An Online Marketplace — What Is It and Do I Need It?
Firstly, we will define the notion, even though there is a huge possibility that you’ve already known it.
“An online marketplace is a website or app that facilitates shopping from many different sources.”
As we can see from the definition, in its original meaning, this platform doesn’t sell anything produced by itself. It just provides a place somewhere on the internet where businesses/consumers sell to other businesses/consumers products or services. Although nowadays, there are some examples of hybrid marketplaces. They also produce products and then sell them on an equal basis with other third-party manufacturer’s products — for instance, Amazon.
The main goal of the marketplace is to combine various suppliers and counterparties in one system.
Almost in all industries where the trade relationships take place, marketplaces have already been created or will soon pop up. Food, fashion, homeware, electronics, taxi services, other services — these industries are already full of various marketplaces. But still, there is always some space to fit in.
Why have marketplaces become so popular?
In recent years, the trend for platforms with a large selection of products has only increased. And it’s not a surprise at all. The internet has become an integral part of our daily activities. So, the world of e-commerce has gradually begun to compete with traditional sales.
Can you imagine that according to Statista Quarterly, the share of e-commerce sales of total U.S. retail sales has rocketed from 4.2 percent in the first quarter of 2010 to 10.5 percent in the corresponding quarter in 2019. Well, it’s a quite huge step forward for e-shopping.
Thanks to the online marketplace, automation of the communication processes between the two sides takes place, where the person only makes sure that the processes occur correctly. It allows for increasing the speed and volume of sales.
Moreover, such platforms help to provide services and sell not only locally, but also move to more massive levels of sales depending on the marketplace.
What are the different types of marketplaces?
The most popular division is the one by the target audience or by end-user:
- B2B — business-to-business
It is the largest type of marketplace by financial turnover as the products are sold in bulk and not individually. Such a marketplace makes it possible for businesses to expand their network and scale the business customer base. Moreover, there is no need for them to create an expensive electronic platform. So they save not only finances but also the time to promote it. And the revenue also increases gradually as there will always be someone buying and selling products.
Examples: Alibaba - B2C — business-to-customer
That type of marketplace can be called the most common since it is aimed at a single buyer. On such platforms, various manufacturers compete among themselves for the customer through prices, product quality and popularity.
Examples: AliExpress, Amazon - P2P — peer-to-peer or people-to-people
Such platforms differ in that they no longer connect business with the other side, but people themselves. Thus, one person can act in one service both as a client and as a supplier.
Examples: eBay, BlaBlaCar
This distinction is somewhat arbitrary since one marketplace can combine both B2B and B2C. For example, in Airbnb, the majority of landlords are private individuals. Still, some agencies and companies also rent housing through this service.
Marketplaces can also be divided by the type of products/services that are placed on them:
- Vertical
On the same site, things of the same kind are sold but from different suppliers/manufacturers - Horizontal
Here we’re talking about the distribution of products and services with various characteristics and from different manufacturers. The main feature of such a marketplace is an enormous selection of everything for almost any customer needs.
Above, we described how marketplaces facilitate the activities of business and people in general, providing a ready-made platform for promoting and selling their goods and services.
But is there any benefit to its creation? How do such platforms earn? After all, they do not produce or sell anything themselves, but only help promote someone else’s business.
There are various business models for monetizing marketplaces that enrich their owners:
- Commission-based business model
- Subscription business model
- Lead generation fee
- Freemium business model
- Advertising
The attractive marketplaces for potential customers — what are they?
Firstly, such a platform frees them from creating their online stores, sites where they can promote a product or service. It’s hard to disagree that to place the products on the marketplace is much easier, and it saves the company’s budget and owner’s nerves.
Secondly, such platforms are used as an additional sales channel. It allows companies to expand brand awareness, as well as increase interaction with their audience.
Thirdly, this is the possibility of additional advertising and SEO, since usually, such platforms are better indexed by search engines. And even if the product is not the most popular among customers, the offer from the marketplace will be in the first lines in search results, though. It happens due to traffic sharing as SEO-specialists of the platform do the optimization of the site as a whole. Isn’t it great? Once the company becomes a part of the marketplace, there is no need to think about SEO, and again, it saves a lot of money.
And fourthly, marketplaces take over all the questions about payment processes. Thus, they are more attractive for business because there is no need to understand legal issues, not directly related to sales. Each marketplace has its own set of rules and conditions that govern this issue.
In conclusion, we should underline that, of course, the marketplace not always a solution for business expanding. Sometimes, it might only make it worse. But, if in your domain there is no such platform, it doesn’t mean that you shouldn’t think about it. Maybe you’ll be the first one to create it? So do not put aside your opportunity to become the company that brought the fire to people.
