3 years ago, Josh Kopelman, Managing Director of First Round Capital, said, as a conclusion to a panel on the state of eCommerce, that there was very little innovation in the industry and disruptive approaches were needed. The basis for these conclusions was that, when reviewing the Alexa top eCommerce websites (in the Shopping category), practically all the websites that appeared in 2010 had existed for 12 years, and the ranking had not changed significantly in recent years.
It’s been 3 years since the publication of this study, and it’s been 3 particularly intense years in the eCommerce industry: global figures in the industry have grown at a staggeringly rate, large investments have been made on online sale websites, and a large number of new players have appeared. However, if we restrict ourselves to the Alexa ranking, it has hardly changed by comparison to the 2010 ranking:
A comparison between the Alexa eCommerce website ranking (shopping category) in 2010 and 2013 (2 first columns). On the right side, there is a version of the Alexa eCommerce ranking, not including the shopping category, where significant changes can be seen. The websites in orange show that they had not existed 10 years before.
Do not trust data from Alexa
If you trust the Alexa’s data for the Shopping category, you can see that there are hardly any changes among the top eCommerce websites. However, this does not mean that things have not changed. Reviewing the Alexa general top websites, and filtering by hand the websites that actually sell online products, we can obtain a new ranking (the last column in the figure above), which shows significant changes. Among them, the arrival of 4 new players (Tmall, Aliexpress, ThemeForest, and Etsy) which had not existed 10 years ago, and other players who were not included in previous rankings, such as Alibaba.
Vertical markets, marketplaces and arrivals from Asia
What is new in this ranking? Analyzing the results of this ranking, we find 3 trends:
Vertical markets appear, such as Etsy (handmade products), ThemeForest (website templates and designs) and Booking (hotel reservations). These products, for the time being, are not included in giants like Amazon, and the lack of competition and focus of these websites have possible enabled their significant growth, placing them among the top eCommerce websites (in terms of traffic).
Marketplaces. Etsy, ThemeForest, and Booking are also marketplaces. These marketplaces bring sellers (artisans, designers/developers, hotels, etc.) into contact with potential buyers. They operate with relatively small margins, but in global markets with a large volume, which make it possible to obtain large revenues. Within the global ranking, it should be pointed out that Amazon also has a part of marketplace, and that eBay is a marketplace in itself, so this business concept seems to have had considerable impact on the eCommerce website ranking.
The new giants come from Asia. Tmall, Alibaba, Aliexpress, and Rakuten are Asian players. More specifically, both Tmall and Aliexpress belong to the Alibaba group (China), while Rakuten comes from Japan. Both groups (Alibaba and Rakuten) are experiencing significant growth through their internationalization and through the purchase of companies that complement their offer in terms of product types (for example, Rakuten bought Wuaki.tv not long ago to compete against Netflix) or to speed up their international expansion.
Top eCommerce in terms of sales
Although the Alexa data provides an overall view of the eCommerce website ranking, the fact is that it is a biased view. Alexa is not as reliable as we would need for this kind of study, and also, it focuses on traffic data, not sales. If we aggregate business groups in the previous ranking and focus on global sales, we find the following top eCommerce websites:
The top eCommerce websites, grouping business groups and taking global sales as data for the ranking . In some cases, the total turnover for the business group appears in the second column for business that are not 100% online. In this way, you can see the impact of eCommerce sales on companies that have traditionally sold offline.
It is odd that Amazon is not the top eCommerce group. Amazon has been beaten by the true giant of online sales, the Alibaba group, which is growing at a staggering rate in almost all countries in the world from China. The case of Alibaba is interesting, as it handles 170 billion dollars every year in global sales, but its revenues are much lower. This is due to the fact that it focuses on the C2C marketplace model, with relatively low fees, which means that figures are not so good in terms of real turnover.
Another interesting case is that of Staples, which is pouring almost all its strength into the online channel, with a relatively low global turnover (by comparison to other companies that are below then in the online sales ranking). Staples has a rather significant eCommerce sales level (11 billion dollars in 2013). Practically 50% of Staples sales take place in the online channel, which places them above Walmart, with a global turnover that is 20 times larger.
What about the new eCommerce business models?
Taking the Alexa shopping ranking as a starting point, and rearranging the players on the basis of their global sales, we leave out the new players – those which have a more disruptive approach. We have selected 14 eCommerce websites which have radically different business models from those of more traditional eCommerce stores, or else have a very short lifespan and are growing at a very fast rate.
New eCommerce players and their expected 2013 turnover. The second column shows the data of creation of each of this companies.
Although Kopelman complained about the lack of innovation in eCommerce in the 5 years before 2010, this table show how the eCommerce market is changing. Between 2008 and 2010, many startups related to online sales were created which have innovative/disruptive approaches and which are now operating and growing unstoppably.
