Modern small businesses have sophisticated strategies which employ digital tools, services, and platforms to identify, engage, and sell to customers both online and offline. These include:
- Operating a brick-and-mortar store with an online presence (such as a website)
- Creating and operating a wholly owned online retail store
- Powering online sales using digital back-end tools (such as Shopify or Stripe)
- Targeting customers via digital services (from Google or Instagram, for example)
- Delivering to customers using digital-centric services (such as Instacart or Uber Eats)
- Entering relationships with traditional retailers for offline/online sales (Walmart, Target)
One powerful and versatile mechanism for small businesses to reach customers is the marketplace, a concept as old as commerce itself. The modern online marketplace subsegment of retail sales – digital storefronts that allow businesses to list their products and sell to consumers – is booming, with the 18 largest global marketplaces growing by 51.7% in the past three years. About 96% of all shoppers used at least one online marketplace in the past year.
We estimate that U.S. SMBs gain approximately $145.1B in annual economic value from the use of online marketplaces. There were a nearly 10-fold range of contributions to this figure from the six components, the highest being $59B in value from the ability to access more customers, and the lowest being $7.6B in savings related to start-up or expansion costs.
Online marketplaces contributed $145B of economic value to U.S. SMBs in 2018
Our analysis concludes that U.S.-based online marketplaces contributed approximately $145.1B of economic value to U.S.-based SMB sellers in 2018. Objectively, this is a very large number: For example, at the time of writing, $145B is roughly equal to the market cap of Eli Lilly ($147.6 at the time of publication). In a different context, in 2018 consumers worldwide spent about $1.86T on the top 100 ranked online marketplaces. Because our estimate of “value of access to customers” is largely a function of Gross Merchandise Value (the total value of merchandise sold to customer in such a marketplace during a given period of time), our estimate of $59B of value for U.S. SMBs, sizable as it is, is only about 3% of the total going to all businesses from all marketplaces.
The majority of economic value driven to SMBs is tied to marketing and scale
Online marketplaces primarily benefit SMBs by driving awareness and traffic to their virtual storefronts. Reaching more shoppers and increased brand exposure total approximately $96B and are both directly tied to marketing. While not an unexpected result, this is a significant number by itself, driven by access to the massive networks of online marketplaces.
The cost savings benefits of online marketplaces are relatively limited
While it’s clear that online marketplaces reduce costs for stores to operate and sell their goods, this is not where most of the economic value of marketplaces resides – for SMBs, anyhow. We estimate that the bottom three components in Table 2 directly tied to cost savings (Cost-effective online sales; Reaching more sales regions; Reducing expansion and start-up costs) account for $29.7B in value, or 20.5% of the total. This isn’t as surprising as it may initially seem – numerous business costs like shipping light packages or paying state sales taxes are relatively fixed even for large businesses.
Additional data about online marketplaces would further understanding of their economic impact
Despite their popularity, high-quality data sets or research reports about the economics of online marketplaces is relatively scarce. This is likely to be for at least two reasons. One, companies that operate marketplaces are frequently not required to disclose detailed marketplace data, and they generally opt to protect this business information. Two, government agencies and other organizations who collect data on businesses and commerce don’t categorize data in a way useful for the kind of analysis described in this report. Even the U.S. Census and the U.S. Bureau of Economic Analysis, who have begun to measure the digital economy and e-commerce sales, still do not break out figures for online marketplaces in a comprehensive manner.
We note that some state governments have already passed “marketplace facilitator” laws to more easily track and collect state sales taxes. Generally, these laws stipulate that online marketplaces are responsible for collecting and handling sales tax for all their third-party sellers. While states will have different ways of capturing the data stemming from these new laws, access to it would likely be of value to researchers studying online marketplaces and their economic impact. It is worth pointing out that peer-reviewed academic studies on this topic are scarce.
About the Connected Commerce Council
The Connected Commerce Council (3C) is a non-profit membership organization with a single goal: to promote small businesses’ access to essential digital technologies and tools. 3C provides small businesses with access to the market’s most effective digital tools available, provides coaching to optimize growth and efficiency, and works to cultivate a policy environment that considers and respects the interests of today’s small businesses.