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Online retailers and marketplaces are experiencing a convergence between traditional first-party (1P) online retailer business models and dynamic marketplace business models. Traditionally, 1P online retailers have managed inventory risk by purchasing and selling products directly to consumers. In contrast, marketplaces have served as intermediaries, facilitating transactions between various sellers and consumers without holding inventory.
A clear example of this convergence of marketplaces towards 1P online retailers can be seen with food delivery. Historically, food delivery presented significant profitability challenges for online retailers and grocers due to various logistical and operational complexities. In response, companies like Grab/GrabMart, Delivery Hero/DMart and DoorDash/DashMart are venturing into quick commerce by adopting a 1P business model. This approach involves taking on inventory risks in urban markets to offer fast and convenient delivery services.
Meanwhile, many established 1P online retailers are increasingly moving towards the marketplace business model to broaden their reach. Retail giants like Home Depot, Macy's, Walmart, and Nordstrom have transformed their websites into marketplaces. This shift allows them to offer a wider range of products from vetted third-party (3P) sellers and manufacturers without the need to manage inventory, thereby increasing their e-commerce sales, improving profitability, and reducing risk exposure.
The convergence of these two business models has profound implications for building a successful ad business. As 1P online retailers venture into the marketplace model, they must address the needs of a diverse range of long-tail sellers, including those with less sophisticated advertising experience. This requires strategic adjustments in commerce media features and go-to-market (GTM) strategies to accommodate the increased diversity.
On the other hand, as marketplaces adopt 1P retailer models, they cater to a more sophisticated, brand-centric advertiser base. This shift demands a different approach, including partnerships with agencies, more controlled campaign management, and deeper reporting, diverging from traditional marketplace advertising strategies.
As businesses navigate the complexities of blending 1P retailer and marketplace models to create sustainable and unique business models, it’s essential to leverage commerce media platforms. These platforms should enable and support the unique needs of businesses and advertisers to thrive in an evolving landscape. By providing tailored solutions that meet the specific needs of each business model, commerce media platforms can facilitate the growth and success of online retailers and marketplaces alike.
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