What is an online marketplace? Top benefits for vendors, customers, owner, investors

Online marketplaces have become very popular over the past years, especially during the COVID-19 pandemic. Providing companies with the possibility to reduce start business costs and reach a large audience, they generally require just to create profiles and publish information about products or services.

Although many people believe that this type of platform is only about online retailing, it is widely used across different sectors, for example, healthcare and education. Launching a marketplace is a winning idea for startups that aim to connect vendors with customers and generate revenue through system monetization.

This article describes the primary benefits of a marketplace. We will also consider critical differences between e-commerce stores and marketplaces.

What is an online marketplace?

An online marketplace is a website or application that connects consumers with vendors that offer their products or services and provide related information.

There are four core features that define a marketplace:

• Customers can purchase from numerous third parties on a single marketplace.
• Users can make payments and orders via the same platform.
• The creator of a marketplace usually doesn’t offer any kind of services and doesn’t have a warehouse to store inventory but is responsible for processing transactions.
• The owner generally invests in online marketplace development to further generate profit through monetization. For instance, it can charge organizations a fee/percentage of sales for using a marketplace as a convenient source of achieving business objectives.

Therefore, a marketplace is not only about online retailing and e-commerce but can comprise various industries such as e-learning, travel, healthcare, insurance, and home rental.

Food and hospitality also comprises a lot of marketplace platforms worldwide. Here at Arateg, we have recently built two marketplaces for organizations operating in this sector: an online table booking system for restaurants and a mobile app for food pre-ordering that refer to marketplaces.

Upwork, Fiverr, Uber Eats , Coursera, and Udemy are examples of popular marketplaces, though they don’t offer physical goods for sale.

Examples of marketplaces by industry:

• E-commerce — Amazon, Walmart, eBay, Alibaba.com, Wayfair, Newegg, Bonanza, Lamoda
• Home rental — Airbnb, Booking.com
• Freelancing, creative services — Upwork, Freelancer, Fiverr
• Legal services — Avvo
• Healthcare — Zocdoc
• E-learning — Coursera, Udemi, Study Academy, One Education

There are many classifications of online marketplace platforms. For instance, they can be divided into business-to-business (B2B) and business-to-consumers (B2C), which is one of the most common categorizations.

What is a B2B marketplace?

A B2B marketplace brings together providers and customers in one place. Vendors deliver products—generally in bulk—and services to other businesses, for instance, retailers, wholesalers, manufacturers, logistics companies. The main advantage of this software solution is the facilitation of the procurement and sales processes, as well as increasing transparency of financial deals.

A B2B trading system, B2B procurement platform, B2B catalog refer to this marketplace type. Amazon Business, Alibaba, eWorldTrade, Made-in-China, Thomas, Global Sources, IndiaMart are examples of B2B marketplaces.

While B2C marketplaces still prevail in the market, B2B platforms are also gaining popularity. Forrester reports that US B2B e-commerce transactions are anticipated to reach $1.8 trillion by 2023, accounting for 17% of total B2B sales in the country (compared to 12% at the end of 2018).

Aiming to capitalize on global trends, many startups are developing B2B marketplaces to assist organizations in automating sales, procurement, and order management operations. To meet B2B needs, giants such as Amazon and eBay have started delivering various goods to businesses.

What is a B2C marketplace?

A B2C marketplace enables vendors to deliver services to individual customers. As this platform enables organizations to reach a large audience while requiring lower upfront investment, today it is one of the most popular business models. Airbnb, Booking.com, AliExpress, and LiquidSpace are examples of B2C marketplace websites.

At Arateg, we created multiple B2C marketplaces. For instance, our team built an online pharmacy marketplace for a healthcare company that now connects over 1,500 pharmacy chains with users who want to purchase medical goods.

The system provides detailed reports on the range and availability of medicines, as well as comprehensive data on sales and user shopping behavior. Thanks to this solution, vendors can easily identify consumer preferences, prepare sales strategies, make demand and supply forecasts.

We also developed an online marketplace for a Russian startup that matches 25 stores with customers. The website enables users to search and compare products, receive cashback from each purchase, check out reviews and ratings, withdraw money, as well as make group purchases. In addition, the platform automatically suggests the best deals. Find out how we implemented this project that was featured as one of “TOP 5 startups in Russia”.

Benefits of a marketplace for vendors

Using a marketplace is essential for omnichannel commerce. Although many service providers build their own platforms for service delivery, it is reasonable to create company profiles on online marketplaces to reach a large audience and improve customer experience.

Thanks to this solution, vendors can start selling without investing in website or application development, which is especially important for startups and SMEs. Therefore, business start costs are much lower in comparison with other options.

In speaking of platforms that connect clients with contractors, here individual experts and agencies can deliver services to organizations worldwide without conducting in-person interviews in their offices. Clients also take advantage of a faster recruitment process and the possibility to check out reviews right on the website.

An online marketplace platform offers the possibility to:

• use a convenient channel to distribute products and services
• reach more consumers, this way increasing chances to obtain a significantly higher number of orders and boost sales
• cut down marketing and operating expenses
• quickly start delivering services
• receive an additional source of income

If a marketplace serves users worldwide, organizations don’t have to work out and implement an SEO (search engine optimization) strategy to increase Google search rankings of their websites. By placing information about goods or services on a global platform, they will manage to attract customers much faster and internationalize business.

Benefits of a marketplace for customers

Since online marketplace platforms allow numerous providers to offer goods or services, the selection is much wider than in individual company websites, which is enjoyed by consumers. Customers can easily compare characteristics, check out reviews and ratings, and analyze delivery details to find the most attractive offer.

Furthermore, they can become familiarized with loyalty programs and bonuses from different vendors. Additionally, marketplaces generally contain a variety of search filters to quickly find the necessary product or information. Therefore, users can faster make informed purchasing decisions.

Benefits of a marketplace for its owner

A company builds a marketplace to bring together service vendors and customers while acting as an intermediary. The owner has to ensure ongoing platform support for delivering a seamless user experience and preventing downtime. However, it doesn’t have to manage the major content that includes information about customers, vendors, goods, and services.

The creator of an online marketplace implements a monetization strategy or their combination to generate profit. For instance, with a subscription-based model, a marketplace supplier charges a regular fee for providing access to the platform.

Another revenue model is to require users to make a flat payment for registering on a marketplace website. By applying a commission model, an organization will receive a fixed fee or a small percentage from each transaction.

Benefits of a marketplace for investors

The marketplace market is seeing rapid growth. The COVID-19 pandemic has just accelerated it, forcing people to make purchases and work remotely. The globally leading marketplaces like Amazon, Tmall, Taobao, and others managed to sell $2.67 trillion in 2020.

According to Digital Commerce 360, the volume of sales on web marketplace websites accounted for 62% last year. It is worth noting that several marketplaces around the globe saw unprecedented growth in 2020—around 100%—involving Etsy in the USA and Ozon in Russia.

The popularity of B2B marketplaces is also increasing. McKinsey & Company found that around 80% of B2B decision-makers prefer remote human interactions or digital self-service.

The main reasons to invest in online marketplace development are:

• Since marketplaces bring together numerous vendors and customers in one place while enabling users to faster find the best offers, they provide a higher level of reliability in comparison with e-commerce websites and physical stores.
• Both B2C and B2B platforms are experiencing stable growth over the past years.
• Crunchbase reports that 168 marketplaces were launched in 2020. By now, they have already raised $204.1 million in total.
• Marketplaces allow for expanding the audience by entering new markets much easier, reducing upfront and operating costs, which contributes to higher revenues and therefore, return on investment.