The ecommerce playoffs: Owned inventory vs. dropship vs. marketplace

Produced by

Neel Grover

Shop Premium Outlets

Tom McFadyen

CEO & Author
McFadyen Digital

Niklas Halusa

Co-Founder and CEO
Nautical Commerce

Tom McFadyen, CEO of McFadyen Digital, began the session by introducing the E-commerce playoffs, which pitted three distinct business models against each other: first-party owned inventory, dropship, and third-party marketplace. He then provided insights into these business models, emphasizing the marketplace maturity model based on the CMMI framework. McFadyen highlighted the differences between first-party e-commerce, dropship, and third-party marketplaces, detailing the pipeline of activities involved in each. He discussed various use cases for each model, emphasizing the importance of agility and scalability in modern e-commerce. The discussion covered examples and insights into marketplace maturity models and ended with recommendations for businesses looking to enter the e-commerce space.

Niklas Halusa, Co-Founder and CEO of Nautical Commerce, emphasized the importance of marketplaces in expanding the breadth and depth of product offerings, leading to increased buying rates, conversion rates, and basket sizes. Niklas positioned Nautical Commerce as a tech-forward solution for building marketplaces, simplifying the process for businesses.

He delved into the constraints businesses face, particularly regarding headcount limitations. He discussed the implications of maintaining a flat headcount while implementing dropshipping, considering how dropshipping can streamline operations and mitigate the need for additional staff, making it a viable option for businesses with limited resources.

Niklas emphasized the importance of experimentation and agility, suggesting that businesses adopt a lean approach to test new models and strategies. He noted that dropshipping offers a lighter touch compared to full marketplace models, making it easier for businesses to experiment and adapt. Niklas underscored the value of marketplaces in empowering communities and unlocking creativity among sellers, enabling businesses to discover new products and trends.

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The conversation explored the challenges of instant delivery services and the limitations of relying on platforms in such scenarios. Niklas cautioned against entering a commodity market without adequate control over inventory and fulfillment, advising businesses to prioritize consistency and predictability in their offerings. He suggested that businesses should carefully consider their core strategy and the role of platforms within it, particularly when control over assets is crucial.

Overall, Niklas's insights shed light on the benefits and considerations associated with different e-commerce models, offering valuable guidance for businesses navigating the digital landscape. His emphasis on experimentation, community empowerment, and strategic decision-making provides a comprehensive perspective on marketplace dynamics.

Neel Grover, the CEO of Shop Premium Outlets, shared his extensive experience in building and running marketplaces over the past two decades. With over $5 billion in marketplace transactions under his belt, Neel outlined his involvement in various ventures, including, Rakuten North America, Best Buy and Bluefly's marketplace service, and a marketplace for Simon Property Group. He emphasized his familiarity with all three business models: owning inventory, utilizing dropshipping, and operating marketplaces.

Discussing constraints such as limited capital expenditure (capex) and the inability to expand headcount, Neel highlighted the importance of maintaining merchandising and pricing control. He leaned towards dropshipping due to its ability to provide control over pricing and merchandising while avoiding the need for significant headcount increases. Neel shared insights from his experience at, where they initially operated on a full dropship model with a wide product offering and control over pricing and markdowns.

Neel elaborated on the scalability of dropshipping, citing's success in scaling to over half a billion in revenue with 130 employees. He discussed the evolving landscape of supplier capabilities, noting a shift towards the marketplace model and the importance of choosing reliable partners to maintain brand reputation.

Transitioning to his current role at Simon Property Group, Neel explained the launch of their curated marketplace in partnership with over 350 brand partners. He emphasized the synergistic relationship between the marketplace and brand partners, highlighting success stories of brands generating significant revenue through the platform. Neel noted the improvement in conversion rates when transitioning from an affiliate to a marketplace model, attributing it to a more controlled user experience.

In conclusion, Neel reflected on his experience with different business models, noting the trade-offs between owning inventory, dropshipping, and operating marketplaces. He underscored the importance of maintaining control over the customer experience while leveraging partnerships to drive success in the marketplace.

MAR 2024