Mergers, acquisitions and consolidation: Three words the average consumer would expect to only hear in the sky-high buildings of the Central Business District (CBD). However, these strategic processes are more a part of the everyday consumer’s life than they think. By simply opening their Zalando or Amazon app to browse anything from electronics to swimwear to makeup, shoppers in the digital age and their money are at the very core of e-commerce consolidation - a trend that’s seen exponential growth in the last few years. What are some of the motives and developments behind consolidation? How are payment apps and systems becoming part of the big consolidation? And, is Amazon Marketplace a good choice for smaller businesses? We take a look at answering these questions as consolidation climbs the ranks at e-commerce’s biggest move in 2022 and beyond.
eWallets: A consolidation trend that’s an end-to-end strategy
The world of retail is always changing, and with the Covid-19 pandemic slowing down, it is astounding to look back at the development of e-commerce, marketplaces, mobile commerce and social commerce that’s taken place in the last two years alone. As we know, consolidation is not a new trend within business as a whole, however, we are seeing it move more and more in the online space with the acquisition and/or rise of eWallets and e-commerce-owned payment systems. By 2031, the mobile wallet market size will be worth $16.2 trillion, according to a Bloomberg report. This is a growth rate of 22% between 2022 - 2031. When thinking of mobile wallets, one may think of traditional banks offering an online or mobile solution, however, mobile wallets have become a hot development for e-commerce retailers and marketplaces.
According to Transparent Market Research, the company that provided the statistics to Bloomberg, the key players in this growing field are Apple, PayPal, Amazon, Google, Samsung, and MoneyGram. An early instance of e-commerce marketplaces jumping on the eWallet train was in 2002 when eBay acquired PayPal, only four years after it was founded. However, PayPal still owned the payments portion of eBay’s e-commerce experience. In 2022, eBay no longer offers PayPal to its sellers, who now have to opt for their in-house payments system Adyen, meaning eBay now denies sellers access to PayPal. Payments are now transferred directly from eBay to the sellers account. But, why the change? Consolidating payments gives eBay more access to customer data, they can change any part of the system at any time to benefit themselves or their customers, and they can incorporate local payment methods. The change for eBay only officially started in June 2021, so time will only tell how this affects revenue, market share and customer relations.
From the US to China, Alibaba, which ranks at number one in its homeland, is arguably the world’s second largest e-commerce marketplace. Alibaba is so large - and so entrenched - it holds 51% of China’s retail e-commerce market share. JD.com, which takes second place, came in at 20%. Similarly to the eBay-PayPal relationship mentioned above, Alibaba has its own payments system, AliPay. Amazon has Amazon Pay, Apple has the same, and Google too. Tencent, an e-commerce marketplace in China has WeChat Pay and even Facebook, originally a platform created to connect friends and family, has developed Meta Pay this year. This fact alone should tell a consumer that tech and retail e-commerce giants are consolidating the entire shopping process, end-to-end. These e-commerce Goliaths have created an ecosystem for the consumer to exist in and to keep rotating between, as if there are no other options available. Using just one company and one platform to search, shop and pay also provides them with more customer data, thus fine tuning their understanding of customer behaviour and expectations. The consumer continues to turn in a revolving door fashion within the same company - and that’s the power of consolidation.
How Amazon Marketplace leads consolidation, but suppresses competition
Amazon aggregators, which are larger businesses operating specifically to seek out and acquire smaller businesses on Amazon Marketplace, will experience a boom in size and profitability in the coming five years, after it already achieved $300 billion in sales in 2021. Currently, there are 99 active Amazon aggregators. These larger companies, such as Perch, RazorGroup and Heyday, have been seeing the value of smaller businesses selling their goods on Amazon, even if they aren’t even close to being a household name. Why? Due to the power, influence and market value a brand can build on Amazon Marketplace.
Amazon Marketplace’s authority in owning the consumer is so large, it dominates their searches on the world wide web. Of all US adults, 53% of them start their search online for products on Amazon - not a search engine. Globally, search engines are in first place at 40%, however, Amazon is in second, only trailing by a 2% difference at 38%. Only 16% of searches included a consumer going directly to a brand’s online store. In addition, Amazon reported that independent businesses selling goods on Marketplace in the holiday season of 2021 sold approximately 1 billion items, which saw a 50% increase in sales from 2019. Lastly, a New York Times report found that all the sales on Amazon Marketplace were almost double that of Amazon Web Services (AWS) in 2021. It is no wonder, then, why businesses in the business of consolidation are after the success and profits of small-to-medium-sized enterprises (SMEs) on Amazon Marketplace.
Although the sound of almost instant success as a seller on Amazon Marketplace sounds enticing, competitors in the industry, as a whole, suffer the most and are being quashed. A small business with a product on Amazon and Walmart, with the latter platform having a slightly cheaper price, will see a decline in digital real estate when Amazon implements its buybox suppression strategy. The seller is then forced to raise their price on Walmart, which isn’t ideal for both the consumer and the seller. Furthermore, Marketplace sellers may enjoy the consistently high revenue and the ease of Amazon managing its shipping, but they basically have no rights as sellers over their own product. As a Marketplace seller, they also can’t sue Amazon for anything. More dominance and less transparency means Amazon is able to control the seller, own the consumer and unfairly dictate to the market.
What are the main motives for consolidation?
Avoiding the domestic growth slump
One of the ways e-commerce retailers are attempting to avoid reaching their growth limit within their home country is to expand globally. Because competition is stiff; the market is saturated, and consumers have the pick of the litter, retailers are finding that going global can avoid a domestic growth slump. Forbes reported that 76% of online shoppers have made a purchase from an online store outside of their home country. Going global is no easy feat, and even some of the more successful retailers consolidate smaller retailers in new markets to make gains in market share and to increase revenue for further internationalization.
Becoming a one-stop-shop
Before e-commerce exploded, brick-and-mortar retailers consolidated by adding shops within a shop. For example, you’d be able to go to a hypermarket and purchase items from food to portable speakers to pharmaceutical medication to camping gear. Today, online stores are wanting to increase their value to consumers by becoming a one-stop-shop. eBay and Amazon began this trend more than a decade ago, however, new players like Etsy, Zalando, Cdiscount, and Allegro, are disrupting Amazon and eBay’s market.
Understanding, then shaping consumer behaviour
By attracting and working to retain new customers, retailers can understand the needs, wants and desires of shoppers from various age groups and socio-economic backgrounds. They can collect this data and in turn use it to better tailor their product offers to consumer behaviour, for example, through intelligent pricing strategies also in combination with inventory, marketing campaigns and of course promotions. The more retailers “own” data and the better they understand their customers, the more they can curate their products and online platform to make profit.
A tough decision for smaller players
Consolidation after fast digitalisation is taking place at an alarmingly speedy rate, turning online stores into marketplaces into e-commerce conglomerates. There are many benefits to consolidation for big players, however, smaller businesses will need to seriously weigh out the pros and cons in the face of the company’s ethos, mission statement and long-term goals.