The social network, with 60 million daily users, plans to begin selling sunglasses with a built-in camera for $129.99.
Buy.com, Sears.com and Walmart.com aim to replicate the marketplace success of Amazon and eBay.
Consumers want choice and they want low prices. That's a big reason the two most heavily trafficked retail web sites are Amazon.com and eBay.com. EBay is a pure online marketplace—all the items for sale on the site are sold by consumers or merchants. Amazon offers its own merchandise, but also goods from other retailers—and those outside retailers accounted for 31% of Amazon's sales in the first half of the year, or roughly $4.2 billion.
Major online competitors want a piece of that action, and they're aggressively ramping up their own marketplaces that offer goods from other merchants. Buy.com, already the 32nd largest e-retailer in North America by revenue and the operator of a marketplace that accounted for 46% of its fourth quarter 2009 sales, is rapidly moving to expand as a virtual shopping mall since its acquisition in May by Japan's largest e-commerce player, online shopping portal operator Rakuten.
Meanwhile, two of the top eight retailers in the Internet Retailer Top 500 Guide—Sears Holdings Corp. and Wal-Mart Stores Inc.—have launched marketplaces in the past year, aiming to increase selection without investing in inventory. And industry experts say several more large retailers will launch similar efforts in the coming months.
That means two things for other online retailers. First, there will be more opportunities to sell to consumers who come to major web sites like Walmart.com, Sears.com and Buy.com, and each of those new marketplaces offers distinct features that will appeal to particular retailers. Second, it could potentially mean the emergence of more all-encompassing web retailers with Amazon-like appeal, making it harder for other retailers to draw eyeballs to their own sites.
For eBags Inc., which sold $132 million online last year, these online marketplaces represent an opportunity to reach new consumers who may not have heard of the web-only retailer of luggage, handbags, laptop cases and backpacks.
"While eBags.com gets its fair share of shoppers, not every one of our customers has loyalty to us," says co-founder and senior vice president Peter Cobb. "In fact, many of those customers have loyalty to other sites." To reach those consumers, eBags has sold on Amazon.com and Buy.com for several years, and on eBay and Walmart.com since last year.
Each site attracts its own type of consumers, which is why Tool King LLC finds that best-selling items vary from one site to the other, says Donald Cohen, founder and managing partner of the retailer, which operates a single store near Denver in addition to ToolKing.com. Moreover, for Tool King and other merchants, selling on the sites of big retailers like Sears.com and Walmart.com lends the retailer a certain legitimacy. "That's a benefit unto itself," Cohen says.
Success for the Amazon and eBay wannabes will depend on attracting many e-retailers like eBags and Tool King, while also on pulling in the consumers that will make it worthwhile for e-retailers to sell on these marketplaces. To date, Sears.com, Walmart.com and Buy.com have not been competing on price, as each charges a commission ranging from 7% to 20% of the item's selling price, with the average around 15%, says Herman Leung, a stock analyst with Deutsche Bank who follows the e-commerce industry.
But in other respects the strategies of Buy.com, Sears and Wal-Mart are quite different.
A new model
At Buy.com, the new mantra since the acquisition by Rakuten has become: We help our marketplace merchants. Buy.com is modeling itself after Rakuten Ichiba, a massive Japanese marketplace operated by Rakuten that recorded $1.92 billion in revenue in the first half of 2010. Rakuten Ichiba gives retailers the freedom to design their web stores and not just pick from design templates, to offer rewards points on Rakuten purchases, and to use the customer's e-mail addresses for follow-up marketing, which is not the case on Amazon.
"On Amazon or eBay you feel like you're just listing your products on their marketplace," says Hiroshi Mikitani, Rakuten's founder, chairman and CEO. "We share the customer with our merchants."
While Rakuten does not have the scale of a Wal-Mart or Amazon, it's a growing international force in online marketplaces. Mikitani followed up his purchase of Buy.com by acquiring France's largest online marketplace, PriceMinister, and has closed deals to extend Rakuten's reach in China, Thailand and Taiwan. One indication of its global ambitions: All internal Rakuten meetings are conducted in English.
As its U.S. outpost, Buy.com will follow the Rakuten philosophy of promoting marketplace merchants. "We'll give sellers more flexibility on the site," says Neel Grover, CEO and president of Buy.com. "You'll see more of the merchant's brand on the site. Sellers will have more brand recognition throughout the site."
Opening up the marketplace
In another change, Buy.com, which has featured items from mostly larger merchants in the past, will open up its marketplace to more small and midsized merchants later this year, following the Rakuten Ichiba model.
"Rakuten is all about empowering merchants—regardless of their size," says Grover. "In Japan Rakuten's marketplace has large sellers like Wal-Mart and small sellers who sell products like quail eggs. They empower everyone, and that makes a great ecosystem. Since May, we've examined the way their business works and it has led us to reevaluate our current model of focusing on large sellers."
Rakuten's shopping mall-like approach of promoting marketplace merchants over its own brand sets it apart from competitors like Amazon, eBay, Sears and Wal-Mart, says Scot Wingo, president and CEO of ChannelAdvisor Corp., which helps retailers sell through comparison shopping engines and online marketplaces. "By putting the brand of the seller front and center and the marketplace's brand second, they offer something different from the other marketplaces out there," he says.
Buy.com also recently announced another strategic shift: The retailer plans to white label its marketplace, enabling other web retailers to sell all or some of Buy.com marketplace's more than 7.5 million SKUs on their own sites late this year or early next year.