5 Things You Should Know about Marketplaces vs. E-commerce

Written by Arcadier, 16 Jun 2016

So you are planning on starting an online business? Great. And you have considered whether you should be starting an e-commerce website or a marketplace. If that’s the case, excellent you are reading the right article.

Well then, what’s the difference? Traditional e-commerce websites are usually storefronts letting a person sell their wares. Marketplaces on the other hand are different, letting a lot of people sell their goods side by side.

Here are my thoughts to help make your choice clearer.

1. Branding: A singular focus vs strength in numbers.

Traditional storefront e-commerce solutions have the advantage of focusing on a single brand or business. This both relies on and helps to foster customer brand loyalty, resulting in high customer lifetime value. Whereas in a marketplace, all brands and business are presented together. This benefits the buyer because they don’t need to hunt around for complimentary or competing products. This benefits the seller because they can leverage the marketplaces’ strength and volume of visitors.

2. How much will it cost to start something valuable?

A marketplace can allow its users to take advantage of slack assets. These are assets already owned but not entirely used, and that means marketplaces can create strong customer value with much less outlay for the marketplace operator. The owners of the asset benefit because they get greater utility from something they don’t have the capacity to use all the time. The buyers also benefit because they get access to something they otherwise couldn’t afford.

Traditional ecommerce usually requires that someone foots the bill to buy sufficient stock, otherwise customers face long lead times as goods are drop-shipped from the storefronts wholesaler. But on the flip side, the items that are sold are used exclusively by the buyer and they can be assured of infinite availability. Traditional e-commerce is a good solution for a single brand selling its own stock.

3. Can users find what they want?

Storefronts have the challenge of making consumers aware they exist. This means the individual merchant has to spend more to drive traffic to their site but can focus their spend on tightly targeted marketing. Then, once a buyer has found their storefront the selection process is simpler, as they are selecting from the products offered by only one company. Hence, hopefully, the commitment to buy is a fairly quick one.

Marketplaces can spend on targeted marketing too, but the cost is borne by all merchants operating on the site. The targeting can be especially effective if the marketplace offers unique products that are tightly associated, addressing a buyers aggregated need.

Marketplaces additionally benefit from various users operating on their site. As there are many sellers they individually advertise the existence of the marketplace causing a viral spread of awareness. The more happy buyers transacting on the site the more they help to spread the recognition of the marketplace, and do so in a more pinpointed way than targeted marketing alone.

Once a user discovers a marketplace, their ability to quickly locate what they want to buy is critical. It is vital that the marketplace operator selects a platform that can allows search criteria to be tailored to the buyer’s needs.

4. Different technology approach.

E-commerce storefronts exist to provide an online business presence and thus have been designed for that. They are streamlined for that purpose. Marketplaces give buyers a one-stop-shop to buy everything they need. Hence marketplace solutions have been tailored from the ground up to address specific marketplace shopper and operator needs.  Though they have similar features, the emphasis in their design means that the operator of either is more efficient in the most well matched solution.

The appropriate technology to build a marketplace is unique; should offer powerful APIs (application program interface), be a cloud based software that enables short implementation times, and have a scalable database designed for multi market use. Modern marketplace solutions support omni-channel technology; integrating physical in-store, web, native mobile, fulfilment and social commerce channels into the one platform.

5. Positive cash flow

Because e-commerce websites need more initial investment they take longer to break even. Marketplaces in other hand have better profit margins as their revenue is mostly made up of a percentage of transactions. Depending on the volume of transactions, the money earned is usually re-invested into product development to accelerate growth.

Whether you end up choosing to build an online marketplace or an e-commerce website, it’s good to know the differences. The success of marketplaces is growing every day and the trend in the market is constantly evolving. Managing logistical aspects, creating an effective shopping experience and a stellar customer service are some of the major aspects that a new business needs focus on to guarantee their success. All things considered, there is no right or wrong answer, just the process of determining what suits your business future. Identify your needs, preferences and target audience. Once you’ve done that, it’ll be easier for you to decide whether to use an online marketplace or an e-commerce solution.

About: Paul J Cascun is a co-founder of Arcadier, a SaaS company that powers next generation marketplace ideas. Follow Arcadier on Twitter, Facebook, andLinkedIn for news and updates.

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