What is an Online Marketplace?

April 20, 2022
7-minute read
eCommerce
Content

Whether you are a buyer, seller, or creator of an online marketplace, there is so much to know and learn about this retail format that can help you in your endeavors. While digital marketplaces have been around since the 1980s, they have only recently hit their stride, gaining consumer trust and becoming the preferred way to shop.

Online marketplaces aren’t just seeing year-over-year increases in both sales and revenue, but they are increasingly becoming the preferred way to shop. Consumers are opting to shop online rather than heading to a physical store on a much more frequent basis.  

To prove just how much the pandemic increased the accelerated growth of online marketplaces, a recent Digital Commerce 360 study showed that marketplace sales account for 60% of global eCommerce. With gross merchandise sales growing at a rate of 18% last year, it’s predicted that online marketplaces will continue growing years into the future as shoppers show a preference for online shopping rather than physical store locations.  

While you may have a vague idea of what an online marketplace really is, we want to clear up all the little details. In this blog post, you will learn the true meaning behind an online marketplace, with industry examples and tips on how to run this type of eCommerce website.

What Is a Digital Marketplace?

In its simplest form, the definition of a digital marketplace is an eCommerce website that brings together both buyers and sellers. It facilitates shopping from many different sources, and while the marketplace may not own any inventory themselves, they display other companies’ products and take care of the transaction.  

Not only do users get to shop multiple inventories from the comfort of their own homes, but suppliers manage to reach a much wider audience than they would be able to with a physical store. Additionally, suppliers can fulfill need through buyer-driven sales (i.e., when buyers are looking for a specific item), which negates the need for excessive advertising.

How Does an Online Marketplace Work?

Online marketplaces are an emerging platform and still have a long way to go. While they were starting to gain momentum in the late 2010s, there is no doubt that the COVID-19 pandemic propelled them to an unprecedented level of success. 

An online marketplace essentially works by connecting buyers and sellers on a single platform. Sellers can bring together inventory from their physical locations and eCommerce store to reach larger audiences and sell more products. For buyers, an online marketplace provides more product selection and variety. It also gives them the opportunity to buy products exclusive to a physical location or region.  

Online marketplaces make money in two different ways. They can charge the seller the services offered in a monthly, or subscription payment or they add an additional sum to the product price in order to make a commission on each product sold (in some cases—they actually do both).  

One of the most important things that online marketplaces do for both the buyer and the seller is facilitate secure payments. That means the marketplace itself manages the logistics behind the scenes. If there are any problems with a product or a return needs to be made, the online marketplace handles this process—as well as any refunds that need to be made. As a result, these marketplaces need to be highly secure and fully compliant with industry payment standards.

3 Types of Online Marketplaces

“Online marketplace” is actually an umbrella term, and there are a handful of different types of digital marketplaces out there. Here are three most common types of online marketplaces that you can choose from:

  • Horizontal Marketplace
    A horizontal online marketplace is one that sells many different types of products, but they will all have a common theme. For instance, Extremeinn sells a huge variety of products, but they all have one thing in common—they are all for extreme sports enthusiasts.

  • Vertical Marketplace
    A vertical online marketplace sells products from a variety of sources, but the products themselves all fall into one category. A good example of this would be Truefacet which sells a variety of jewelry from different sellers. Vertical sites stick to one niche and do it very well!

  • Global Marketplace
    A global marketplace is more self-explanatory. They will sell anything and everything— for example, eBay and Amazon. They sell products from many different sources and their variety is almost endless, as you know if you are a frequent eBay or Amazon shopper.

Why Should You Use an Online Marketplace?

Now that you have a better idea of what an online marketplace or digital marketplace is, let’s take a look at some of the benefits that come from selling your products on an online marketplace.

Customer Acquisition

One of the biggest benefits of selling your products on an online marketplace is the ability to reach a much wider audience. This helps small businesses to acquire customers that they would rarely otherwise be capable of contacting. Expanding a customer base provides small businesses with more financial security and increases their bottom line overall.

Direct Competition

When a buyer types in a keyword that pertains to your product in the search bar, your product—along with all your competitor’s products—will be listed. This allows customers to make direct comparisons between your product and that of your competitors. They will compare the ratings given to each product, as well as the price point, and read comments from previous buyers. If your product is good quality and competitively priced, this will put you at a huge advantage.

Build Trust

When a buyer is looking to purchase a product for the very first time, they may have reservations about buying from an unknown store. But when they are buying from a well-known and reputable marketplace, they feel far more at ease knowing it will be delivered and have a promising return or refund policy should they not like the item. This added trust factor means you are far more likely to have buyers purchasing your product from an online marketplace as opposed to an online store they have never seen before.

While these may seem like benefits for the seller, they are ALL benefits for the buyer as well. Online marketplaces help buyers find all the products they need in one easily accessible space without having to scour the internet for different sites to make a comparison between products. And they can purchase from an online store that they know and trust without having to stress.

Start Building Your Online Marketplace

It’s clear that online marketplaces are only growing in popularity, and they will continue to do so for the foreseeable future. If you are interested in getting in on the action by building your own online marketplace, here is exactly how you should be going about it.  

The first step is to build your marketplace. You can do this on your own or have it built for you. Doing it yourself can be pricey due to the technical resources required for custom coding and development, so make sure you do your research and compare the costs. In order to get your marketplace up and running, you need to acquire both buyers and sellers.  

To generate a healthy balance of buyers and sellers, you should develop a marketing strategy. You will want to think about targeting potential prospects with Google ads to create brand awareness. It’s also a good idea to make the marketplace invite-only to start. Once you have a reasonable number of both buyers and sellers, then you can make your online marketplace open to the public.  

Your marketing strategy should ultimately tie in directly to your overall eCommerce business plan. A business plan will help provide a solid foundation for your online business and marketplace. If you haven’t started building one, we recommend using our helpful eCommerce Business Plan Template!

There is no denying that digital marketplaces are the way shoppers will be making purchases for many years to come. If you need to talk to an eCommerce expert, commercebuild is here to help! Our B2B and B2C eCommerce software is built for seamless integration with your core business applications, and our experienced team is always here to answer any questions.