There are numerous ecommerce marketplaces available nowadays. They can be classified based on the type of customer, core focus, industry, and other factors. In this blog post, 3 types of ecommerce marketplaces we present the most thorough categorization you’ve ever seen. Enjoy!
Ecommerce Marketplaces by target audience
When it comes to target audiences, marketplaces are divided into three categories: business-to-business (B2B), business-to-customer (B2C), and peer-to-peer (P2P), also known as customer-to-customer (C2C). Let’s take a closer look at each category to understand its concept, business models, and prevalent problems.
Business-to-business ecommerce marketplaces
A business-to-business marketplace is a website where wholesale providers sell their products or services in bulk to buyers. This form of marketplace is typically run by a third party, which allows firms to use it on advantageous terms. The following are some of the advantages of using a marketplace for sellers:
- Capacity to distribute items and services to a larger number of clients.
- Wider sales channels
- No need to build their own ecommerce platform
- Start selling right away
- No large initial commitment
The goal of an online B2B marketplace is to automate the selling and buying process, improve customer experience, and increase financial transparency. Alibaba, Made-in-China, Amazon, and eWorldTrade are among the most popular B2B marketplaces.
Let’s take a look at how these online marketplaces make money.
Business models of B2B ecommerce marketplaces
A B2B marketplace operates as a middleman between suppliers and buyers, leaving just a few monetization options. Let’s have a look at the three B2B marketplace business models.
#1 Commission-based business model
Because it easily adapts to varied industries, this is perhaps the most popular model for all marketplaces. It is based on charging a commission for every transaction that occurs on the marketplace, as the name implies. The major benefit for marketplace owners is that this is the most profitable method. All of the value that moves through the marketplace is distributed to the marketplace. This business strategy is used by well-known marketplaces like Alibaba and Fiverr as their primary source of revenue. The commission-based model is scalable and, more crucially, ideal for marketplaces with low transaction volumes.
#2 Subscription business model
A membership or subscription model is focused on charging sellers a monthly or annual fee for access to a certain set of marketplace features. This strategy is best suited for high-volume marketplaces where customers are likely to make recurring purchases. The subscription income model is well-exemplified by Labelcorner, a fashion B2B marketplace. It offers sellers a variety of subscription options based on the quantity of products they sell, the features they require, and the prominence they desire in search results.
#3 Listing fee business model
Some B2C marketplaces, such as Etsy, charge a fee for listing products in addition to charging commission on each sale. It costs $0.20 to list an item on Etsy. There are also premium listings, such as those seen on Craigslist, where sellers pay for increased visibility and a higher search rating.
Challenges of building a B2B ecommerce marketplace
Lack of a recognizable brand
It’s difficult to break into the market as a newcomer. The majority of marketplaces lack brand recognition and identity. All existing marketplaces, on the other hand, began some time ago and overcome this obstacle. It’s difficult to discover the proper solution, but we believe that people are the most important factor. You may cope with the bad notion of a new marketplace by focusing all of your attention on users. Define your target market, identify their pain spots, and provide a solution to their issue. People will adore your product even if it is new if you do this.
Lack of faith or trust
Orders on a B2B e-commerce platform typically range from thousands to millions of dollars. The first question that arises in the minds of entrepreneurs is whether or not this marketplace is a secure location to sell and buy. New B2B markets should make a concerted effort to establish their legitimacy. Here are four ways that B2B marketplaces can take to improve their credibility:
- When users register, thoroughly verify them.
- Require legal documentation and licenses from providers.
- Create a review and rating system to ensure that only the most trustworthy providers are chosen.
- Customers will feel protected if you provide them with shipping and return policies, as well as a money-back guarantee.
Business-to-customer ecommerce marketplaces
There are two sorts of users in the B2C marketplace model: businesses and customers. Businesses sell their products and services directly to customers rather than to other businesses in this approach. Many B2C marketplaces serve as one-stop shops where customers may browse for a wide range of products. There are numerous well-known B2C marketplaces because this model is one of the most popular nowadays. AliExpress, for example, is a massive online B2C marketplace with hundreds of suppliers selling anything from clothing to automobiles. Booking.com is an online travel marketplace that connects hoteliers with tourists and offers a diverse range of accommodations.
Business models of B2C Ecommerce marketplaces
#1 Business Model: Subscription
The subscription or membership model is used in B2C markets to charge providers a fee while keeping the marketplace free for users. This concept can be a good starting point for marketplaces that want to charge commissions in the future but can’t handle transactions right now. Venu, for example, is an Airbnb-style marketplace for event facilities that began with a membership basis. They converted to a commission model after they had verified their business idea and built an invoicing system.
#2 Commission-based business model
Booking.com is a B2C travel platform where commission is the primary source of revenue, accounting for roughly 74% of total revenue. This marketplace works with hotels and property owners, charging between 10% and 30% on each transaction. Each transaction on Booking.com is charged a fee ranging from 10% to 30%.
#3 Listing fee business model
Some B2C marketplaces, such as Etsy, charge a fee for listing products in addition to charging commission on each sale. It costs $0.20 to list an item on Etsy. There are also premium listings, such as those seen on Craigslist, where sellers pay for increased visibility and a higher search rating.
