4min read

What is a marketplace and why you might want to create yours

Why marketplace and e-commerce are two different things, why knowledge of the industry is important, how it can change the business in a particular area and what you should know about its types and features before starting one

Nowadays, marketplaces have become extremely popular, since more and more people were forced to move online. Online sales recorded double growth overall in 2020 and reached USD $3.5 trillion in sales, with this figure forecast to hit $8.8 trillion by 2025.

This article will help you to understand the essence and popularity of marketplaces, to find out what Amazon and Uber have in common and how it all refers to you.

The marketplace is the baby of the shared economy, it is a mediator between people who want to buy services or products, and people who want to sell them.

Features of marketplaces

The first important feature of a marketplace is that a customer can purchase from numerous vendors under one platform. But please don’t confuse it with e-commerce.

Every marketplace is e-commerce, but not every e-commerce is a marketplace.

Marketplace is a place where you can buy something or take service from different vendors. You make your payments and orders via the same platform, and the role of a marketplace is to offer a safe payment system to accommodate all the transactions. They usually encourage providers to render better services and penalize those who cheat.

The owner generally invests in online marketplace development to further generate regular revenue through monetization or commission. So, if you have a marketplace, you don’t really need to have a product, or provide a service.

What you really need to have is a knowledge of the industry in which you operate.

Developing and implementing the marketplace in your area will change the way business in that area works, just like Uber has changed the industry of the taxi drivers as well as the way people interact. Marketplaces are there to make our life easier, more efficient and give us more pleasure.

The classification of the platforms can be very wide. It depends on what you offer and to whom you offer it. Defining the category of your marketplace will give you an understanding of competitors and your market prospects, as well as the complexity of development.

B2B, B2C and C2C models

When we think of a target audience, there are three categories of marketplaces. The first one is a business-to-business, or B2B model. In this segment, one business provides goods or services that other businesses need to operate, grow, and profit.

Customer relations in such a market are mainly focused on long-term cooperation and mostly have a large check size.

Amazon Business, eWorldTrade, and Thomas are examples of popular B2B marketplaces.

The second one here is a business-to-client model (B2C). This type of marketplace brings together a wide range of entrepreneurs, customers, and products under a single umbrella platform operated by the marketplace owner.

Customers here tend to make emotionally driven decisions, especially when it comes to cheap purchases.

Therefore, well-designed systems such as filtering, offering, and reviews will have a significant impact on sales on the platform. A B2C marketplace is the most popular model that comprises giants such as Amazon, eBay, AliExpress, and Booking.com that are likely to stay monopolists for many years. Therefore, it may be difficult to attract millions of users due to high competition.

And, finally, сlient-to-client (C2C) model, which does not involve businesses but rather people with common interests. This model connects users with similar needs to share products and services with each other.

Ride-sharing is a good example of a C2C marketplace. A driver will provide a seat in his car, while passengers will find a ride to their destination in exchange for the cost of fuel. Blablacar, Airbnb or Uber are examples of C2C marketplaces.

Vertical and horizontal platforms

There are two types of market focus.

Vertical marketplaces focus on a particular area or niche. Instead of selling everything to everyone, they offer a narrow segment of services and goods. By choosing this type of marketplace, you target a specific niche and increase your chances to stand out from competitors.

Horizontal platforms work on the principle of shopping malls, where any user can find the goods they need in completely different product categories. Amazon and AliExpress are world-famous horizontal marketplaces.

Who manages marketplaces?

Well, sometimes nobody. But in other cases, they are strictly managed, so let’s find out how it all works.

In fact, there are three main approaches. The first one is an unmanaged marketplace, where the owner doesn’t make any quality control of products or services delivered by third parties. You can only trust the reviews and ratings submitted by other customers, like on eBay. That is how most C2C marketplaces work.

Another approach concerns lightly managed platforms. Owners of lightly managed marketplaces concentrate on quality assurance, identity, and background verification. Focusing on customers, they generally require vendors to provide return policies or guarantees such as money back in certain cases.

When it comes to fully managed Marketplaces, the product owner takes full responsibility for all actions carried out on the platform by both buyers and sellers. The fee is usually much higher with fully managed marketplaces, but the service quality and customer experience are better, too.

Why you might need this information

Because maybe one day you will decide to build your own marketplace. Understanding your niche and category of your marketplace will save money which you will spend on developing.

Listen to our podcast to find more tricks that we took from our own experience of building Wisio, Apartolino, Snagshout and other marketplaces that bring money to our partners now. And don’t forget to subscribe, next week we're going to tell you more on this topic.

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