What is an online marketplace?

What is an online marketplace

A Marketplace is more than just a platform, it is a business model and if understood properly it can offer organizations and enterprises a new way to extend business offering, grow sales and bring customer experience to a new level.  

Simply put, a marketplace is a two-sided business model that connects potential buyers and sellers all within one platform to help sell/buy/exchange products or services. 

Before diving in, let’s take a step back and understand where the marketplace model originated from.  

Evolution of the marketplace 

Before the internet, the most common way to find businesses, products and services was to search in the Yellow Pages (Yellow Book) – a telephone directory with the entire listing of businesses or vendors, organized by category. In the early ’90s, at the very beginning of the internet era, Yellow Pages concept moved online where listing websites like Yahoo listings or Craigslist offered search and categorization where in addition to viewing just listings of these businesses you could search for a business and find the one you’d like to engage with.  

Listing marketplaces further evolved into comparison marketplaces where users were able to  compare different vendors and products/services they offer or compare the companies’ reviews. At this level, marketplaces still lacked the transactional part – the lead or enquiry was ultimately the outcome of the search process. 

From here marketplaces evolved to Consumer to Consumer marketplaces – sites like Ebay, or TaoBao, where consumers could buy products or services from other consumers. At this point, the evolution of the entire marketplace ecosystem started – the need for completing payments lead to the development of payment gateways (such as Paypal and Alipay), delivery and fulfilment solutions began to shift online as the need to get products to buyers and streamline the buying process became more important. B2B and B2C marketplace took off from there – the model expanded into every industry you could possibly think of. 

Why is the online marketplace model gaining in popularity 

The Marketplace model offers great benefits to all the participants. Sellers benefit by getting an easy access to a large number of customers, all for a relatively small commission. For some retailers, third party marketplaces become a vital sales channel, providing the business with stable and reliable revenue streams. This is especially valuable for small and mid-size businesses that don’t have established solid sales channels. 

Buyers get a great variety of products/services/brands and vendors to choose from – all in one place. Moreover, if the marketplace provides a single ordering experience, the shopping process becomes nice and easy, saving time and effort. Some marketplaces provide additional information/reviews in a standardized format to help buyers make an informed purchase decision. 

Finally, the marketplace owner/operator gains all the benefits of a reseller without the need to hold inventory or organize fulfilment – if built right, the platform will take care of the delivery and fulfilment processes through integrated carriers. 

The Marketplace business model  

Looking deeper into what a marketplace is, you’ll realize it’s actually a flexible business model that can provide a lot of new opportunities. Companies can use online marketplaces to widen their reach, accommodate their existing multi-vendor offering or reinvent the entire market sector by creating something completely new. In that sense, there are a few trends and opportunities in multi-vendor commerce where marketplace business model becomes inevitable. Here are some of them: 

  • Disintermediation 

Disintermediation happens when one of the supply chain participants tries to shorten the supply chain by effectively “cutting out a middleman”. To stay in the game, the middlemen can provide additional value by creating a marketplace that can accommodate all the members of the supply chain and connect the supply and demand sides together in an effective and convenient way.  

Interestingly Disintermediation is also an effect that most marketplaces aim to prevent – I.e. where the marketplace is facilitating contact between a seller and a buyer, these two parties can also go direct and disintermediate the marketplace from their engagement. Speak to Omnyfy to understand how you can prevent disintermediation on your marketplace.  

  •  Managed Marketplaces for Services 

The Uber or Upwork model. By gathering multiple service providers together, the marketplace operator provides great value to the end customer by offering the variety of vendors, verified reviews, standardized search and simple payment and fulfilment processes. Such convenience helps build the demand side, which vendors or service providers greatly benefit from and this in turn drives more providers or sellers on the platform creating what is widely regarded as the most valuable aspect of a two-sided marketplace – the tribe effect. Where people with the same needs and interest congregate on the marketplace which has the largest number of providers that address this need. 

