How Zalando Is Setting Up the Building Blocks for a Platform With Zalando Zet and Build

How Zalando Is Setting Up the Building Blocks for a Platform With Zalando Zet and Build

Zalando has released slightly disappointing numbers and a new loyalty program called Zalando Zet. (German press release) The timing of both in the same week is most likely no coincidence.

Zalando Zet points to Zalando‘s future.

Here is today‘s first, unimpressive, iteration of Zalando Zet:

  • Available initially in four German cities ( Berlin, Frankfurt, Hannover, Leipzig). More German cities will be rolled out in the coming months.
  • Can be tested for three months for free.
  • Costs €19 per year.
  • Zet subscribers get early access to sales promotions.
  • Same-day delivery
  • Zalando picks up the returns at the customer‘s home. Customer can decide when where the package gets picked up.
  • access to fashion advisers and stylists

In the future, Zalando Zet is going to provide benefits „everywhere alongside the customer journey“, Zalando said in its press release.
Zalando Zet subscribers will get access to fashion advisers and stylists, for starters.

This sounds unimpressive. So, what to make of this? My guess is that although Zalando has been working on a loyalty program for quite some time–and although it is certainly about time for the company to introduce one properly- this launch looks to be slightly premature. Some of this stuff, Zalando offers or used to offer to regular customers in pilot projects. Some, like recommendations by personal stylists, are offered in a different context at Zalon. There is nothing outstanding here. Even taken all together, the sum ain‘t that large.1

My guess is that Zalando Zet and Zalando Build are intrinsically linked together. The ‚real‘ launch of Zalando Zet will be later this year, once Zalando Build, Zalando‘s new platform within the mobile app, starts rolling out and in the process is making Zalando Zet a richer offering.

To back up, here is what we know about Zalando Build:

Zalando opens up APIs for startups to use its catalogue, meta data, the check-out and, of course, the possibility to do fulfillment with Zalando. (If, say, you sell a customized T-shirt and not something from the Zalando inventory this way.) For now, startups will have to apply for access but a more open approach is on the roadmap.

Another novel aspect is the fact that third-party integrations are not necessarily marked as such. There will be integrations that are for end users not identifiable as not coming from Zalando. This keeps the app from getting confusing, but it also presents a dilemma for startups: You may integrate with Zalando gaining access to its huge customer base, you may also use all the back-end APIs so you don’t have to build the infrastructure yourself

Zalando Build should be going into the private beta phase these days.

Zalando Build is a massive undertaking to make the main mobile Zalando app more versatile, while at the same time keeping it as smooth as possible.

For companies integrating their services into Zalando via Zalando Build means, essentially, offering a white-label service:

  • no app store
  • no “install” metaphor
  • no consumer-facing branding in most cases
  • hence no distribution or brand awareness beyond (or even within) Zalando

This raises the question of how those third-party services will get eventually get monetized. The less indirect benefit one can get out of this the stronger direct benefit (getting paid) has to be.

I spoke on two occasions over the last months about this with Marc Lamik, Head of Product for Innovation & Partnerships at Zalando. The only answer I got was, they are still figuring this out. Revenue sharing is one vague answer one gets.

Third-party services revenue at Zalando Build

Add Zalando Zet to the picture and you start to see what this may eventually turn out to be. Some of those third-party services integrated via Zalando Build will almost certainly only be available via Zalando Zet. As an end consumer, you will see a tiny Zalando Zet logo somewhere next to the service indicating this is available to you because you are a Zet subscriber. On the revenue side this means startups will get a tiny slice of the revenue from Zalando Zet.

There are two challenges with this theory:

  1. The chicken and the egg: Zalando Zet is only just getting started in a few select areas. As a company offering third-party services on Zalando only for Zalando Zet you are going to limiting your products on the platform to a tiny group of customers. On the other side, until Zalando amasses third-party services so the company can advertise the a rich Zet universe, Zalando Zet looks as unimpressive as it does today to end-consumers. You need one to get the other and vice versa.
  2. A sub-scale issue: €19 per customer per year (or €1.58 per month) is low enough for consumers to get the programe started but it is also not that much extra revenue to allocate. This may be less of an issue at scale, as then the percentage of fixed costs at the services are reduced enough to increase profit. Especially adding revenue sharing from the Zet fee and revenue sharing from sold items may work out fine for a vide variety of third-parties once (and if) this gets off the ground.

I always wondered how Zalando will get companies to add services like, for example, automatic outfit generation, to the platform if revenue sharing means you only get paid once people actually buy an item. As you only control one part of the overall product offering as a third-party provider in this case, this sounded to me to be not appealing for most companies. A direct consequence of this: Only getting paid when a sale directly happens after your service was a part in this very customer journey, decreases the variety of services companies may want to integrate with Zalando. (Incentives matter, people.)

This is problematic when you think about the mobile Zalando app as a holistic product. Especially once you start thinking about online fashion retail for regularly returning customers, you have to start thinking about the overall user experience, not just single conversions.2 How do you delight people? How do you make them explore the app? A versatile, varied app invites you to return, to get inspired. More overall usage leads to a higher customer lifetime value.

Zalando Build makes more sense for startups if revenue sharing means:

  1. ‚usage based‘ via (small-ish) Zalando Zet fee allocation +
  2. revenue sharing from sold items.

We‘ll see how much of the Zalando Build services will be exclusive to Zalando Zet eventually. It strikes me as likely though that both, Zalando Build and Zalando Zet, are very much inter-connected.

