Marketplace Overview
Today, every other business set-up is moving ahead from traditional to modernized online business models similar to that of Walmart or Amazon marketplace. The right type of business model allows various kinds of businesses to grow.
Did you know? Zomato (India) an online food delivery aggregator recorded the highest revenue (61% CAGR 2021 to 2023) in the online marketplace industry, followed by Bukalapak (58% CAGR), an Indonesian e-commerce platform, and Uber (47% CAGR) a USA based cab service provider.
To create a marketplace, you need to balance out the marketing fundamentals with new-age, disruptive trends.
What is a Marketplace Business Model? Knowing the Nitty-Gritty of Online Marketplace
In layman’s terms, an online marketplace business model facilitates sellers to sell their goods and services to prospective buyers. Marketplace is a platform where buying and selling happens like on eBay, Alibaba, and so forth. In this case, a seller, buyer, and an intermediary platform like eBay for example is involved.
Another way round, a marketplace business model is a kind of eCommerce platform model that facilitates the end-to-end transactions between a seller and a buyer. The marketplace acts as an intermediary in the whole process.
So, whenever you come across an ecommerce marketplace platform, remember it’s an online marketplace where buying and selling take place. Are you looking to turn your ecommerce store into a larger online marketplace with thousands of sellers and higher earning potentials? You can try the Shipturtle marketplace solution, a perfect marketplace app.
Understanding the Different Types of Online Marketplace Business Models
In general, an online marketplace business model is classified into 3 parts that are business business (B2B), business-to-consumer (B2C), and consumer-to-consumer/peer-to-peer (C2C/P2P). However, we will be sharing other revenue-related marketplace business models for better reach and understanding.
Business-to-Business (B2B) Online Marketplace Model
The B2B marketplace model facilitates transactions involving business-to-business. There is no role for individuals. The B2B online marketplace acts as an intermediary between manufacturers, distributors, wholesalers, and suppliers as a whole.
B2B business models connect one business to another through a marketplace. A classic B2B online marketplace example is Walmart.
Business to Consumer (B2C) Online Marketplace Model
The B2C marketplace model facilitates transactions involving businesses and individuals. In this business, they sell their goods and services directly to consumers through an e-commerce platform that acts as an intermediary.
The business is required to offer an end-to-end shopping experience for the consumers. The best B2C successful marketplace model example is the Amazon e-commerce platform.
Consumer-to-consumer or Peer to-Peer Marketplace Model(C2C/P2P)
The C2C/P2P marketplace model involves transactions between individuals to individuals. Consumers themselves act as sellers and buyers in this online marketplace. Goods and services are initiated among peers or consumers as per their needs and requirements.
The best example is Uber cab services, where drivers accept consumers’ rides based on consumer requirements. Riders and drivers use the C2C marketplace technique in this effective business model.
Creating an Online Marketplace? Consider These Fundamentals
No matter what business plan you have, when it comes to online marketplace business models, you need to consider these crucial marketplace fundamentals that operate upon. Here are the main elements to watch out for.
- Vertical Marketplace- No matter what your marketplace business models are, knowing what to sell and whom to sell is the crucial fundamentals. In the vertical marketplace, businesses offer specific goods & services for specific needs. Prominent examples of vertical marketplaces are Airbnb, Upwork, Zillow, etc.
- Horizontal Marketspace- In horizontal marketspace, different products, goods & services are sold to prospective buyers through a digital marketplace platform. There are many categories of products to choose from. Some good examples of this are Panjo.com, Amazon, etc.
- Global Marketplace- As the name suggests, the global marketplace provides different types of goods & services offered across the continents. It’s the right marketplace to buy and sell products to a wide range of consumer bases irrespective of the location. A few examples of global online marketplaces are eBay.com, Amazon, Walmart, etc.
Types of Revenue Model-Based Online Marketplace Models
Having understood the B2B, B2C, and C2C marketplace business models that operate under the fundamentals of vertical, horizontal, and global marketplace. Let us now have a detailed look into the 7 marketplace business models based on revenue generation.
There are many marketplace software that offer these revenue models. Here are the types of marketplace revenue models to consider as per your profit generation needs and requirements.
1. Commission Model
This is one of the most common forms of revenue-based e-commerce marketplace. The online marketplace platform provider charges a commission for every transaction made. This is a typical commission revenue model for businesses.
For example, if you order your food from Uber Eats, then the platform charges a fixed rate or a certain percentage of the transaction amount. The restaurant will pay the commission amount from your entire order amount. This model can give high-income profits to marketplace businesses with huge sales.
2. Subscription/Membership Model
This subscription/membership model is often used as a very common form of online marketplace. In this, a subscription is required to access the goods & services offered by the marketplace. Both buyers and sellers may have to pay a certain amount to use the marketplace.
