Digital marketplaces are having a leapfrog moment.

Earlier this year, Amazon surprisingly revealed that for the first time, more transactions were fulfilled directly from sellers than its fulfillment centers. The company also disclosed that products sold and fulfilled by third parties were more profitable. This is a significant retail milestone. Credit Suisse estimated Amazon Marketplace sales at $135 billion in FY2018, and that number could swell to $259 billion by 2020. And, analysts predict that marketplaces around the world will account for 40% of the global online retail market by 2020. The overnight success of digital marketplaces is more than twenty years in the making and it’s now going through yet another metamorphosis.

From eBay to Postmates: A Digital Marketplace Transformation

From the early days of eBay in 1995 to niche and bespoke players such as Etsy in 2005 to the rise of the “sharing economy” or “gig economy” in 2009 with the likes of Uber, Airbnb, Etsy and Postmates –  digital marketplaces are only becoming more prominent in the world of commerce. With the increasing demands of connected customers combined with the advancement of AI, machine learning and mobile, digital marketplaces are  continuing to evolve.

Following Amazon’s surprise announcement, the spotlight suddenly turned toward marketplaces as a bright spot in the future of retail. Now, traditional retailers, existing marketplaces and new startups are equally racing to unite sellers and consumers in next-generation platforms.

What’s Next for Digital Marketplaces

Presently, marketplaces have become platforms and as a result, they’re enhancing product and service models and experiences between what sellers offer and what buyers demand. Platforms must now represent more than a convenient place for suppliers and buyers, now they must constantly push beyond the status quo. While consumers may want greater choices, they also want simplicity, utility, integration and value-added experiences.

The State (and Future) of Digital Marketplaces

Renowned venture capitalist Bill Gurley in 2012 published what quickly become the seminal reference guide for evaluating successful digital marketplaces. Now in 2018, it’s come to the point where marketplaces are not only having a leapfrog moment, they are lauded as a key engine for retail growth.

In 2018, Altimeter partnered with Kahuna to track the “state of” global online marketplaces. The goal was to identify important trends and opportunities and also publish an annual benchmark in tracking its rise and future. More so, the data can guide incumbent brands and inspire emergent marketplaces as they pave the way for the future of retail, services and customer experiences. The report is available to the public and free to download.

Key findings and highlights from the State of Online Marketplaces report:

  • Marketplaces are generating significant revenue, with two-thirds generating more than $50 million annually and one-third generating $100 million or more.
  • Most marketplaces reported GMV (gross merchandise volume) of between $500 to $999 million. GMV is the total value of merchandise sold to customers through a marketplace and is linked to the scale of the business. It is considered one of the most important business metrics.
  • Ahead of peak liquidity, buyer and seller-focused metrics are key indicators for marketplace health.
  • New product launches, revenue growth and customer acquisition top the list of marketplace business objectives in 2019.
  • Marketplaces cite four common customer-facing challenges in pursuing growth: competitive differentiation, buyer retention, buyer acquisition and social media engagement.
  • Retaining sellers takes marketing; integrated platform services offer opportunities for merchants to create standalone value.
  • Sellers disengage from marketplaces because platforms don’t provide growth as a service. “The notion of growth as a service is a big driver for sellers who are active in these marketplaces and in this retail model…if you don’t have sellers you don’t have a marketplace,” said Kahuna CMO Jeff Nolan.
  • Retaining and activating buyers also requires marketing with social media and meaningful loyalty programs.
  • Lack of sellers and shipping costs and fees combined with poor customer engagement and experiences drive buyers away.
  • Most marketplaces claim that the concentration of sellers driving 80% of transactions ranges between 40% to 60%. Marketplaces aim to find the sweet spot of seller and transaction concentration 80% of total transactions generated by 20% of sellers.
  • Almost half of all marketplaces say that repeat customers account for upwards of three-quarters of all transactions and one-third say repeat customers are responsible for half of all transactions.


Next-generation businesses are building on the success of early product-oriented marketplaces and growing at an incredible pace. We’ve now arrived at a “platform economy” where marketplaces are enhancing product and service models and experiences between what sellers offer and what buyers demand. These evolved services offer complete, integrated and end-to-end experiences. For example, platforms serving restaurants, must now cater to discerning customers that expect personalized discovery, relevant options, locations, reviews, menus, pictures, videos, reservations, coupons and much more. The effect is expanded business opportunities for sellers/providers and a broader array of choice, convenience and value for consumers.

Digital marketplaces will only continue to expand and diversify, introducing new retail and service experiences to sellers and buyers alike. As they do, marketplaces will open doors to new breeds of sellers and service providers, broaden customer choice for more varied product and service offerings, foster healthy competition and promote continuous innovation. As the experiences become more valuable, the trust and loyalty that’s earned creates a greater exchange of mutual value across the board.