In 1999, 2 Argentine GSB students set out to bring the online shopping model that had been pioneered and made highly successful by the likes of Ebay to their home region of Latin America. Over 20 years later, they have managed to reshape how the continent approaches business through Mercado Libre.
At the heart of Mercado Libre, is their online marketplace (Mercado), similar in both look and feel to what Ebay has established in the US. This online platform seeks to connect buyers and sellers (both individuals and businesses) across a multitude of product and services offerings. Similar to Ebay as well, it also allows for a fixed price and auction selling format.
Contrary to other online marketplaces, Mercado Libre does not charge sellers for posting items. In order to capture value, its monetization model is based on charging sellers only when a transaction is completed. Like with any percentages, this charge eventually gets transferred over into consumer, making them the indirect payers for Mercado Libre’s value capturing.
The benefit given to the economy at large, is that like in China with Alibaba it’s creating an exponential number of business opportunities to be had. Particularly between small businesses and individuals that would have otherwise no way to access customers, when not part of a national distribution system.
In order to truly scale though, MercadoLibre faced a major hurdle with the informality of the payment systems in Latin America, which is where MercadoPago comes in.
As their proprietary fintech platform, MercadoPago, eliminates the need for cash transactions within the Mercado platform. This is major for the platform, given the high level of distrust amongst the users. By acting as a financial intermediary between the 2 parties, MercadoPago collects payment from buyers, placing them in a type of escrow, and then releases the payment to the seller once a transaction has been verified. This protects buyers from sellers engaging in scams or frauds, and allows buyers to purchase with confident that they will indeed receive the goods that they’re interested in.
What’s interesting from their launch of MercadoPago, is that a platform that was launched as a support to their main Mercado, is well positioned to one day become their main source of income. If MercadoPago takes off and becomes ubiquitous like both PayPal and Venmo have in the US, MercadoLibre could see a total transformation of their business model, into a facilitator of payments rather than goods.
Looking forward? Logistics and Super App Status
A platform is only a strong as the network effects that in can create. In the case of MercadoLibre, what’s really stopping them from seeing the exponential and monopolizing growth rates that others such as Amazon have experienced is the US, is a lack of infrastructure to facilitate shipping and delivery of goods.
Whilst they have entered the market with their own offering (MercadoEnvio) it is nowhere near as effective and efficient as offerings such as Prime in the US. The main problem being that Latin America lacks the level of infrastructure that the US has developed. However, in order to truly break through and explode in scalability MercadoLibre should expand into the model of distribution centers and self-shipping developed by Amazon. Owning the Latin American market in that way could developed, barriers of entry so high, in as to ensure a long standing powerhouse in the region. It is indeed already starting to see competition in door to door delivery by companies such as Glovo, proving that Latin American consumers are just as likely as their North American counterparts in valuing convenience, and willing to pay a premium for it.
Another alternative, would be for MercadoLibre to exploit in scalability and sustainability by following in the Super App model that’s seen in China by WeChat and others.
No player yet has developed this model in the region, and whilst MercadoLibre has proven very effective in launching supporting businesses that improves its network effects with its main Mercado, it has yet to become a Social player.
By enabling a chat and interaction feature, it could garner users’ attention for longer than the in and out transactions that they have put in place as of now. This could in turn continue boosting their sales, and fintech adoption, raising fees and revenue. MercadoLibre has unlocked a continent’s worth of opportunity when it comes to online platforms, only time will tell if it capitalize fast and aggressive enough in order to also be the one to truly monetize it.
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