ASOS is a digital marketplace that connects fashion labels with millennial shoppers. Founded in 2000, the London-based company now stocks over 80,000 SKUs and delivers clothing to over 200 countries and territories. The two-sided platform relies on matching it’s 20.3 million active shoppers with new clothing items, earning their revenue through a 20% commission on sales from third-party vendors, advertising on their platform, and product revenues from private label sales.
ASOS creates value
Creating a network effect. By collecting shopper data and analyzing it with machine learning, ASOS is able to provide curated clothing recommendations to shoppers based on the sizing and style of their previous purchases. The collection of this data across many geographies is what allows the platform to become more personalized for shoppers and therefore attracts a greater number and higher quality clothing labels to the platform. This network effect creates value for the shoppers and vendors and is a part of their competitive advantage.
Building a strong brand. ASOS focuses heavily on offering a great customer experience, which they achieve through impressive customer support, next-day delivery, free returns, an effective loyalty program, and the addition of new fashionable items on a weekly basis. By creating this strong brand loyalty, they lock in their users and potential increase the users’ willingness to pay.
Leveraging efficient operations. ASOS differentiates itself from other fashion platforms in the cost efficiency of their warehouses through the implementation of smart inventory management and complete automation.
ASOS captures value
Since ASOS creates value for users and vendors, it was able to quickly ramp up to over 20 million shoppers. Their pricing model of 20% revenue per transaction ensures that they capture the value they have created.
ASOS has made two significant decisions to further capture value:
- Free delivery subscription
By charging an annual subscription fee of $19 for free next-day delivery, ASOS locks in customers and increases their revenue substantially
- Designing private labels
Their growing market share, position as market leader in online fashion in the UK, and inventory of user data has allowed ASOS to pivot their business model to designing and delivering a private label offering. In this way, ASOS addresses the risk of disintermediation that is common with platforms that facilitate transactions. This vertical integration allows them to provide even lower prices to their customers while saving costs and expanding their profit margin, thus both creating and capturing value.
Sustainability and scalability
ASOS has created a hybrid business model, first as a platform and then expanding into the product space. Two-sided platforms like ASOS are inherently scalable, because they encourage mass-market user adoption to maximize interactions between shoppers and vendors, at no cost to shoppers. This is apparent when we look at the number of users currently on the platform (20.3 million) and the fact that it is expanding its global reach to serve markets in the EU, Russia, and United States.
The sustainability of the platform is a question of deterring competitive imitation. ASOS has spent two decades building an unrivaled data pool, so if a competitor is to come in and steal market share, it would have to be an incumbent such as Amazon who already has a strong data pool to access and draw information from. For the moment, Amazon’s fashion offerings have been subpar, with little to no collaborations with big clothing brands and designer labels.
As ASOS shifts from a two-sided platform to a vertically integrated fashion brand, the sustainability of their business model is ensured. Much like the Amazon marketplace dilemma where third-party sellers see decreases in their sales as Amazon released their own products, it is foreseeable that vendors on ASOS get squeezed out as ASOS imitates their best-selling products for their private label offering and increases their commission rate on clothing sales.