Ecommerce will take on multiple operating strategies

With the impending arrival of noon.com, competition in the ecommerce space is to heat up, with consumers getting a variety of content as well as improved experiences. This intensification of competition is expected to lead inevitably to a diversity of models as market players adjust to a world dominated by “content shock”.

As the market continues to mature, it is the development of these models that needs to be looked out for, to determine the pace of evolution of the GCC online marketplace.

Models that have started to gain traction have been subscription-based. Users have been aware of this platform with the success of Uber, Spotify, airbnb, etc.

Between software subscriptions (predominantly in the enterprise space) as well as online subscription, research indicates that the size of the subscription model is already in excess of $150 billion (Dh550.5 billion), growing at a CAGR of 40 per cent in the last five years.

However, subscription based models do not have to be limited to services alone, and in recent years have manifested in the form of ecommerce models that provide a physical product on a subscription basis rather than a for a single fee for purchase.

A recent example has been the Dollar Shave Club. Founded in 2011, the company has recently been valued at $615 million; its single product has been and remains selling razors! This model has been particularly successful with millennials; despite the fact that millennials possess 30 per cent more income than their parents when they were between the ages of 20 and 30, they are less wealthy.

This has meant that millennials are less likely to own a car or a house at the same life cycle stage that their parents did. More importantly, it implies that millennials are placing a greater emphasis on annuity of cashflows where the product demand is repetitive and thus can be automated.

Anything therefore that is consumed regularly can be sold via a subscription model, and in many cases, already is. Examples include meal packs, “vegpacks”, beauty products and snack boxes. The challenge is of course to improve the consumer experience such that there is a higher retention rate.

Research indicates that a 2.5 per cent change in the churn rate implies a 30 per cent difference in recurring revenue.

These specific ecommerce sites are expected to proliferate in Dubai and the region, as traditional marketplace models are going to be saturated by the presence of large players, who have already made inroads. Product and/or category specific websites are undergoing a tremendous amount of experimentation.

It is important to note however the change in emphasis towards annuity cashflow purchase preferences that millennials are moving towards. Although there is not enough specific data in the UAE, Gartner research indicates that even in China, there has been a shift in consumer preferences towards websites that offer “payment plans”.

In Dubai this trend has been well advertised and capitalised on in the real estate space. It is only a matter of time before this manifests itself in the local and regional ecommerce platforms as well.

While much of the chatter among the players has been about product and content differentiation, it is inevitable that the subscription-based model is yet another mechanism that will find its space in recurring purchases as market participants continue to find ways to differentiate themselves.

The writer heads the digital operations at GCP Group.