Firstly, we have private sales websites, which predominate in this selection, with models such as Vente Privee, Showroom Privé, Gilt, Zulily, etc. The main example, Vente Privee, will cloe 2013 with a turnover of 2,040 million dollars.
Subscription and/or discovery models, even though they are not operating as expected, are starting to yield fruit, as can be seen in JustFab’s turnover of more than 300 million dollars, Bichbox’s 66 million, and Trunk Club’s 40 million.
As for marketplace models, the main example of this new generation is Etsy, which will reach a turnover of 1.2 billion dollars by late 2013, and One Kings Lane, which will reach 300 million dollars.
Let us leave Fab.com aside as a special case, as it started with significant growth, but in recent months has been trying to reinvent itself (even though it is hardly 2 years old), moving from daily deals to a platform that focuses more on product discovery from a social point of view.
In any case, it is important to point out that there are many relatively new eCommerce projects with online sale turnover figures that are higher than those of large companies, such as Best Buy, Kohl’s, Target, and Ikea. So in recent years we have experienced the incubation of new eCommerce projects that are positioning themselves as the future kings of online sales.
Taking a look at this data, it seems clear that no eCommerce triumphs overnight. The almost unknown Zalando (it was hardly known in Spain until one year ago) is now 5 years old, Vente Privee has been in the market for 12 years now (creating a market for the rest of competitors that came later). Spanish Privalia is 7 years olld now and has not yet reached the psychological barrier of a 1 billion turnover.
We’ll have to see how these business develop of the next few years. Vente Privee seems to have become somewhat stagnant, and hence it has opened its business lines and no longer focuses on fashion, but also offers travel and other products (including cars and housing). Groupon has grown considerably, but it has been in the investors’ sights for 2 years now, as it is unable to find its way and seems to have exhausted its market. Must these models turn into more generalist and “classic” eCommerce stores to be able to climb up the eCommerce ranking? Or will the models grow enough to turn these new models into eCommerce giants without changing their business model?
Brands leap into direct sales
Another main trend that is not reflected in the eCommerce ranking is that of large brands that enter direct sales through their eCommerce platforms. Even though there is no great disruption in the model itself, they are innovating by offering an alternative to the classic distribution channels.
Even though many brands have taken this step, there are still few available data, so we have selected 5 brands in different industries to see the evolution of their direct sale channels through online stores.
Online sales volume of 5 great brands: Apple, Inditex, Nike, H&M, and Ikea, as well as expected growth until 2017.
It is interesting that Inditex, the group that owns Zara, expected to reach a turnover of 1.1 billion in online sales in 2013 (including eCommerce sales of all its brands), and yet the Zara online store was created only 2 years ago. Given these figures, we find that Inditex’s online turnover in 2013 will amount to practically 6% of the group’s global turnover. By 2017 we will have seen a significant growth of this online channel, practically doubling turnover in the online channel. This means that its online sales will amount to 10% of its global turnover.
The case of Apple is also interesting, as it is expected that it will reach a turnover of 8.5 billion through its online store by late 2013, which amounts to almost 5% of its global turnover. By 2017, we can expect an online turnover of about 12 billion dollars, which is similar to Walmart or to eBay’s real turnover.
As for Nike, it has betted strongly on its online channel, which currently has a turnover of hardly 600 million dollars (little more than 2% of the group’s total). Company representatives have stated that their plan is to make more than 2 billion dollars in turnover through their online store by 2017, which would mean a 333% growth.
A great unknown is Ikea, which currently only has a turnover of 560 million dollars through its online channel (2% of the total) but it should be borne in mind that its eCommerce offer is only found in a few countries.
Globally speaking, from now until 2017 the brands that are establishing direct sales channels via eCommerce will position themselves as eCommerce giants, as by then we will be talking about millions in turnover from online channels (whereas in many cases they now amount to only a few hundred dollars). This bet on the development of online direct sales will also deeply transform the industry, offering a wider range of products to final consumers, as well as different value propositions, making the online sales channel not focus exclusively on price, but also serve as a channel for direct connection with brands and manufacturers, increasing consumers’ confidence levels towards eCommerce.
Conclusions
After taking a look at all the figures in these post, it is very clear to me that eCommerce is changing considerably. We found ‘pure players’ with new business models that are finding their market, with significant turnover levels, which start to enable them to compete with top eCommerce players, such as Vente Privee, Zalando, Etsy, etc.
We are also experiencing a transformation in brands, which are opening their distribution channels to direct online sales, with a twofold effect. Firstly, they will take market share from the current top eCommerce players, by attracting consumers who prefer to buy directly from the brand and who until now had bought from Amazon or similar sites. But they will also increase the global volume of buyers by offering an option that generates confidence for many people, breaking some of the psychological barriers to online sales.
Over the next 5 years we will continue to see plenty of movement, and I am sure that the top 15 eCommerce players will change substantially. However, reaching Amazon’s levels and overthrowing Amazon from its dominant position in the market is something that still seems impossible.
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