According to Lengow, over 60% of sales already happen through marketplaces, and some of the most successful companies worldwide (Airbnb, Amazon, Uber) operate under this model.
On the surface, it may seem like marketplaces are much more complex than other, similar businesses, due to their nature as multi-vendor platforms. The truth is the marketplace model is surprisingly lean and scalable for new startups. So how do we really define a marketplace, and how does it differ from online stores and classifieds businesses?
Marketplace vs Online Store: Definition
A marketplace is a platform where vendors can come together to sell their products or services to a curated customer base. The role of a marketplace owner is to bring together the right vendors and the right customers to drive sales through an exceptional multi-vendor platform - sellers have a place to gain visibility and sell their products, and the marketplace owner earns a commission from each sale. An online store, on the other hand, is a single store selling its own products online. All marketing and operations are managed by the company that owns the website and products.
Marketplace owners do not own the inventory their platform sells, unlike online store owners. The marketplace owner, therefore, leaves the more operational side of the business to vendors while focusing mainly on promoting their marketplace brand with a view to driving traffic to the platform and converting site views into sales.
Examples for marketplaces are large companies with huge inventories like Amazon, Rakuten or eBay or niche platforms like Etsy (handmade crafts), Runnics (sportswear for running) or Shop.Surf (Surf & Skate gear and fashion). In contrast, an online store is just one single company, such as Zara, Apple or Nike, selling its own products online via its own online shop.
3 Key Features of Online Marketplaces
To help businesses decide which model suits them best, we have taken a deep dive into some of the features of marketplaces that make them different from online stores, and that make them attractive for digital entrepreneurs. They allow ease of inventory management (in fact, they require no stock being hold by the marketplace), they are more scalable and they allow marketplace managers to focus more on the end-user. Here is a more detailed overview:
Marketplaces are large businesses that deal with many vendors, that provide their catalogue, and typically carry much more inventory than online stores. Does this mean they are more complex to manage? Not necessarily. In fact, the opposite can often be the case. As an online store owner manages their own stock and inventory, they usually need to invest heavily in stock acquisition and management when starting the business (dropshipping models apart). On the other hand, the catalogue offered in marketplaces is held by external vendors so the investment in stock management is non-existing (hybrid marketplaces apart).
As a result, marketplace owners only need to make sure that their vendors are adhering to quality regulations and guidelines. Add to this the fact that SaaS marketplace solutions, like Shopery’s, provide state-of-the-art solutions for inventory management, with affordable plans, means that marketplaces might be the easier, and more profitable, of the two models when it comes to managing sometimes large and varied inventories.
More Customer Satisfaction
When operating an online store, there is so much to think about: inventory management, site management, customer service, marketing, sales, social media, content and so much more. In contrast, when running a marketplace, the main focus is simply to offer the best platform for the users: marketplace vendors, and the customers they sell to. In particular, for entrepreneurs that leverage a state-of-the-art marketplace SaaS solution to take care of the technology side of the marketplace, there is a whole lot less on their plate. This means they can truly focus on adding value for their users and optimising the marketplace to best meet their needs.
Of course, none of that is to say that running a marketplace is easy. A lot of work goes into content curation and moderation. Creating a hyper-vertical marketplace, for example, that is focused on a specific niche takes a lot of work from the marketplace owner in sourcing sellers and including the right products. The effort pays off though. With so many vendors selling under one roof, marketplaces are a very interesting place for consumers to go to find cheaper options and new alternatives. A marketplace, done well, can be a huge community of highly satisfied customers.
A Lean, Scalable Business Model
Marketplaces offer their owners surprisingly lean, scalable business models. Some of the world’s biggest companies make great examples. Uber, for example, do not own their cars. Airbnb do not own the apartments, and Amazon do not own most of the goods and services they sell. While marketplaces need to sell a higher amount of goods, or services, to break even, the fact that focus is on the platform, and reaching consumers, means that economies of scale are easier to achieve.
This means, in contrast to other digital businesses, new marketplace owners might also be surprised by what they can achieve with a relatively small team. With the rise of SaaS technologies that help to launch a marketplace with the latest off-the-shelf product, infrastructure upkeep is relatively low, since maintenance and updates are handled by the provider. Solutions like these mean that marketplaces can function effectively with a very small team of engineers. This allows marketplaces to stay lean and ready to adapt to the changing and competitive ecommerce landscape.
Marketplaces are rapidly dominating the world of ecommerce. Indeed, online marketplace revenue is expected to double by 2022. Online marketplaces are already an attractive option for those looking to move into ecommerce, and with Saas solutions like Shopery to help ventures and brands launch and scale with ease, they just became a whole lot more appealing.