Shopping Comparison Engines vs Marketplaces, Part 1

It seems like a number of people are still a little mystified about the difference between a shopping comparison engine (CSE) and a marketplace. Let’s see if I can help flesh this out a little.

First, and for strictly chronological reasons, we need to begin with Marketplaces. It’s not incredibly simple to say what the first marketplace was, however in terms of current significance, the easiest answer is to list Amazon and Shop.com in the same breath.

Originally an online bookstore when it first came online in 1995, Amazon eventually branched into multi-media, and then into anything else that could be packaged. One of the dot com bust survivors, Amazon intelligently navigated through years of losses to emerge as a profitable giant of retailing. While Amazon has lost important partnerships like Toys-R-Us (even though it could be argued Amazon may have saved Toys-R-Us), Amazon has gained much more than it has lost.

Currently (see below) Amazon is strictly a marketplace true to this example. This means all transactions and processes involving the ordering of an item occur completely within Amazon borders. A retailer registers with Amazon to list products. Once approved by Amazon’s merchant team, a merchant is free to submit products. After filling out perhaps the most complicated and lengthy datafeed requirements in the industry, a retailer can find their products for sale on Amazon. Why go through the huge process? Because Amazon is one of the 800lb gorillas. Typically a merchant can expect to pay about 10-15% commission on a sale to Amazon. This not too bad when you consider a merchant does not have to process the payment thus loosing out on 2% in transaction fees and the risk of a chargeback or fraud. Amazon handles all the risk, all the retailer has to do is fulfill the order, and wait for the money from Amazon.

Many times a consumer does not even know they have bought from another company, which takes away almost any chance for branding, but does usually give a hassle free sale. The main catch is that a retailer needs to keep items in stock and keep customer feedback high. Amazon customers have the ability to post negative feedback, which will pull down a merchant’s visibility on Amazon, and can eventually jeopardize account status if feedback is bad enough.

Another example would be Shop.com. Shop has a slightly different model as merchants process payments based on information forwarded by Shop, but the rest of the process is the same. At one time, the parent company of Shop.com, the Altura Network, partnered with Amazon and a merchant could submit products for display on both sites. A few years ago, when I was an ecommerce director with an online retail company, Altura - Shop.com - Amazon saved the business by bringing in sales when the company website was struggling in transitioning hosting companies.

So does a marketplace work? If your margins are correct and you can find a way to keep your orders and inventory in order, absolutely.

May 21st, 2007