With the news of the decline in global venture funding and Sofbank’s posting record losses for its Vision Fund, Marketplaces and Retailers all around the world have a hard-to-ignore fear of recession these days.
For many experienced entrepreneurs and professionals who have lived through the dot-com bust or the ‘08 financial crisis, weathering a recession might not be new. Entrepreneurs and marketplace leaders may need to revisit strategies to tackle the challenges that come with recession.VCs and large corporations are already revisiting their strategies in the face of current marketing conditions. One of the biggest venture capital firms, Sequoia Capital, shared their “digital toolkit” to help the startups navigate the challenging times ahead.
Even in times of layoffs, and technical teams shrinking, we’ve seen that more and more companies are investing in monetization through offering native ads.
We took a closer look at the specific impact for marketplaces and ecommerce brands.
Economic Impact on Marketplaces
Over the years, the number of digital marketplaces grew rapidly and turned into highly valuable assets for retailers. With competition in the market, growth might have taken precedence over monetization for online marketplaces.
A significant decline in spending during an economic downturn creates challenges for marketplaces and retailers. While consumers will continue to buy the essentials–food, health, personal care, etcetera.–decline in discretionary spending is inevitable.
These behavioral changes push marketplaces towards changing their strategies towards focusing more on monetization, customer and seller loyalty, and growing market position.
Times of crisis also create the perfect conditions for the birth of new businesses. Marketplaces need to update their strategies to be well-prepared for the potential competition.
These crisis times are also an opportunity for expanding into new markets or new formats, however we believe that a marketplace needs to have a solid monetization strategy that works in recession times, before considering growth.
The times of putting growth, or hypergrowth, as the top priority are gone, simply because the market is not rewarding the aforementioned growth the same way it used to.
Marketplace monetization as a key strategy
At its core, monetization is about increasing capital. Marketplaces need to find new strategies to stay profitable and competitive.
Similar to many other businesses, marketplaces should focus on profitability rather than growth until the magnitude of the slow down in the economy is clearer. That doesn’t mean a complete stop on growth spending, but more of a balanced growth strategy with a focus on improving profitability.
For marketplaces, the monetization models are limited, especially for the ones that are operational heavy. During this downturn, no matter what the business model is(subscription fees, commissions, listing fees, etc.), money flow needs to be optimized.
Tips to change your monetization strategy
Focus on profitability, now!
After embracing reality, it’s time to act. You do not have years to plan your next steps. You know the market and your business. Do what is needed to preserve cash, increase the cash flow, and cut unnecessary expenses. Profitability is the main focus, now!
The money you want to spend on the Superbowl Ads is better spent on increasing your employee, consumer, and vendor loyalty. Expensive sponsorship deals with Hollywood stars can wait.
While optimizing your current monetization strategy, look for new methods.
Explore new monetization methods
While looking for new monetization methods, avoid drastic changes or complete overhaul, unless your marketplace monetization strategy is clearly not robust enough to support you through the recession.
Instead, explore new methods that could easily fit in your current strategy.
Talk to your customers, vendors, industry experts, and discuss options internally. Study the quantitative and qualitative data to find a method that aligns with your vendors’ goals and enhances your customers’ experience.
Help your vendors
Your focus is on growing profitability, but you are not alone in this game. As you’re looking to monetize in new ways, so are your vendors! Partner with them to find solutions that benefit both of you.
Help them to thrive in these times by giving them the tools to sell more on your platform. Adapt a close feedback loop with them and respond proactively to market changes together.
Monetization is as important for your vendors as it is for the marketplace.
Native Ads as a Quick Monetization Method During Recession
Native ads are the perfect way to help your vendors sell more on your platform. In the form of sponsored listings and banner ads, they help your customers find relevant products and your vendors increase their sales.
Amazon’s +$30 billion dollar per year revenue from Amazon Ads shows the true potential of the native ads on a marketplace.
Increased revenue and profits are the 2 immediate benefits native ads can give a marketplace or an e-commerce platform. That makes native ads a powerful and flexible monetization lever; something you need during the current market.
Advertising made simple with Topsort
With Topsort’s API-first solution, you can build a high-revenue ad platform for your marketplace in just weeks.
We’ve combined our expertise in game theory and auction design with marketplace and vendor priorities to bring you the best auction-based advertisement infrastructure out there.
Your vendors can also create effective ads with little angst and more confidence using our intuitive UI.