Digital Marketplaces Primed For Consolidation

Investors have spent over $1 billion this year on buying up successful small businesses to try and create new digital conglomerates, according to the Financial Times.

They have targeted businesses that became successful through Amazon with the pandemic’s digital shift all year, the report says, and the ideal model is a conglomerate in the mode of Unilever or Proctor & Gamble.

Independent merchants have turned like everyone else to the digital marketplace, with those on Amazon raking in over $200 billion in sales this year, according to analysts, with tens of thousands of them boasting revenues of $1 million in a year.

With the lucrative finances, investors see an opportunity to treat Amazon like “the new mall,” rolling up businesses and scaling them up, FT writes. Several of them, including Berlin’s SellerX and Razor, London’s Heroes and San Francisco’s Heyday, didn’t exist at the start of 2020, FT writes.

The situation is parallel to the days when malls were big, when investors consolidated local independent gyms, dry cleaners and coffee shops to make chains and franchises. Billy Libby, whose company Upper90 out of New York offers debt financing to startups, said he could see the same thing playing out on the digital field soon.

“I don’t think people realise how big this will be,” he said, according to FT.

With the roll-ups will also come a deluge of benefits for the businesses, including more financial muscle, stronger marketing and more bargaining power even with Amazon, FT writes.

The eCommerce market saw big gains on the usual major shopping holidays this fall, with the weekend between Black Friday to Cyber Monday seeing $4.8 billion in global sales on Amazon. That number is a 60 percent increase over the same period from 2019. The number also includes over 71,000 smaller businesses that have surpassed $100,000 in sales over the holiday shopping season. The record demand for goods has bolstered businesses in a time of economic crisis and uncertainty because of the pandemic.

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