Marketplace selling in SEA will change a lot because of the aggregators

Summary

• Aggregators have changed the game of marketplace selling by creating a different goal… instead of 95% of sellers doing it to have a decent side income.. now the goal is to sell your business for $millions to a very liquid set of plentiful acquirers (eg. Thrasio, etc.)
• These acquirers are now often looking for things that were not part of the traditional game…. ie. a real brand, a differentiated product, a loyal community of users, etc.
• And so while this is hitting hardest in the US at the moment… you can expect the selling game to change pretty rapidly everywhere, even SE Asia.
• And those who understand what this change means and how the market will evolve in SEA as a result… can capitalize.

Context

I first learned about marketplace selling in around 2016 or so. I had a friend that was a colleague in Lazada who was a big Amazon FBA seller and he’d gotten me interested in it. Also, he had a copy of the then famous, Amazing Selling Machine (ASM)course so i began going thru the materials.

It was essentially a ‘private label’ and SEO game. You sourced from China on Alibaba.com, created a quick brand, perhaps modified packaging a bit, and then put in place a launch plan that very much focused on ranking on keywords (which is the name of the game on Amazon). So you had strategies for stuffing specific keywords you wanted to rank on, supplemented that with advertising (both on Amazon and off Amazon thru ‘search-find-buy’ strategies), and of course used strategies to get reviews (typically paid for using some type of scheme).

Thousands of US sellers took courses like this ASM one and they were all variations of the same private label formula more or less. And hundreds of these sellers became million dollar businesses during these ‘golden’ years of 2015–17, which was before the vast majority of Chinese sellers got into the game. Mainly the Chinese flooded in from about 2017 because Taobao had gotten too competitive and they realized they could use a lot of the same grey hat techniques and be very successful on Amazon.

It is these same hundreds of successful US private label sellers that used this formula that are now flooding the buy-side of the aggregator market. But they have of course evolved in the past couple of years… putting a lot more focus on their branding, their social efforts and their product differentiation.

So what were the core elements of the old private label selling game?

Namely they were:

• Acquiring a product cheaply on Alibaba.com from China
• Slightly modifying things like the packaging to make it ‘appear’ as if there was differentiation when there truly wasn’t
• Using grey hat techniques to rank for keywords

However the Chinese pretty much killed this game. By many estimates Chinese sellers now make 40%+ of Amazon US sellers (or 1.5m+ Amazon sellers selling from China). And these Chinese sellers were masters of this game, plus they could source products even cheaper and faster as they were right there at the source. So this game started to go in hard decline and many US sellers looked for a way out. Thus the timing of the ‘aggregators’ and their ability to dish off their businesses to them was… well perfect timing.

How aggregators are supercharging the evolution of the game

The aggregators (like Thrasio, Branded, Perch) are getting a bit older and gaining some operating experience and they’re realizing…

“Hey wait a minute.. when i buy these businesses from these ASM-styled sellers… they are like a ticking time bomb. They often used grey hat strategies to build the business and I am facing a ton of Chinese competition.”

So they run into problems like being delisted by Amazon for legacy grey hat techniques, they lose share to Chinese sellers as they have no true product differentiation, etc. And they quickly realize this is not a sustainable strategy. And so they are all starting to pivot and say…

“I want real brands with products that are truly differentiated. I want communities of users. Essentially, i want businesses that are not going to evaporate because either the Chinese squeeze me out using their tactics or because Amazon shuts me down for grey hat stuff that happened in the past”

And all of a sudden you have $billions of liquid capital seeking this new breed of seller. Of which their are relatively few because that was not the game earlier. But now tons of sellers are pivoting to meet this need… and brushing off their branding and community-building skills.

What does this mean for SE Asia?

Now in SE Asia this aggregator stuff is still in its infancy. You have a couple of funded aggregators in the region like Rainforest and Una Brands… but they’re still just getting their feet wet. And probably realizing that the seller market in SE Asia is still really really undeveloped as compared to the traditional aggregator markets like the US.

For example:

• Most sellers here never really invested much in having a real brand because you can still be successful using more rudimentary techniques
• The sales per product is many times smaller than in the US and so the biz case for building a differentiated product/brand is often not there
• Very few of these sellers were ever built with a real intention of building a powerful company. And the people behind them are not the ‘I wanna be a millionaire’ types that flooded the US Amazon FBA game.

• There is heavy direct competition from crossborder dropshipping from China (on both Lazada & Shopee) as its much closer to the US.. and so the private labels haven’t taken off in the same way here.
• The core value proposition of aggregators in buying in the US is that they’ll take them global, add channels, cut sourcing costs, etc. But this value proposition isn’t really there for the SE Asian aggregators who are unlikely to ever take a brand from here to the highly competitive US and European markets.

However… having said all of that…. the same basic trend here in SEA of aggregators wanting to buy proper brands and differentiated products will hold. Because everything else is undefendable against the Chinese. So more and more smart SEA sellers will realize…

“Hey.. If i want to sell my business for $millions in a couple years to Una Brands or the likes… i need to build a true brand and differentiated products. Because that is what they will be looking for and pay the big bucks for.”

Now the smart folks out there will read this and be like…”well that is definitely not the way most SEA sellers are thinking today.”

And that my friends… is why the strategists out there that ‘get’ this now and see what still looks like a mirage in the desert…

…will be the guys that will have created $millions in value selling their business in a few years.