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Buy.com gets bought by Rakuten, third-party seller trends continue

May 21, 2010

First off, congrats to the hard working teams at Buy.com (a personal shout out to Randy!) While there will likely be a lot of changes, Buy.com is merging with an e-commerce juggernaut in Asia and based on what I've been reading the purchase was strategic (more below). It's great to see hard work and determination pay off, so hats off to the Buy.com team!

This is an acquisition that you should pay attention to for a number of reasons.

1. Buy.com was in "co-opetition" with Amazon.com and eBay.com. They were a major seller on Amazon and eBay, and Buy.com was a growing U.S. online shopping destination.

2. Third party sellers were a major contributor to Buy.com and there is no doubt Rakuten is valuing this asset. This will be the focus of this blog post.

3. Rakuten is clearly looking at the U.S. marketplace. Looks like the U.S. just got a major new participant in the B2C e-commerce space and with deep pockets of approximately $9.5B, a keen focus on B2C and a lot of interesting puzzle pieces like a Linkshare (the major affiliate exchange), Rakuten+Buy is looking to be a major player shortly.

Overall, this is going to be a good thing for the U.S. marketplace.

Here are a few links that you should check out for more info.

I'm not going to repeat Scott Wingo's points; but, I will mention that I think it will take Rakuten quite a bit of time to really realize the synergies of this acquisition. The fact that Rakuten has Linkshare is very interesting; but, the lack of investment in Linkshare over the years is grounds for concern. That said, even though there have been a lot of innovations in the affiliate sphere – big traffic is still big traffic and Linkshare is a player.

Personally, I think the big value here is Buy.com's back end for managing third-party sellers and their integrated checkout experience.

A major online marketplace today must have product depth. Think about it, the marketplace spends countless millions to attract buyers, give the buyers great prices (Amazon is losing money on some e-books to drive that market) and give the buyer an amazing experience, all in an effort to make the buyer a repeat customer. But, if the buyer searches for some random product and it's not in the marketplace… bye-bye buyer!

The major marketplaces that carry inventory focus on top sellers. No major marketplace will stock in their own warehouse ALL the millions of products that buyers want. Most don't move enough volume. They are too niche, unique or just plain weird to turnover enough to merit taking up the warehouse space. For the long-tail of product search, the marketplace must have niche third-party sellers (these can be manufacturers or niche suppliers).

A side benefit of the marketplace attracting lots of buyers is that the sellers want to be there! And they will pay more and more and more to have a presence on the marketplaces with the most traffic. Just like in the brick-and-mortar world it's all "location – location – location". It's a symbiotic relationship. If your marketplace has buyers the sellers will want to come and they will bring their product depth. If you have product depth, the buyers will be able to buy more in one location and not leave the marketplace. Product depth just makes sense and as I've blogged before, the trend is that marketplaces are going to open up, cater to and make profits more and more off third-party sellers.

Which brings me back to Buy.com and what they have done reasonably well. Make buyer checkout and post sale order management easy, even when the products are being sourced across multiple sellers. This is huge! This is the platform! This is what eBay has kind of missed. (Aside: I'm reminded of a quote told to me by an eBay exec 12-13 years ago, "If we build the highest traffic block in the neighborhood then the sellers will come." That is only half of the equation, the traffic has to convert and the buyers have to be happy). If you don't make checkout easy, you built a bazaar and not a marketplace. (Aside, wonder if eBay was looking at buying Buy.com? According to Scott's blog Buy.com appears to have been a pretty important customer.).

The Rakuten purchase of Buy.com was likely in major part a platform buy. Look at the Buy.com Blog:

  • The seller marketplace grew 150%: The CEO thanks the sellers for expanding their product listings. "As we move into 2010 and beyond, Buy.com has transformed from an online retailer with marketplace functionality, to a multi-category retail marketplace platform," said Buy.com CEO and President Neel Grover. "We firmly believe that our marketplace platform is the future of online retail."
  • On the blog post about the acquisition here: “As we evaluated how to accelerate our global expansion, it became clear that a partnership with Buy.com made perfect sense,” said Hiroshi Mikitani, Founder, Chairman and CEO of Rakuten. “As a company, Buy.com shares our vision for the future of ecommerce – as a platform to give consumers the best value no matter their location, and to merge shopping with entertainment, and to help retailers build deep and lasting consumer relationships.”

Expect more posts on this blog about marketplaces opening up and attracting more and more third party retailers. They will continue to grow in influence as the marketplace wars rage. I'm excited that Shipwire has a front row seat as our platform is already plugged into many marketplaces and e-commerce tools to help third-party sellers manage their orders.

Nate Gilmore

Nate is the Vice President of Marketing & Business Development at Shipwire. He oversees channel development and the developer network, as well as our marketing and public relations. Previously, Nate spent six years at Concentric (acquired by XO Communications), where he ran product management, sales, and marketing. Nate has also held various legal positions in intellectual property and business law. He holds a B.A. in History and a J.D. from Santa Clara University.