This model helps a gradual income growth and builds a trusted consumer community. A classic example is the Apple Music subscription or Spotify, OkCupid subscription plan. Once subscribed you have access to the premium membership benefits.
3. Freemium Model
Another common marketplace business model, where it offers basic services for free and for added features and experience, charges a certain amount as a premium service. The subscription model may seem similar to the freemium model but both are different models.
One of the main features of this model is consumers can try a product or service before paying for the premium services offered. This model helps gain a larger consumer base due to the free basic services on offer. Some of the brands that use this online marketplace model are YouTube, Grammarly, Netflix, and so forth.
4. Listing Fee Model
This marketplace model mainly requires a vendor, seller, etc to pay a certain fee for every product listing. The platform will charge an amount every time a seller lists an item for sale on the marketplace. If you use classified ads, then the listing fee marketplace model will suit you the best.
Listing fee models can help businesses earn a quick buck but huge listing fee requirements can slow growth rates. One of the best examples of this marketplace is Craigslist, which allows anyone to list anything they want online in return for a small fee or charge.
5. Featured Listings Ads Model
This is an online marketplace where companies put up featured product listing ads across the website, apps, or landing pages. The platform offers targeted ad listings for a price tag. This model offers higher visibility and higher chances of sale conversion on the marketplace.
A good example of the marketplace business model is Etsy and Zillow. While Esty offers commission-based marketplace business models, it also offers paid featured ad listings on their platform. Targeted listing ads can quickly help consumers find what they are looking for.
6. Lead Fee Model
This marketplace model is generally used to gather contact information of consumers from other businesses. This model comes somewhere between the commission and listing models where a consumer lead is accessed for a paid amount. This business model is good for gaining new customers and profiting from them.
It is a good option for companies to invest as per their consumer lead requirement and make a profit out of them by selling targeted products and services. For instance, HomeAdvisor is a good example of this model case. Another example is Thumbtack which offers a B2C marketplace for skilled individuals and artists’ requirements.
7. Mixed Marketplace Model
In simple terms, this mixed model uses every online marketplace technique to generate profits. Every model discussed above can be used as per the company’s needs and demand. For every revenue-based strategy, this marketplace is used. This revenue generation has many funnels with reaching a larger consumer base and making higher sales.
Remember this model includes all B2B, B2C, C2C, commission, subscription, etc every revenue-based business model. A great example in this regard is Amazon Handmade and Amazon Pharmacy etc.
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How to Select the Best Online Marketplace Business Model in 2024
Having given you a fair idea and dug into the marketplace business model landscape, it is time to learn the parameters to consider when selecting the right marketplace for your business model. There are quite a few of the important points to watch out for.
I. Product Type-
- The type and nature of products and services offered heavily influence a marketplace model.
- For instance, as discussed above, for selling specific items, an ecommerce platform similar to Esty will suit the best.
- For a wider variety of product selling, an Amazon-like marketplace can be adopted.
- These different product types influence inventory requirements and mostly work on the commission model of an online marketplace.
II. Targeted Market/Consumers/Audiences-
- Consumer/Audience buying behavior and demographics are the backbone of an online marketplace. Based on this consumer understanding, you should consider which model to use.
- For selling luxury items like Gold & Silver, a B2C marketplace based on a freemium model will work the best.
- For selling handmade and local items C2C marketplace will suit best, based on the revenue commission model. Targeted global audiences can work on a Mixed B2B model as well.
III. Business Scalability & Growth-
- Each type of online marketplace business model has its revenue growth potential. You should decide your marketplace according to your business expansion and growth plans.
- Few models offer exponential growth while few models offer steady growth, choose according to your business scalability roadmap.
- For business scalability, we suggest using the horizontal online marketplace business model for enhanced consumer reach and higher chances of a quick growth rate.
IV. Competitive Environment-
- No business can survive without having done good research on its competitors. No matter what business you own, knowing your competitors and bringing something fresh and appealing to the consumer can attract a lot of leads and growth opportunities.
- Based on this you can use the right online marketplace to succeed in the long run. Try to know which marketplace is doing well, and which marketplace is going down and apply it to your online marketplace business model.
V. Overall Marketplace Operational Requirements-
- Apart from the above points, a business or any entrepreneur should also have a broader look into how detailed an online marketplace works.
- You should also take into account the Transaction type, Revenue generation model, Inventory, supply & chain part, added services if offered and so much more.
- It doesn’t matter if you have a service marketplace or a product marketplace, every transaction matters for each marketplace type.
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Benefits of Building an Online Marketplace
After you have deeply learned which marketplace models suit your business the most. It is time to have a holistic look at the benefits of an online marketplace business model.
- The online marketplace offers better consumer outreach irrespective of the location. Digitalization knows no boundaries, hence better reach, and higher earning opportunities.