  •  Enterprise Platform Business Models

Platform business model can help mid-size businesses and enterprises navigate their complex multi-unit structure by uniting all departments, products and services into a single marketplace. Such a model reduces unnecessary fragmentation, creates a single customer view, enable cross-selling, and provides the ability to provide centralized fulfilment, customer support reporting and analytics for customers across the organisation’s operation entities. 

  •  Offline-2-Online Marketplaces 

This business model is perfect for physical marketplaces, such as shopping malls, groceries and department stores, hotel chains and airports. Multi-vendor marketplace enables physical businesses transition their physical business with all its complexity into online ecosystem. This model has been gaining popularity due to changing consumer behavior, accelerated by the need for truly contactless shopping experience during COVID-19 pandemic. Although being an acceleration factor, coronavirus is not the only reason why businesses should build an online marketplace. Most importantly, such a model is easily scalable – the business can go far beyond its current markets, not being limited by physical space, location or current list of physical vendors. 

  •  Social Commerce 

Instagram , Facebook, YouTube, Tik Tok – most trending social media platforms went far beyond just content creation and distribution. Now, thousands of influencers and content creators who managed to build at least some following promote third-party brands and products. With the marketplace model, content creators and popular channels can easily transition from being a promoter to being a reseller. Marketplace fully integrated with the social media platform allows run purchase transactions engaging multiple brands and vendors, all within a few clicks. This makes a buyer’s journey seamless and fast – there is no need to visit each individual site anymore, the whole look can be purchased in a few clicks from your favorite influencer. 

To read more about each of these 5 marketplace business models check out our recent article or watch Fabian Rebeiro, founder and CEO of Omnyfy, give a speech on this topic. 

Types of marketplaces 

There are a few different dimensions we can use to classify marketplaces. Here are the most common ones: 

B2B Marketplace – business to business marketplace model. A common example here is any wholesale marketplace that connects wholesalers with retailers and becomes a digital extension to a traditional supply chain. Business products catalogues like Capterra is another good example – connecting businesses with software providers the marketplace became an aggregator of software-related offerings.

B2C Marketplace – business to consumer marketplace model, the most popular example of which is Amazon. Such marketplace combines a variety of businesses/vendors connecting them directly with the customers.  

C2C Marketplace –  marketplace that connects individuals, This type of marketplace is also called Peer-to-Peer. Such marketplaces usually build connect people exchange experiences, sell products or services to each other. Couchserfing, Bla Bla Car, Gumtree, Facebook Marketplace are typical examples of C2C marketplaces. 

Marketplaces can also be divided into Products Marketplaces and Service Marketplaces, which is quite self-explanatory. 

Finally, marketplaces can be classified by industry. The list of industries that have at least one marketplace participant keeps growing day by day. Retail, Procurement, Professional Services, Food and Beverage, Fashion, Education, Real Estate, Homewares, Health and Beauty, Transportation – this is just a small fraction of industries where marketplace businesses operate. Virtually, you can build a marketplace for any industry or sector of the market. 

Marketplaces in Different Industries 

The best way to understand how online marketplaces cater to the needs of various industries is through examples. To start things off, the list below shows examples from six industries.  

Retail 

Professional Services 

Transportation 

Books 

Electronics & Gaming 

Fashion 

With the surge in online shopping in the past decade, the trend is moving from creating general marketplaces like eBay and Amazon to specific niche marketplaces that specialize in a single industry or even a single trade.  

Online Shopping on a Higher Level 

Hopefully, you’ve now learned what an online marketplace is. If you’re thinking of building one yourself, it’s important to define what type of marketplace you want to create. Once you do that, focus on choosing a business model that will suit your idea the best. Finally, take a look at the best-practice examples to learn from the success and failures of others. 

If you believe you’re ready to start your own marketplace, the next step is to choose the platform that will help you build your business. Using Omnyfy as a ready-made marketplace platform, you receive everything you need in a single package. Simply pick and choose which features you want to include in your marketplace and make sure to contact Omnyfy for a free consultation