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Web 2.0 marks the decline of Ebay and Amazon March 26, 2007

Posted by ravimhatre in Consumer internet, Ecommerce, Internet, Lead gen, Search, start-up, web 2.0.
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Om Malik is on to an important trend in his recent post  regarding the marginalization of Ebay, Amazon and other legacy ecommerce marketplaces with the advent of e-commerce 2.0.  Given the emergence of new and better merchandising technologies, more intuitive and comprehensive product search services, and the proliferation of contextual and performance-based advertising channels,  small and mid-sized merchants are able to establish rapidly growing web outlets more easily than ever before. 

In the first generation of ecommerce,  marketplaces with recognizable consumer brands (like Ebay and Amazon)  could offer small and mid-sized merchants access to large pools of customers.   However, there was a significant premium charged for this access – usually 10 or more percent of the transaction price. Bear in mind that the typical merchant will have total gross margins of no more than 20-30 percent. 

Like many net-based ecosystems we’re now witnessing the emergence of an open environment to replace first generation “closed”  marketplaces or communities.  Instead of listing on Ebay or Amazon and relying on their brand to attract customers and their standardized merchandising and search to drive purchases, a merchant can now easily build a product website that will drive organic traffic from vertical and horizontal search engines picking up their unique product content and also utilize a variety of performance based advertising channels including comparision shopping lead-gen sites (the top 10 sites delivered over 100 Million shopping leads to merchants in January 2007)  as well as  search engine keyword marketing to acquire new customers.  These channels are less expensive and drive significantly more customers and purchases at higher margins than legacy marketplaces.  

From a VC perspective, we believe a key requirement to making this work is the emergence of next-generation product search services that tame the Internet’s infinite shelf-space and provide consumers with truly comprehensive product search results through an interface that is highly intuitive and digestable.  Several start-ups are intensely working to solve this problem such as TheFind (LSVP portfolio company) Become, and ShopWiki.  Let us know what you think of their services. 

Comments»

1. Jeffrey - March 26, 2007

Interesting theory you have there, but the eBay and Amazon marketplaces aren’t actually in “decline” as you state.

Using loaded language like “legacy marketplaces” is a tip-off that this post is little more than a way to promote your portfolio companies.

2. Ming Jack Po - March 26, 2007

I believe that Amazon and Ebay are actually taking on new significance in the web 2.0 world.

In terms of technical innovation, Amazon’s new S3 service is a godsend for many of us in the trenches, allowing us to suddenly gain access to very low cost bandwidth and storage.

In terms of Amazon and Ebay’s marketplaces, I strongly believe that interoperability is what gives startups staying power. With Amazon / Ebay / Google …’s APIs, there’s a lot of cool stuff we couldn’t build!

3. Ravi Mhatre - March 26, 2007

Jeff:
Thanks for your comment above. My reference to Amazon marketplace and Ebay as being more “legacy” pertains to the fact that as a small or mid-sized merchant, these marketplaces place significant constraints on the ability to differentiate online merchandising and promotion strategies. They require content to conform to a standardized template to which they direct traffic. My observation is that Web/Commerce 2.0 has afforded tools to small and mid-sized merchants that enable them to deliver significantly more differentiated product content and merchandising. However, new tools that live in an “open ecosystem world” such as next gen product serach engines and contextual advertising are now required to connect these merchants to interested customers.
Thanks,
Ravi

4. Gib Olander - March 27, 2007

Interesting point, as more and more people realize that a search box is now the starting point for most internet users the idea that portal’s or “legacy ecommerce marketplaces” will decline shouldn’t be much of a surprise. Your post also ducktails into some of the comments that the Piper Jaffray report “The User Revolution” makes that brands are a less powerful and crafted creation in the future.

It’s always enjoyable to read your perspective, thanks for sharing.

5. MyShape - New "Custom Fit" Entrant at punctuative! by Matt Winn - March 27, 2007

[…] experience inclusive of more brands and clothing types, likely under a lead generation model.  More headaches for “marketplaces with recognizable consumer brands.” del.icio.us | Digg it | […]

6. The 5spoons.com Blog » Blog Archive » Web Trends and Where I Think eBay can Play… And be a Force - March 27, 2007

[…] Web 2.0 marks the decline of Ebay and Amazon March 26, 2007 […]

7. Living Lonely » MyShape - New “Custom Fit” Entrant [punctuative! by Matt Winn] - March 27, 2007

[…] It can’t be long before someone, be it Archetype, MyShape, or another entrant, works out both the IP and vendor relationships to enable a personalized experience inclusive of more brands and clothing types, likely under a lead generation model.  More headaches for “marketplaces with recognizable consumer brands.” […]

8. MD - March 27, 2007

Ravi,

I think I see what you’re getting at…

Ebay, Amazon, and any good “marketplace” thrives off the network effect. For an start-up company to upset that, it takes more than just tools, it takes a “voice” (as Andy Kessler would say, the Ebays/Amazons/Craigslists have a “pipe”). So let’s say you open an online store using some new marketplace technology…the thing is, how do you get that voice? That’s the role of next-gen product search…give the little guy a voice.

So I would agree that the key to the puzzle (and therefore the value hopefully?) is in the search capability. But pipes are a powerful thing, and you still need to get people to use your search over going directly to Ebay or Amazon…regardless of whether they are “closed” systems or not…they have the network effect in their favor! People have a perception that they are missing something if they don’t see the results from Ebay (or Google or YouTube etc etc for that matter) because that’s the defacto standard.

We think the key to breaking the pipe open and encouraging people to use your search engine is to just show the results from Ebay at the same time as the other guys…and that’s what we’re doing at Srchr: http://www.srchr.com/?PageID=25448.

9. Christina Samuels - April 11, 2007

My perception is they are failing to deliver on the customer service and that is why smaller auction sites like auction-australia.com.au are in a position to benefit from the dissatisfaction of the core membership base. The traffic to a large company like ebay is attractive but only if that platform provides the back up required.

10. ByronM - May 18, 2007

Comprehensiveness is key, for one because it saves the consumer time from having to spend hours finding what they want. A consumer should need only spend minutes finding the right product at the right price from the right store and visiting one retailer’s website will NEVER accomplish this because retailer prices vary so much. I’ve used sites like slickdeals and fatwallet to find the best product deals, wize.com to find buzzworthy products based on reviews, and http://www.resellerratings.com to find the best stores, but these days I find myself using an aggregator like http://www.dealighted.com that brings all of the above together in one place: deals, shopping comparison, store ratings. I still use wize.com if I need help picking a product but I think the web is trending towards helping the consumer save a lot of time by offering everything in one place.

11. paul warren - May 31, 2007

Fair point but for the little guy with little to invest the global presence
of Ebay and Amazon is surely worth the 10%.

The cost to get that many eyes on your products elsewhere would surely be higher.

Is there any search that Ebay isn’t on?

cheers

Paul

12. No Name - November 5, 2007

Using loaded language like “legacy marketplaces” is a tip-off that this post is little more than a way to promote your portfolio companies


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