An online marketplace is a type of E-commerce website where products or services are offered for sale by multiple sellers (vendors) from one platform. All transactions are handled by the platform and sellers are paid net of a fee which is usually a pre agreed percentage.

Examples of top brands who use the Marketplace model:-

• eBay
• Etsy
• ASOS
• Amazon
• Wayfair
• Airbnb
• Uber
• Fat Llama (equipment rental marketplace) recently sold to a Swedish rival for £34.5m !
• Vinted

You might be surprised to learn that over 60% of online sales are transacted through marketplaces.

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The marketplace model is not as complex as you might think, it's suprisingly lean and scalable for new startups.

The role of a marketplace owner is to bring together chosen or niche vendors and through promotion of their marketplace brand target the right customers to drive sales through a multi-vendor platform. Sellers benefit from additional sales and the marketplace owner earns a commission from each sale.

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Points of Interest

No Inventory - No inventory is owned by the marketplace owner, instead, dealing directly with vendors who manage their products or services on the platform, therefore no required investment in stock, warehousing and other large business expenses.

Customer Satisfaction - Compared to running an E-commerce business where the vendors are responsible for inventory management, website management, marketing, sales, social media, customer service, the focus is simply to offer the best platform for the users. In particular by using 'state-of-the-art' software to manage the technology side of the marketplace.

Lean and Scalable Business Model - Some of the world's well known brands make great examples, eBay for example do not own most of the goods or items they sell, Airbnb do not own any of the properties they rent out and Uber do not own their own vehicles for hire. A marketplace does need to sell a higher amount of goods due to lower profit margins, but equally there are low overheads. Alot of work goes into content creation, website moderation and brand awareness, the effort pays off eventually, by focusing on a specific niche market with lots of carefully selected vendors selling under one platform, if built correctly, can lead to a huge loyal community of highly satifsfied and repeat buying customers.

Vendor Service Agreement - It's important to maintain a high level of customer satisfaction, so we strongly recommend considering a service level agreement with your vendors. This should set out the process of delivery and return policies making sure that the customers who use your brand and marketplace to buy products are taken care of when things go wrong, minimising bad reviews and customer complaints.

Monetization - The method of monetizing a marketplace depends on the level of profit a vendor is prepared to pay when their items are sold on the platform, anywhere from 10% to 40%. It is also possible to set different levels with each individual vendor and also on each different product or category / collection of products. Other ways include offering an advertising package where third party vendors can place banners advertising their products or services. A marketplace can also provide a points, rewards or gift voucher schemes, these are great to incentivise sales or referals of new customers for rewards.

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Online Resources

How to create an online marketplace
https://www.sharetribe.com/academy/guide/

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How we can help you

If you would like to know more about starting a marketplace, setting up the right platform or discussing an opportunity and how we can help you succeed, please get in touch.

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Check out our online marketplace domain names and opportunities.

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