Amazon vs Shopify. Why are analysts talking about the end of the era of marketplaces in the US?

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At the end of last year, Shopify stores surpassed all sellers on Amazon in total turnover. Analysts believe that a turning point has occurred in e-commerce and the retail business. I discuss the reasons for this trend in the video.

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The end of the Amazon monopoly?
What will happen to marketplaces in Russia?

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My name is Vik Dovnar. I’m launching a new segment on VC – Business Trends. It will be a subjective understanding of trends through my personal business experience. As it seems to me, I often turn out to be right. For several years, I’ve been managing, consulting, and providing marketing services to several billion-dollar companies in the e-commerce market.

Today, I’ll explain why the trend of online stores is making a comeback in the USA. It might seem that they should be consigned to the dustbin of history, with the entire retail business shifting to marketplaces (I’ll remind you that in Russia, more than 70% of the retail business is dominated by leading marketplaces like WB, Ozon, Yandex.Market, SberMegaMarket). But in the birthplace of capitalism, where the marketplace model itself was born, there’s a reverse trend. There are many reasons for this.

I’ve detailed the entire situation in a video on my YouTube channel. Towards the end of the video, I made a concerted effort to answer the question, ‘What about Russia? Will the trend come, and if it does, when?’

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Nine minutes video. (Oscar for my wife for Best Supporting Actress.)

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Amazon vs Shopify. What is important?

The indication that the return of shoppers to online stores is a trend can be observed from several perspectives.

Firstly, there is a precedent set by the significant growth in the turnover of Shopify stores. They have access to transaction data for the majority of their clients through payment processing, allowing them to track figures accurately. If the situation were different, with a decline in store turnovers (as seen in some niches in Russia), it would suggest a contrasting scenario.

Secondly, the sentiment on major platforms like Reddit and Quora, the largest communities in the USA, is buzzing with discussions about how Amazon is less favored, and buying from personal online stores is considered superior. People are well aware of the policies maintained by the giant. Reading through forums, it becomes evident that many consumers find it undesirable or even distasteful to purchase from this “giant.” In my video, I provide direct screenshots of these conversations.

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I took data from last year. We will sum up the results of this year in January. Now they are almost on par. Which doesn’t change the trend.

I will not repeat information from the video in the article. I would be grateful for comments on YouTube.

How has the attitude towards marketplaces changed in Russia?

An interesting trend is that people have begun to have a negative attitude towards marketplaces. We began to understand that this was some kind of stuff. It’s like they do whatever they want. They change the offer (for both buyers and sellers).

They will be fined. It seems that it’s easy to get started, but then you trade and trade, but the money doesn’t add up (I’ve written a lot about this, I won’t repeat it).

But I want to draw your attention to how attitudes towards WB and Ozon have changed. Look, I had an article written 2.5 years ago “Marketplaces are killing business” (200K reads). This was one of the first (if not the first) article in the Russian Federation that condemned the marketplace business model.

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Look at the amount of hate. So many people are vehemently arguing that marketplaces are the future, that the era of online stores is over. Anyone not getting on board is deemed a fool, simply a Luddite unable to see beyond their nose.

And what’s happening now? I often hear from those who joined marketplaces two years ago, initially trading successfully. However, marketplaces evolved along with changing commissions and offer conditions. Now, these individuals have lost everything they earned during that time. Two years of effort down the drain.

Granted, there are also success stories in the opposite direction. Not in vain, 2-3% of marketplace sellers started from scratch and generate over 10 million in revenue (let’s not delve into profits for now).

But if you look at the majority of articles on VC right now, the audience has taken a stance against marketplaces! Odd, isn’t it?

I see parallels with the USA

The Russian media is heavily pouring negativity about marketplaces. I myself get invited to speak on the radio every time WB or Ozon throws out another gimmick. Even in the comedic show ‘Once Upon a Time in Russia,’ there are several episodes highlighting the true depths of platforms like ‘Ягодки’ (‘Berries’) and the like.

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My son, who is almost 12 years old, says that for teenagers, buying on WB is considered uncool. It’s like a one-paw place. They appreciate originals. So, if they’re buying sneakers, it has to be from the brand’s store. That’s the youth policy nowadays.

I’ve noticed a few other things as well. The market leaders in teaching about marketplaces have started to slow down. Even Pavel Shevchenko closed his training school. Why is that?

Yes, there are many small “educators” out there. But, as it seems to me, they are trying to catch the departing train. Some guys have even started teaching “how to teach selling on marketplaces” 🤦‍♂ That is, launching mentorship programs on how to mentor about marketplaces.

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It’s a clear sign that just teaching has become less lucrative. The math of attracting students is not as sweet as before. People are not eager to take loans for inventory.

If logistics companies in Russia show efficiency in the near future, old-school online stores (and niche marketplaces) might start reclaiming their share.

Marketplaces must take their place

I believe that major marketplaces have their place in the market, especially when things stabilize. This is particularly true for selling low-ticket items. Currently, the average order value on Wildberries is 2000 rubles, and on Ozon, it’s 2500 rubles. With such average order values (and lower), selling on your own online store may not be as profitable. Marketplaces have built infrastructure tailored to these types of products.

However, when it comes to quality, emotions, and wow-service, that’s the domain of specialized e-commerce companies. They will sell at higher prices, working on customer lifetime value (LTV) and catering to each customer.

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In general, they will work with products with an elevated average order value. With the development of generative AI (like ChatGPT and others), qualitatively interacting with the customer becomes easier.

I’m confident that in the near future, we will witness a revolution in the methods of choosing products. Consumers will be searching for products by interacting with entities powered by artificial intelligence. These entities will be capable of predicting choices and making more accurate forecasts about what the customer needs. And with changes in search methods, e-commerce will also transform.

I look forward to your comments on YouTube. You can find my Telegram channel about business trends here. Drop by, and let’s discuss further.

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