Mirakl and marketplace economics: What makes a great online marketplace?
The platform economy. What’s the story with that?
Behind this awkward moniker lies one of the most powerful business models in the market today — a hybrid of e-commerce, fintech and cloud that creates exceptionally high unit economics, accelerating revenue growth, and juicy returns on marketing spend. And Mirakl, Aragon’s most recent investment, is at the confluence of these trends in software infrastructure today.
How does a marketplace “platform” create value for merchants?
With the increased adoption of e-commerce across all corners of the world, you could be forgiven for asking why the world needs another e-commerce player. On end of the spectrum, the behemoths of e-commerce such as Amazon, Target, AliBaba and the like already offer the superstores of the world, with anytime/anyplace delivery now commonplace. At the other end of the spectrum is Shopify, which arms small entrepreneurs to have the same heft and firepower as Amazon, but at a fraction of a budget. With Shopify — a best-of model we have studied for years — a single entrepreneur/merchant can leverage a turnkey solution that provides a glossy website, a set of payment solutions, an integrated advertising campaign and worldwide delivery, with an ever-growing suite of adjacent merchant services.
It’s precisely in between these two models that lies a market gap. If you are an omni-channel retailer, a wholesaler or a distributor of goods, you may have a website that shows your wares — but your wares only. How do you go from a product maker/retailer to an online marketplace connecting hundreds of thousands of shoppers and merchants that competes on the level of Amazon, but on your own terms and pricing, and with 100% control of your data? Mirakl offers a proven way to multiply your SKU offering by a thousand, or even by ten thousand, expanding the addressable market and profitability by a large margin.
Beyond powering B2C ecommerce, platforms such as Mirakl are also in the early innings of revolutionizing the way B2B companies interact with their network of suppliers. In some cases, entire procurement departments at some of the largest and most sophisticated manufacturers and hospitality providers have been replaced by platforms, with tangible benefits on costs, breadth of suppliers, and speed of execution. Expanding into B2B marketplaces represents yet another leg of growth for Mirakl.
Blueprints for success
At Aragon, we have studied some of the most successful marketplace business models around the world, from AliBaba to Amazon, from Square to Sea Group, from Toast to Zalando. There are several key common factors amongst the most dominant ones, regardless of the region in which they operate and the market segment which they serve. We believe the ingredients of success are centered on both the revenue model and the technology architecture.
· Baseline subscription: The first revenue layer starts with an annual subscription, or a baseline product that connects merchants and customers and becomes the operating system of the merchant. This revenue chunk is highly profitable and tends to grow linearly, with new clients added to the platform as the main driver of growth.
· Unified tech stack: Usually, the platform is built on a single cloud stack and thus scalable swiftly across regions. It’s also pay-as-you go, so the platform is asset-light and doesn’t require large gobs of capex as it grows.
· Transactional services: Then, over time, the platform rolls out adjacent products in transaction-based solutions: the most obvious one is embedded payments (via the likes of Adyen, Stripe and Mollie). Then comes advertising (once you have 10,000 SKUs on the marketplace, it’s not a bad idea to sell advertising, or else you become the phone book of products). Eventually, other products that service merchants get rolled out: a small business online lending product, or a payroll solution. This is a key feature of successful marketplace revenue models: it shapeshifts the growth trajectory from linear to exponential.
· Full integration with app ecosystem: the marketplace software must fully and seamlessly become integrated with all aspects of a client firm’s internal systems — accounting, payroll, advertising, security, cyber, tax, regulatory and the like. The densest forest of apps integration will win the day.
· High barriers of exit: A successful online marketplace software will eventually become the single operating system of a merchant’s business across marketing, finance, logistics and operations. Simply put, impossible to unplug.
Straight from our whiteboard (yes, we still use them), this is what you get as an optimal revenue model for a successful merchant marketplace:
And it seems to work well. Our league of successful publicly quoted marketplaces around the world have deployed this playbook effectively: to wit, the “take rate” — in other words, the ratio of revenue to total transacted goods — for Sea Group, AliBaba, or even the more recent IPO Toast keeps climbing each year.
