What is an Online Marketplace : Everything you need to Know

Surya SK
January 12, 2022

Table of contents

What is an Online Marketplace?

An online marketplace is a website or application that allows users and sellers to sell and buy their desired products online. The owner of the online marketplace does not own any inventory, but instead helps other sellers or merchants sell through the marketplace, making it easier for them to sell faster. The best examples of internet marketplaces are Amazon and eBay.

When it comes to the large customer base that these online marketplaces provide, there has been a lot of competition among sellers to get their goods featured, acquire a buy box, and increase their sales. Because marketplaces combine products from a large number of vendors or suppliers, the customer's choice expands.This raises the competitiveness of product prices on an online marketplace.

Online Marketplace Characteristics

Most online marketplaces have traits in common that set them apart from other ecommerce stores. These qualities include the following:

  • Products from a variety of third-party vendors
  • Product reviews from other users are easily available.
  • User accounts with a variety of features and, in many cases, social functionality are available.

These elements make the buying experience more engaging in general. They also assist in instilling faith in the customer that they will receive what they paid for, which can be an issue with online markets. This is because purchasing from third parties carries a higher risk of product quality and customer service issues.

How Do Online Marketplaces Work?

How Do Online Marketplaces Work?

The customer experience is the main advantage of an online marketplace. To complete a purchase, the shopper does not need to go to another website; instead, the transaction is handled within the marketplace's website. Customers can also place orders from many merchants in a single transaction, even if the sellers are not affiliated.

It is the marketplace operator's responsibility to oversee and enable all transactions, as well as to verify that payments are transferred to the correct vendors. When a customer puts an order, the marketplace operator is in charge of recording legitimate payments and telling the supplier that the associated items have been requested and paid for, allowing the supplier to execute the order and deliver it to the consumer on time. Furthermore, the marketplace operator will pay the supplier for their merchandise according to the terms of their agreement.

Online marketplaces are more than just a collection of products and services. They also offer customer care (along with other services) to those who place orders through their website. When it comes to dealing with transactional, delivery, and consumer satisfaction issues, the marketplace operator is frequently to blame.

Types of Online Marketplaces

1. Vertical Marketplace

This marketplace offers a single type of goods or service from a variety of vendors. A website like Udemy is an example. These websites provide a variety of services aimed at a specific group of users or customers with similar requirements.

2. Horizontal Marketplace

This marketplace sells a variety of products and services that are similar in nature. Websites like Etsy and Overstock are examples. Both sell a variety of things, however Etsy specialises in handmade items and Overstock specialises in surplus merchandise (like an outlet store).

3. The Global Market

This marketplace not only sells tangible things, but also facilitates trades and service exchanges (like babysitters or gig workers). Websites such as Craigslist are examples. Customers go to these marketplaces because they can acquire a wide range of products, information, and services without having to visit many websites.

4. Service-Based Marketplace

Instead of selling items, this marketplace only sells services. Websites like Care.com, Freelancer, and TaskRabbit are examples. Each of these websites offers a variety of services, including design, writing, childcare, and labour.

Steps to Create an Online Marketplace

How can you create a profitable online marketplace? When you consider launching an online marketplace, what's the first thing that comes to mind? Profit? We can't say we blame you. It takes time to set up an online marketplace. Here are the steps in a nutshell:

  • Find a strong marketplace concept and test it out.
  • Select a marketplace business model and price point.
  • Create your Minimum Viable Platform (MVP) (your marketplace MVP).
  • Create your first supply.
  • Begin selling to your first consumers on your marketplace.
  • Keep track of your essential metrics to help you expand your business.

The Future of Online Marketplaces

The Future of Online Marketplaces

Online marketplaces have a bright future thanks to technological advancements such as artificial intelligence (AI), machine learning, and real-time personalisation. By 2022, the business-to-business e-commerce market is expected to be worth more than $1.2 trillion. Furthermore, 67 percent of companies believe that e-commerce is crucial to their success.

By providing individualised experiences for customers, digital marketplaces provide businesses with new methods to contact their audiences and accelerate their digital growth. Chatbots, which are powered by AI and machine learning, assist online marketplaces personalise marketing messages and deliver quick customer care. These changes may make it easier for marketplaces and customers to trust one other.

Although creating an online marketplace may appear to be a massive project, knowing the market share and what buyers want can help narrow down the scope of what is required. You're one step closer to building an online marketplace that can offer buyers unique products or services if you understand how marketplaces work and choose the proper business plan.

What are the Benefits of an Online Marketplace?

What are the Benefits of an Online Marketplace?

You may sell things without having to set up your own online business by using online marketplaces. Online marketplaces offer a flexible business option with inexpensive startup costs. Marketplaces such as eBay and Amazon are well-known.

1. Benefits of online marketplaces for sellers

For starters, online marketplaces enable vendors to reach a big prospective client base without having to invest a significant amount of money in building their own online sales infrastructure. Although they must pay a fee to sell on the internet marketplace, this is more than covered by higher sales.

Second, selling on an online marketplace is far more convenient. Sellers can offer their goods and services using the existing platform infrastructure after a quick application and verification process. An easy-to-use seller account/backend programme handles everything from product listing to price changes.

2. Benefits of online marketplaces for buyers

Shoppers, on the other hand, have access to a large number of products on a single, user-friendly platform. Even if it's a specialised product, it's a lot easier to find what they're looking for. Online marketplaces are frequently able to provide things at a lower cost.

Customers, meanwhile, benefit from a variety of buyer safeguards that ensure they get exactly what they pay for. They also profit from more efficient logistical infrastructure, which allows for faster and less expensive delivery.

Challenges for Online Marketplaces

As a business model, online markets confront certain specific obstacles. The relationship with suppliers or providers is crucial because of their considerable reliance on third-parties. They face the same issues as managing employees, but because they are not completely controlled by human resources, loyalty and control are significantly more challenging. Because they must compete with traditional suppliers while still paying a competitive fee to their network, online marketplaces may have smaller margins. As a result, they must run their business as efficiently as possible. The ability to scale operations is also necessary for success.

Why is the online marketplace model gaining so much popularity ?

Why is the online marketplace model gaining so much popularity ?

The Marketplace model has numerous advantages for all players. Sellers benefit from easy access to a huge number of clients in exchange for a little commission. Third-party marketplaces have become an important sales channel for several companies, delivering consistent and reliable revenue streams. This is especially beneficial for small and medium-sized firms that lack established sales channels.

Buyers have access to a wide range of products, services, brands, and vendors - all in one spot. Furthermore, if the marketplace offers a single ordering experience, the buying process becomes much more pleasant and time-saving. Some markets offer extra information/reviews in a standardised style to assist customers in making an informed buying decision.

Finally, the marketplace owner/operator receives all of the advantages of a reseller without having to keep inventory or coordinate fulfillment - if developed correctly, the platform will handle the delivery and fulfillment operations via integrated carriers.