace para proveedores en cadena de valor de alimentos y bebidas