Mirakl fits squarely in our wheelhouse. We believe the ambitious path the company has set for its growth positions it well to one day fulfill the criteria I laid out above. When this happens, it could one day become multiple times its size.
A+ leaders hire A+ leaders
After meeting with thousands upon thousands of CEOs and entrepreneurs over the last two decades, you sense a high potential CEO when you see one. When I got to know Adrien Nussembaum, the co-founder of Mirakl, I recognized that he had the mettle of a far-seeing entrepreneur. With his co-founder, Philippe Corrot, Adrien had founded — and sold — a video game marketplace in France about a decade earlier, before marketplaces were all the rage.
Back then, the plans for Mirakl USA were not fully rolled out. It had a successful European business centered around retailers, but the blueprint for entering the US was being hatched with a small team in the Northeast. Adrien moved his family to Boston and set on the arduous path of convincing North American clients to adopt a new, French software solution to transform their business model. It was around that time that I invited him to speak at a conference I organize annually to connect European graduates from Harvard Business School with leaders in business, finance and entrepreneurship. The subject of his talk: how do you enter the biggest, most innovative software market in the world as a foreign company? What do you need to build? What is the essence of your value proposition?
The conference proved to be an early indicator of Adrien’s relentless drive to attract talent around him. Kudos for convincing executives from US tier 1 e-commerce and software companies to join Mirakl, from sales to engineering. And to display creativity to scale up the engineering team in less obvious second tier French cities offering a hotbed of coding talent. Between my partner Jon Klein and I, we have crossed paths in our careers with a large part of Mirakl’s C-suite état-major and have even introduced Mirakl to some younger recruits. Time and time again, I see that A+ leaders hire A+ leaders.
Europe 2.0
To many, Mirakl is an oddity: a French software company with critical mass in a hyper-competitive US market. It is not lost on us as public equities investors that there are few SAP and Dassault Systems out there. Yet, over the past few years, the game has changed.
While European entrepreneurs were once content to sell their company to an American listed behemoth— or even a European bricks-and-mortar conglomerate — there are now more and more examples of European companies that are gaining critical mass on a global scale. It’s part of the “digital tsunami” that we see taking place in Europe (more later on that in our next blog). By far the biggest driver of this trend has been the continued rollout of a fully cloud-integrated tech stack, which has dramatically lowered barriers of entry and accelerated global scale-up. But the gush of private capital over the past two years, which is multiple times what it was even 3 years ago, has certainly played a role as well. In 2021 so far, more unicorns were born in Europe than in China.
Public Private Fusion
The line between public equities and private investing is becoming more and more blurred every year as companies choose to stay private for longer and longer. As an investor in the public markets and private markets, we see many synergies between our joint sector research across both asset classes.
While our dialogue with private companies can help us gain an edge in public equities, the inverse is true too. We can rely on a library of blueprints for successful listed companies that are more mature business models. Through many years of hardnosed modelling for public companies, we are focused on assessing not only long-term industry growth like a traditional VC/private equity investor, but also the long-term earnings power and margin of a company post-IPO. In an environment where there is a plethora of investment opportunities, our thematic approach can help narrow down the sector niches which we believe can offer the best opportunity. Finally, as a hedge fund, we can engage in a dialogue with entrepreneurs about the shape of the pre-IPO equity story in the runway to an IPO — and remain invested as the company makes a transition to a listed company.
With our transatlantic DNA and roots in Europe coupled with our sector expertise in e-commerce and fintech, we are excited to work on unearthing the next “Mirakls” for our portfolio. If you are reading this and building the marketplace of the future, whether in services or in goods, please get in touch with my partner Jon Klein at jonathan.klein@aragonglobal.com.
If you are a supplier or manufacturer, and you’d like to turn yourself into a marketplace, check out Mirakl’s solutions.
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Anne Dias is the Founder and Managing Partner of Aragon, an investment fund which invests in TMT, Consumer and Fintech, with offices in New York and Paris.
Disclaimer: As of the date of this article, Aragon’s Funds and Anne Dias personally own an equity interest in Mirakl. No guarantee is made that the Firm or Ms. Dias will continue to hold Mirakl for any designated time period and at any point in the future Aragon, or Ms. Dias, may decide to sell its position and is under no obligation to update this presentation.