A platform way to add value

The other side of the coin is this: Imagine running a successful online fashion retailer. You got big and famous by offering free delivery and free returns. What, exactly, are you going to add to a hypothetical loyalty program?

The obvious Amazon Prime route -fast, free delivery- does not really work for differentiating your loyalty program from your regular offering.

But the rest of the Amazon Prime route makes as much sense, if not more. It is often, puzzlingly, overlooked how diverse and category-spanning the Prime bundle is.

Why not add all kinds of services around fashion to your product for loyal, regular customers? Make the overall user experience as rich as possible. From augmented reality to tayloring services to whatever one might imagine.

As Amazon is not writing the Kindle books one can lend and is not producing the TV shows and movies shown at Amazon Video itself3, so is Zalando not building the services itself. Zalando “just” offers the umbrella in the form of the Zalando Build platform and the Zalando mobile app.

And thus, you gain a way to add value for your most loyal regular customers.

Zalando Zet and Fulfillment by Zalando beyond the Zalando app

If Zalando were willing to do this, Zalando Zet could of course also benefit Fleek, Movmnt et al. An FBA-like service for sellers on those marketplaces could bring those apps into the fold (for the first time) and provide an umbrella under which to build out the portfolio without diluting the Zalando main brand. (A Zalando Zet quality promise could do the opposite: Making Zalando synonymous with a great UX, while keeping those marketplaces open for sellers doing it their way. (Important for Movmnt.))
Fulfillment by Zalando combined with Zalando Zet can, if done right, lead to the same marketplace dynamics Amazon is seeing with Prime and Marketplace.

All bets are off wether they will be moving in this direction or not as the company’s focus has moved from building multiple apps to building out the main app with the Zalando Build platform. Almost certainly, Zalando management themselves don‘t know yet.

Those musings are worthwhile though as Zalando itself acknowledges that the marketplace side of the business is getting increasingly important. Business of Fashion:

[Zalando Co-CEO Rubin Ritter] said “gross merchandise value”, which includes the use of the Zalando site to sell stock owned by others, would become more relevant as a measure of the company’s success over time and should grow faster than direct revenue.

Having a strong, diverse portfolio of marketplaces, with an equally strong, itself re-enforcing services business attached, would not be a bad position to be in.

More on this topic:

* How Zalando Is Transforming Its Main App Into a True Platform With “Zalando Build”
* Zalando Build: The Fashtech Startups Zalando Is Looking For
* Why Zalando Changed Course and Is Going From Multi-app to Single-app on Mobile
* Zalando’s Plans for the Coming “Fulfillment by Zalando” Service
* Prime Dynamics: Merchant Increased Sales by 20 Percent with Seller Fulfilled Prime
* A Prime Bundle


  1. On the price: €19 per year is not that high. But remember that Zalando Zet is one person one plan; unlike Amazon Prime which can be seen more as a household plan in the context of family plans. This changes the equation: “Prime members can share certain benefits with the other adult in their Amazon Household, including FREE Prime Shipping, Prime Video, other digital benefits, and exclusive offers. Other shareable Prime benefits include Photos Family Vault and Twitch Prime.” 
  2. And thus, the circle closes. 😉 
  3. Well, most of the TV shows and movies at Amazon Video, anyway. Yes, for the time being. Come on, you get my point, don‘t be so pedantic. 

4 comments

  1. Stefan Lieberherr · · Reply

    Great article. It’ll be interesting to see if the external services on Build will be limited to Zet members. Amazon is the role model in this by limiting video, music and fresh to Prime members. But at Amazon this limitation is primarily a means to gain new Prime subscribers. The services alone are attractive enough to win customers in the market independent of Amazon’s marketplace.
    Obviously Zalando should have the same goal, build or integrate services for which users are prepared to pay independent of Zet.
    Furthermore I don’t fully understand why people are unimpressed with the first iteration of Zet. I can imagine that the services are very attractive for frequent customers (which are the core target group) and come at an unbeatable price. Of course there’s not many innovative services included but the same is true for Prime (although, the stylist part itself would maybe be classified as innovative if it wasn’t already included in Zalon).

    Anyhow, do you think Zalando has better chances of integrating external services into their app than AboutYou, who have tried this open approach before and it seems like it hasn’t worked out as expected?

    Liked by 1 person

    1. Zalando has a mundane but important advantage over About You: Far more customers. The chicken-and-egg issue I wrote in the article about should not be underestimated. I would not be surprised to see Zalando attract more innovative small and large service providers to its platform. Even wide availability of local tailoring services in every Zet market may already be enough at the start.

      Also, if I recall correctly, About You went down a more explicit ‘install’ + ‘app’ metaphor? Zalando is doing a very different and rather unique implementation of the whole third-party services approach here. I’m really curious how exactly they are going to try to pull this off, as this has many implications regarding distribution for third-parties. Beyond the integration of third-parties, this looks very different to About You for me.
      (Also, as I wrote, some of this at Zalando looks to me to be born out of necessity (what exactly can we offer regular customers?). That doesn’t seem to be the perfect starting point for me. (They don’t seem to know where exactly they want to go with the Build platform.))

      Long story short: I’m sorry, I can only offer an unsatisfying “We’ll see” at the moment. 🙂

      Like

  2. […] Unterschied zu Rocket Internet hat es Zalando in den letzten Jahren verstanden, Plattformstrukturen zu schaffen („How Zalando Is Setting Up the Building Blocks for a Platform With Zalando Zet and […]

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  3. […] How Zalando Is Setting Up the Building Blocks for a Platform With Zalando Zet and Build […]

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