What is an Online Marketplace: A Basic Primer

In today’s era of online selling, the eCommerce website has become the de-facto standard and medium, which online shoppers can use to make their purchases online. When it comes to an eCommerce website, it could involve two basically different models, such as the direct model or the marketplace model.

The direct model involves the owner of the website typically selling their own products. Whereas, a marketplace model involves a eCommerce website where the products, tangible or intangible services, are provided by third parties instead of the owner of the website. They can be run on the B2B, B2C, or even C2C model of business. Thus, an online marketplace can be defined as:

“A type of e-commerce site where product or service information is provided by multiple third parties, whereas transactions are processed by the marketplace operator.”

An online marketplace can be viewed from two different angles – from the approaches view point and the operator view point. From the approaches view point, it can be a generalist marketplace or even a vertical marketplace. While, from the marketplace operator point of view, it can be a pure play or hybrid marketplace.

Thus, the role of an online market place is to connect the buyers with the sellers on the online front.

How a marketplace operates
Online marketplaces are a good examples of multichannel eCommerce. In the case of a marketplace, the players are the marketplace operator along with the other participating wholesalers or retailers. The customers order the product which is received by the marketplace operator. This is then sent to the retailers or the wholesalers, who fulfill the order and send it to the customers typically via drop shipping. Some popular examples of Marketplaces are Amazon.com, Alibaba, eBay, Flipkart.com and others.

The business model of an online marketplace:

The business model of an online marketplace can be described in brief as below:

  • It is a trading income > works on % Sales Commission
  • Vendors give the product / upload the product
  • Platforms market the product and bring customers
  • Customers purchase the product
  • Vendors send the goods and get money at the end of committed period
  • Customers find everything at one place at ease
  • Platforms earns prestige and get customer base
  • They enable small to big sellers

Marketplace – Typical Features

Typical features included as part of a marketplace are as below:

  • Vendor Management
  • Product Upload / Verify / Showcase Management
  • Customer Account with WOW features
  • Ad Management / Campaign Manager
  • Split Ordering
  • Affiliate Program
  • Customer Retention / Reward / Recognition Tools
  • Multiple Payment Options
  • Logistics Management / Panel
  • Customer Care / Tickets Management
  • Exhaustive Search
  • Multi-Store Front
  • Multi-Currency & Multilingual
  • Distributed Hosting & Load Balancing
  • Traffic Routing (GEO Based)
  • Data Mining & Business Intelligence Tools
  • Accounting
  • Automated Taxation Calculation
  • Reports

Marketplace – Big Brands Versus Small Brands
In the typical marketplace model, many brands compete for the user’s attention usually on the same page, next to their nearest competitors. This means that there is extended competition and the flexibility provided is lesser. This means that though big brands might have an advantage against their smaller competitors, because of their brand being recognized more easily, the smaller brands can get to out-position their competitors on a marketplace.

Marketplace – Some Advantages
Thus, an online market offers the primary advantage of selling goods without the need of a specific online store. This allows a flexible business opportunity to several brands who want to sell online but are not able to invest in their own websites.

An online marketplace offers an additional channel to the seller to market his or her products. Besides, there are reduced marketing costs compared to other channels.

As described, the marketplace offers a ready and straightforward way to compare prices as well as products of different brands at a single online destination. Besides, an online market place offers a 24/7 opportunity to sell and there is the added advantage of greater transparency.

Thus, a recognized and established marketplace can offer a brand recognition and trust to the retailers or wholesale players using the marketplace services. They also have a built in audience of fans and customers, which means that there is a ready pool of buyers and marketing costs are lesser.

The players can also use better sales and shipping tools that the marketplace provides. All in all, an online marketplace is a tool that provides a win-win situation for all players in the game.

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