Challenges of building a B2C ecommerce marketplace
High levels of competitiveness
The B2C marketplace area is dominated by behemoths like eBay, AliExpress, and Booking.com, all of which are difficult to compete with. These firms have held their positions for a long time, making it extremely difficult for startups to obtain a competitive advantage. Nothing, however, is impossible. It’s possible that the solution will focus on a specific niche. You boost your chances of success by focusing on a specific specialization. A niche is a group of customers who have similar requirements, preferences, and problems. A thorough examination of a target group for a B2C marketplace can aid entrepreneurs in developing the best marketing approach and gaining a competitive advantage.
Pricing issues in B2C
Customers’ purchasing decisions are influenced by a variety of factors. However, one of the most critical factors is price. As a result, developing a suitable pricing system is critical. Many B2C marketplaces have difficulty determining prices that are favorable to both sellers and customers. To create an efficient pricing structure for a B2C marketplace, we recommend taking the following steps:
- Learn about the market, your target audience, and your competition.
- Determine the amount of product and service demand.
- Set expectations for the market (what your customers expect to pay for)
- Price differences are offered (different prices for different levels of products and services)
- Prices should be reviewed on a frequent basis.
- Only raise prices when there is a deficiency.
Peer-to-peer ecommerce marketplaces
Individuals with comparable wants, likes, and incomes can share items and services through a peer-to-peer (P2P) or customer-to-customer (C2C) marketplace. This type of marketplace works on the following principle: peers can trade things (like on Etsy) or services (like on Uber or Airbnb) for money or other goods and services. P2P marketplaces are a facet of the sharing economy, allowing people to make the most of their resources by renting rather than buying. The most essential aspect of this type of marketplace is that one person can be a consumer today and a service provider tomorrow. The P2P model features a shorter sales cycle and average length of relationship compared to the B2B and B2C models.
Let’s learn more about this marketplace type and how P2P marketplaces usually make money.
Business models of P2P ecommerce marketplaces
Paid promotions are number one.
By paying a charge to the marketplace, users can promote their goods or services. This strategy is ideal for product-focused P2P marketplaces where the customer’s focus is on the product rather than the vendor. There are three types of paid promotions:
- Vendor profiles that are sponsored
- Products and services highlighted
- Promotional items in the cart/at the checkout
#2 Advertisements
With this model, third parties can post ads to promote their products and services on the marketplace. There are several advertising models P2P marketplaces can use:
- Cost per impression (CPI)
- Cost per click or pay per click (CPC/PPC)
- Cost per period (daily, weekly, monthly)
Challenges of building a P2P ecommerce marketplace
The market does not provide a solution to a real problem.
Many markets fail because they do not address the real issues that their target users are facing. Why should people utilize a marketplace if it doesn’t answer a specific problem? Conduct rigorous market research, define your target audience and their demands, and validate your business idea using tools like the Lean Canvas or Business Model Canvas before starting your marketplace. These procedures will assist you in selecting the best plan and avoiding failure.
A focus that is too broad
Another typical issue with P2P marketplaces is that they offer an excessively large choice of products and services. When you’re starting from scratch with a marketplace, it’s best to focus on a vertical market in a certain geographic area. Lyft, for example, focuses solely on one service — rides – and has been a huge success since its inception. TaskRabbit, on the other hand, began with a horizontal strategy and eventually struggled with scaling. When marketplace owners select a niche, they may put their concept to the test before going global, reducing risk.
Ecommerce Marketplaces by focus
Vertical marketplaces
Vertical marketplaces, as the name implies, are focused on a certain region or niche. Rather than selling everything to everyone, they focus on a specific set of services and products. Having a niche-specific website allows you to stand out from the crowd, provide higher-quality products and services, and boost personalization. Etsy is the most well-known example of a vertical marketplace. Craft supplies, as well as handmade and vintage items, are the core of this platform. Only genuine sneakers are sold on the StockX marketplace.
Horizontal marketplaces
A horizontal marketplace, on the other hand, sells products and services from a variety of industries to a variety of clients in numerous locations. This form of marketplace is referred to as a one-stop shop because it caters to a variety of customer needs in one location. It’s similar to walking around a mall with a lot of stores, but it’s all done online. The most well-known marketplaces, such as eBay, AliExpress, and Amazon, are horizontal and provide a wide range of products.
Ecommerce Marketplaces by management approach
Unmanaged
Unmanaged markets are typically peer-to-peer, with customers contemplating purchases based on ratings and reviews. Background checks, quality assurance, and feedback analysis are not investments made by the marketplace owners. In general, the lower the fees, the less a marketplace manages on its own. Unmanaged marketplaces include Fiverr, eBay, and Etsy.
Lightly managed
Uber, Airbnb, and Grubhub, for example, put some effort into quality control and background checks. These investments are being made by Airbnb for customer service and user verification. Uber’s expenditures include driver verification and ratings.
Fully managed
Sellers’ entire sales process is covered by fully controlled marketplaces. For example, Opendoor, a real estate platform, acquires houses from sellers and resells them. The only thing left for sellers to do is accept the offer. Fully managed markets have a lot greater charge, but the service quality and customer experience are also much better.
Unmanaged – Peer-to-peer transactions; trust comes from reviews and ratings; lowest transaction fees
Lightly managed – Protection and guarantees for users; accurate content; technology tools
Fully managed – Operator mediates transactions; marketplace handles the whole process; superior customer experience
The bottom line
The trend in marketplace development is to focus on a single niche. High competition and a lack of brand identification plague new marketplaces, causing the majority of them to fail. New marketplaces that solve actual problems for target groups, on the other hand, are in high demand.
