A comparison study of the value captured by marketplaces

Introduction

During the pandemic period, the e-commerce sector played an extraordinary role in society, safely providing consumers access to goods in times that severe restrictions were in place. With a turnover growth rate of 10% in 2020, e-commerce in Europe still grew significantly. (European E-Commerce Report, N.D.) In the past decade, the format of e-commerce has experienced a subliminal change from individual website to marketplaces thanks to the emerging digital platforms. Digital platforms create a ‘virtual space’, where interactions and exchanges take place that involve much more than simply matching supply and demand. These platforms can monitor and influence workers, suppliers, and users in increasingly sophisticated ways. (European Economic and Social Committee, 2021)

Said by Martin Kenny and John Zysman, ‘digital platform economy is emerging’. Companies such as Amazon, eBay, Rakuten, FNAC, AliExpress, and Cdiscount are creating online marketplaces that enable a wide range of business activities. Reported by Pleuni in 2021, French shoppers are reluctant to buy on Amazon, which has left room for local players such as Cdiscount and Fnac Darty. However, Amazon.fr is still leading the French e-commerce market, with e-commerce net sales of $ 6,524 million in 2020 generated in France, followed by Cdiscount.com with $ 2,247 million. (Statista, 2020) In 2021, the revenue generated Cdiscount was roughly €193 million. eBay's annual net revenue amounted to more than $10 billion, a significant increase from $8.9 billion in the preceding year. Most of eBay’s revenues are generated via marketplace transaction fees. (Statista, 2021) According to Fnac Darty's latest financial reports, in 2021 the company made a revenue of $9.10 Billion, a decrease over the years 2020 revenue that were of $9.21 Billion (Companiesmarketcap.com, 2021)

Marketplaces are experiencing considerable growth in the e-commerce ecosystem. At the beginning of 2021, they recorded a growth of more than 80% in their business volume. (CentralPay, 2021) Data shows that 47% of digital purchases worldwide happened via online marketplace platforms. Survey data showed that those who sell products on a marketplace make 38% more ROI than those who just use their own website. Also, those who sell on two marketplaces increase revenue by 120%. (Making Science, 2022) Marketplaces help to increase brand exposure, provide an additional channel to sell products and services and build trust with customers who view impartial reviews. Therefore, marketplaces are almost obligatory for merchants who want to do e-commerce.

As a merchant who wants to do business on the above-mentioned six marketplaces, the most concern is what is the value captured by those marketplaces? Most of the websites have listed the commission for each category except AliExpress. However, these are only facial fees excluding the transaction fees, payment fees and communication fees, etc. What is the actual value captured by these marketplaces? Is it clearly announced to the future e-merchants? Is there a system to compare this value captured? This study was carried out to find answers to these questions. This study aims to compare the actual value captured by the selected marketplaces in French market. ?

The study was conducted from March to May 2022. The author selected Amazon, AliExpress, Fnac, Rakuten, eBay and Cdiscount as typical marketplace representatives in French market. The products have been chosen from the Health, Beauty and Wellness, Personal equipment, Home equipment and Leisure and culture sectors. The formula used is percentage of value captured by marketplace on final price (out of VAT) = Global amount of cost of marketplace / [(price ttc + shipping cost ttc)/1.2)]

Data collection

The selected products are lipstick, insole, sunglasses, perfume, haircare, watch, pen, toy, cream, TV, jeans, sneakers, speaker, headphones, and comforter.

The data has been collected by searching the product name and model on each marketplace website. The team match the products with the shipping price, commission fee, transaction cost and monthly subscription fee that list on each marketplace website and record in the table. The KPI is the percentage of unit price+shipment out of VAT, The formula used is percentage of value captured by marketplace on final price (out of VAT) = Global amount of cost of marketplace / [(price ttc + shipping cost ttc)/1.2)]

Let’s demonstrate the calculation using Lego brick toy 10696. It is an infant brick toy, weighs 1.5kg, size in 18 x 36.9 x 17.9 centimetres. It is widely sold on all the marketplaces selected.

Same way of calculation applies to all the remaining marketplaces.

The below table shows the KPI of all the product on six marketplaces

Data analysis

After analysing the data, the reporter found that the product with highest value captured by Amazon and Rakuten is cream, which are 43.94% and 26.55%. It is also the highest among all the products in all marketplaces. The product with lowest value captured by Amazon is TV, equals 12.63%. Reversely, TV is observed as the highest value captured product on AliExpress and eBay, which are 20.43% and 19.1%. Cdiscount captures the highest value 22.8% on toy. Fnac captures highest value on comforter that equals 18%, on contrast, comforter is the lowest value captured product on eBay and Cdiscount that only equals to 10.8% and 18%. AliExpress captures the lowest value of 9.6% on sneaker, watch, lipstick, speaker, cream, insole, and pen. The lowest value captured among all marketplaces is 8.8% on sunglasses on Rakuten.