- Comparatively, online marketplace business models do not require extensive investment. Hence it can be considered as a cost-efficient business model.
- Another primary benefit of using an online marketplace is that it offers a variety of revenue generation options that suit the business needs and requirements. There are different methods to profit from the marketplace models.
- While running an online marketplace model, having customer data insights is very important. Online marketplace gives buyer behaviors, new leads, and higher earning opportunities based on customer shopping patterns.
- Another benefit of using an online marketplace is building a strong customer base for your business. Customers are the king, hence building a community of prospective shoppers is a way ahead for any business.
- Online marketplace business models give huge exposure to your business. They have target ad services and product listing services which can make your business and products known to a wider consumer segment.
- Artificial Intelligence (AI) is taking the digital space to a whole new level. AI in the online marketplace will play a very crucial role in defining product costs, consumer shopping behavior, and inventory alerts and will also give businesses real-time data insights. With these data insights businesses can make prompt business decisions.
Challenges & Drawbacks of Online Marketplace Models
The online marketplace business model has become a significant tool for businesses to succeed in many ways. Not only will the businesses generate income but they also get customer data insights, target cross-border consumers, and so forth. However, every marketplace has its drawbacks and challenges like any other model.
- Finding Brands to list
Finding a brand to list in the online marketplace gets challenging for sellers. This is due to a few reasons that brands feel scared of. One is a low customer buying the products sold by the brand and the other is a competitive and cumbersome situation that leads to no purchase.
Products listed on the marketplace can not guarantee seller success, hence brands take the back step. A deep understanding of listing techniques and a willingness to adapt and change are crucial.
- High Overall Cost & Efforts
Getting access to the marketplace requires huge investment and effort from businesses. This includes a host of barriers like operational costs, advertising costs, and hefty platform fees.
The functional cost of creating the right marketplace becomes a challenging task. However, every business or entrepreneur will have to add that extra effort and cost to launch an online marketplace that is attractive and appealing to consumers.
- Building Trust
Bringing confidence among buyers and sellers in the online marketplace is fundamental to building a profitable business. Trust can be built among buyers and sellers through transparent policies, quality goods and services sold, safe payment methods, and secure consumer data.
Moreover, through the online marketplace effective communication, and adaptive behavior can consistently build trust and add a loyal customer base in the different marketplace.
- Higher Competition
Since many sellers and marketplaces are selling the same product or services, the competition here is very tight. This leads to product quality wars, pricing wars, and service qualities offered. If you enter any of the online marketplaces, you will have to face tight competition from your competitors.
- Strict Marketplace Platform Rules & Policies
Every online marketplace has to lay down its own rules and regulations. Your vendors must follow these rules from time to time. Sudden changes to terms, conditions, and policies can drastically affect your business operation, sales, and profit. These rules and policies will be subject to location and the region’s prevailing conditions.
- Huge Dependence on Data and Technology
Online marketplaces majorly rely on huge customer data and technologies to operate successfully. Any disruption in the technology and web data like hacking, data breaches, etc can devalue a marketplace and destroy customer loyalty towards the businesses and the online marketplace business models.
For example, a few years back Netflix had a severe customer data breach that did impact their consumers as a whole. Securing consumer data with end-to-end encryption brings trust and authenticity to businesses.
The Future Ahead of Online Marketplace Business Model
The future of the online marketplace looks promising and bright. The rise in the number of businesses shifting to the online marketplace and raising their overall market capitalization indicates a rising phenomenon.
With the advent of Machine Learning (ML) and Artificial Intelligence (AI) at the forefront, businesses are going to have a better understanding of their business products and services as well as their region-specific consumer base, all supported by AI integration into the marketplace.
The easy and smooth functioning of the online marketplace has allowed buyers and sellers to engage in the transaction without any issues or disagreements effortlessly. This online buyer and seller space has taken over the outdated brick-and-mortar stores reliance. As ML and AI continue to bring new avenues in the online marketplace software world, things are largely going to change for the better.
For example, AI can help with the automation of business operations, providing suggestions for a better customer experience, analyzing business financial data, and helping reduce business costs. Moreover, AI & ML can incorporate blockchain technology in transactions, bring transparency, and reduce fraud and payment failures.
Final Words
From the above, it is very clear that the online marketplace has become a fundamental tool for businesses to profit in the long run. Businesses can use various online marketplace models ranging from B2B, and B2C to C2C along with revenue models like commission-based, subscription-based, freemium model, ad listing model, and many more.
Though the online marketplace does come with a few challenges, if businesses cater to every detail their business in the marketplace will drastically grow. With added benefits of ML and AI inputs from businesses can allow business owners to make a firm decision.
Are you a business owner or an entrepreneur looking to build your business in the online marketplace? Take the right step with ShipTurtle Marketplace Software Solution. Your one-stop destination for all your online marketplace needs. Call for a DEMO Now!
