The Value in Online Marketplaces
Marketplaces are as old as commerce. As long as there have been buyers and sellers, there have been places like farmers' markets, bazaars, and department stores to bring them together and make the exchange of money for products more efficient. Marketplaces promote competition, enable retailers to access a larger audience, and deliver greater choice to customers. Everyone benefits.
Online marketplaces work the same way, but as with everything digital, the benefits reach much further. Today's online marketplaces gather millions of sellers, hundreds of millions of buyers, and generate billions of dollars in economic benefits. In fact, our research shows that the value online marketplaces bring to small and medium-sized businesses exceeds $145 billion annually. They help businesses reach more customers, increase brand exposure, solicit customer feedback, extend their sales reach, and save money on startup and expansion costs.
Similar to the modern shopping mall, online marketplaces' largest value-add to small businesses is access to more and better customers, compared to individual websites. Online marketplaces are better for sellers than the typical shopping mall for two reasons. First, online marketplaces offer global reach - providing individual sellers and local stores access to millions of customers worldwide. And second, online marketplaces can refer shoppers to small sellers who do not have the sophistication, marketing budget or scale to reach these customers.
The value online marketplaces bring to small and medium-sized businesses exceeds $145 billion annually.Of the $145 billion, $59 billion in value comes from the ability to reach more customers, and $37 billion in value comes from the increased trust and brand exposure that online marketplaces provide. Marketplaces add legitimacy to sellers and give consumers a higher sense of trust than visiting an independent website. An additional $30 billion of small seller value is related to cost-savings, including the reduced cost of starting a business, operating and transacting sales, and lower costs of expansion, including internationally.
As COVID-19 forced millions of small businesses to close their physical stores, online marketplaces became a lifeline to millions of retailers. The scale and accessibility of these marketplaces are a critical piece of the Digital Safety Net of online tools and resources that are helping small businesses survive. That Digital Safety Net includes free and low-cost small business services that include communications and workflow tools, digital marketing and advertising, websites and social media, back-office tools, and e-commerce and online payment tools, all of which enable American small businesses to be resilient, agile, and successful. In fact, with the extraordinary growth in online commerce during the pandemic, it is likely that the amount of value online marketplaces create will double in size, totaling nearly $300 billion in 2020.
The Digital Safety Net's importance cannot be overstated. Recently we published a report confirming that "Digital Drivers," small businesses that have embraced digital tools, expect four times better revenue during the pandemic than businesses using less technology. And regardless of where they fall on the digital continuum, 72 percent of small businesses increased their use of digital tools during the pandemic.
72 percent of small businesses increased their use of digital tools during the pandemic.
Given the value that digital platforms and services provide to small businesses, particularly during this uniquely challenging time, state and federal policymakers should be supporting this partnership or at least acknowledging its benefits. Calling for outdated regulatory frameworks like Glass-Steagall for the Internet and threatening to break up America's leading digital companies, will further sow uncertainty for small businesses. It is unconscionable.
At a time when millions of small businesses are closing their doors due to COVID-19, it would be catastrophic to shut off access to online marketplaces and digital platforms. We should, instead, celebrate the benefits of digital tools and the businesses using them to serve their communities, survive these uncertain times, and help to stabilize our economy. We should always be wary of policies that prioritize soundbites above solutions, especially when they ignore the interests of American small businesses.