Analysis by Marketplaces

The below table shows the highest and lowest value captured on the same product in different marketplaces. Yellow represents the highest while blue the lowest.

The data shows that Amazon captures the highest value on almost all the products among the six marketplaces, with an average equal to 23.20%. AliExpress has the lowest average captured value equal to 11.4%.

Analysis by product

The table below shows the highest and lowest value captured by each marketplace and its corresponding product. Yellow represents the highest while blue the lowest.

It is noted that cream is the product with the highest captured value with an average of 21.53%, and sneaker occupies the lowest with an average of 14.58%.

Interpretation of the results

Products

It is shown in the table that some categories of products see their value more captured by the marketplaces. For instance, the cream is captured by an average value of 21.53%, followed by jeans of 20.04%. Meanwhile the sneaker is only captured by 14.58%.

The reasons behind this difference are complex. First, products come in with variety sizes and weights, thus the transportation fee varies. Second, the tax rate applied to different categories varies. Some of the products face a higher rate of tax. Lastly, in most of the case, the commission rates are calculated based on the popularity, volume of trading and number of merchants. Based on these reasons, it is not surprising that some products have a higher captured value than others. ?

Commissioning Models

What factors lead to differences in the value captured by each marketplace? What commissioning models the marketplaces use that lead to such a difference? What functions Amazon perform to justify capturing more value? To answer these questions let’s analyse the different value capturing models used by each marketplace.

1)????Commission Model

The commission model could be a great fit for new and large marketplaces. Rakuten as an example charges merchants a fixed fee plus a commission percentage per item sold.

There are certain advantages of this model. First, it facilitates the onboarding of new vendors as there is almost no risk for them to list the products, since all the payments are made upfront. Also, this model is profitable for the platform itself. The higher the value of the items sold, the higher the revenue for Rakuten. However, there are also shortages. There is typically a lower value captured during initial stages of the marketplace.

2)????Listing Fees Model

A further marketplace monetisation option is to charge sellers to list on the marketplace. As an example, eBay’s value capturing model contains a monthly registration fee of 19.95€, a 10% commission on final price plus a fixed fee of €0.35 per order.

The listing fee model helps ensure a higher quality of products being displayed on the marketplace because merchants are forced to be more selective on products they put and will usually choose the best-performing ones. Listing fees allow eBay to generate revenues regardless of how products perform. On the other side, there is the possibility that listing fees could discourage merchants from adding more products.

3)????Subscription Model

Another option for marketplace monetisation is to charge sellers a monthly or annual flat fee to use the marketplace. The French marketplace Cdiscount and Fnac adopts the subscription model with a subscription fee of 39.99€/month plus a commission per item sold. This approach provides consistent income and helps long-term financial sustainability.

4)???The Combined Model

Most leading marketplaces leverage a combination of commissioning models to guarantee the highest profit possible. Amazon utilises all the models mentioned above to cover all bases, offer a variety of price points and merchant experiences, and bring in a steady income stream. The Amazon’s commission system contains a subscription fee of €39/month, the Amazon fulfilment fee, credit card transaction cost, and a stockage cost.

5)????Light Commission Model

AliExpress’s value capturing models is different from all the other marketplaces. The merchants do not have to pay a listing fee nor subscription fee, only a commission rate ranges from 5% to 8% is applied per item sold.

When we look back on the questions, it is now clear that the different value capturing models adopted by each marketplace are the main factor that led to the different value captured. As the platform that captures the highest value, Amazon thus perform more function than other marketplaces. First, the subscription and fulfilment fees are worth paying for most sellers as they grant access to the biggest online marketplace and one of the world’s most efficient fulfilment networks as well. Sellers that use the Fulfilment service are covered with packing, handling, shipping, customer service, and product returns. Sellers can benefit from the store inventory in Amazon’s fulfilment centres by paying a monthly inventory storage fee. In general, Amazon provides more functions than other marketplaces with a higher value captured. On the contrary, AliExpress captures the lowest value with least service provided. In other words, the sellers must take care of the transportation, inventory, and transaction cost on their own.

Conclusion

In conclusion, each marketplace captures different values on different products. The actual value captured by these marketplaces are higher than the facial value in most of the cases and is not clearly announced to the future e-merchants.(See Appendix) There exists a system with a certain formula to compare this value captured.

If I were a merchant, I would go for Amazon. Even though Amazon’s value captured is higher than all the other platforms, its self-run fulfilment and storage system offers an all-in-one service that the merchandise can benefit from. Also, Amazon provides the commission fee calculator showing the detailed cost and profit for merchants to compute before selling, which makes the commissioning process transparent. ?

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Appendix