The Ins and Outs of Online Marketplaces – Examples, Models & Challenges

The Ins and Outs of Online Marketplaces – Examples, Models & Challenges

13 Jun. 19
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Over the last several years, the internet has given way to numerous types of online marketplaces. Why? They provide convenience to consumers on a global scale, connect vendors and businesses to target audiences, and provide a platform for both large and small businesses to expand their online presence. If we were to categorize these online marketplaces, we can group them either by their customer type, their core focus, or their industry type. When grouped by their target audience, the three main marketplaces fall under business-to-business (B2B), business-to-customer (B2C), and peer-to-peer (P2P) also known as customer-to-customer (C2C). If we were to group these by their core focus, we would have vertical and horizontal marketplaces, and if we were to categorize by their management style, we would have unmanaged, lightly managed, and fully managed.

If you are wondering about owning a marketplace and have your own through various technologies like custom marketplace app development on web or mobile app platforms, this article will help you about the types of marketplace and potential challenges associated with them.

With this said, let’s take a look at what these categorizations actually mean, check out a few examples of each and their models, and discuss what their challenges are.

Online Marketplaces By Customer Type: Models + Challenges

The Business-to-Business Marketplace:

This type of marketplace is done through online websites where wholesale suppliers choose to sell their products and services in bulk. Generally, these marketplaces will be operated by a third party and will allow a business to start selling quickly, have no need for an independent e-commerce platform, have no upfront investment cost, and be able to expand their sales channels and distribute a higher number of products and services to customers. In order to be successful with this type of marketplace, the business must be able to completely automate both the selling and buying process, provide amazing customer experience and have complete financial transparency between business, third-party operator, and customer. Examples of this marketplace include Amazon, eWorldTrade, and Alibaba.

Types of Models Within the Business-to-Business Marketplace

Commission Model:

This model is extremely popular across all online marketplace types and is based in charging a commission for every transaction that takes place on the marketplace – most notably when a customer makes a purchase. The reason why this is such a popular model is that the marketplace that is facilitating the transactions gets a piece of the value that actually passes through it. Beyond this, this model scales well and is suitable for both low and high transaction volumes.

Subscription Model:

This model is based on charging a fee for certain features. This fee can be monthly or yearly and is found in marketplaces that have higher volumes with users that tend to make repeat purchases. A subscription model will provide sellers with several tiers of subscription options which will have varying sets of features.

Listing Fee Model:

Some marketplaces will also have an additional listing fee model that will be charged for listing products. This is more commonly seen on listing-type websites like Etsy and Craigslist, where sellers are choosing to pay for higher rankings in the search for better visibility.

Types of Challenges Found Within The Business-to-Business Marketplace

Little to No Trust:

A lot of business-to-business marketplaces have transactions, services, and products that run into the tens of thousands or millions of dollars, making it hard for newcomers to know whether a marketplace is actually safe to sell on. This challenge can be thwarted by verifying users when they register, require licensing documents from vendors, creating a reviewing and rating system, and providing customers with a money-back guarantee or shipping & return policies.

No Brand Legacy:

Businesses that start on a new B2B marketplace will have no brand legacy, trust, or reputation. To overcome this, a business must define their target audience, find and eliminate pain points, and create a solution that their audience needs.

The Business-to-Customer Marketplace

This marketplace involves both customers and businesses, where businesses choose to sell their services and products directly to customers. This is probably one of the most well-known marketplace types online as nearly everyone has used one at one time or another. Common examples of this type of marketplace include AliExpress and Booking.com. It is important to note that the B2C marketplace is almost always a “one-stop-shop” for customers. Let’s Nurture, a leading marketplace app development company has tons of experience to develop food ordering and delivery solutions, just like UberEats, FoodPanda, Grubhub and more.

You may also like to read: Cost to develop a Food Delivery App like UberEats

Types of Models Within the Business-to-Customer Marketplace

Commission Model:

This is based in charging a commission for every transaction that takes place on the marketplace – most notably when a customer makes a purchase. So, for instance, Booking.com will have a partnership with several hotels and will charge a transaction percentage for each booking; this being their commission and agreed upon price.

Subscription Model:

In the B2C marketplace, the subscription model is still based on charging a fee for certain features, but it charges the provider, not the customer. This fee can be monthly or yearly and is perfect for providers that want to charge a commission-based model but cannot deal with heavy transactions at the moment.

Listing Fee Model:

Some marketplaces will also have an additional listing fee model that will be charged for listing products. This is more commonly seen on listing-type websites like Etsy and Craigslist, where sellers are choosing to pay for higher rankings in the search for better visibility.

Types of Challenges Found Within The Business-to-Customer Marketplace

There is High Competition:

The business-to-customer marketplace has a massive amount of competition as large companies like Booking.com, eBay, and AliExpress have a monopoly on the space. This makes it extremely hard for new companies to make headway and find success. One way around this is by targeting a specific niche within the marketplace or finding pain points that the larger companies are ignoring and providing a solution.

There are Challenges With Pricing:

When it comes to an individual actually making a purchase, the number one influence is the price point. It is vital for business-to-customer marketplaces to create price points that are viable for both the sellers and the customers. To do this the market expectations should be determined, the demand for products and services needs to be identified, and prices need to be listed in differentials so that there are different price ranges for different levels of products and services. Only when the demand is high enough can one increase prices.

The Peer-to-Peer (C2C) Marketplace

This type of marketplace connects the customers directly to other customers based on similar needs and demands. Examples of this type of marketplace include Etsy, Uber, and Airbnb which all provide products or services in exchange for other products, services, or money. A peer-to-peer marketplace is commonly known as part of the sharing economy, which has a key defining feature – a consumer today can be a provider tomorrow.

Types of Models Within the Peer-to-Peer Marketplace

Advertisements:

It is quite common for third parties to produce, post, and promote products and services on the marketplace through paid advertising. Peer-to-Peer marketplaces will accept cost per impression (CPI), Cost per click (CPC), pay per click (PPC), and cost per period advertising.

Paid Promotions:

A lot of users who are promoting their services and products will pay a fee to the marketplace to have their vendor profiles sponsored, have their products or services featured, or have their products promoted on the checkout page.

Types of Challenges Found Within The Peer-to-Peer Marketplace

No Problem Solved:

A lot of these types of marketplaces fail because they do not actually solve a problem that their target audience has.

Focus is to Broad:

If a P2P marketplace has too broad of a focus with regards to what services and products they are going to allow, it will have little to no success as it will not be able to scale upward. The trick with this is to choose a niche and test out the demand for it.

Online Marketplaces By Core Focus: What Are They?

What Is a Vertical Marketplace?

This type of marketplace will offer a narrow segment of services and goods within a particular niche. The services and goods will need to be high-quality, unique, and personalized. A prime example of a vertical marketplace is Etsy which sells handmade goods, craft supplies, and vintage products.

What Is a Horizontal Marketplace?

This type of marketplace is often a “one-stop-shop” and offers products and services across numerous industries to customers around the globe. A prime example of a horizontal marketplace is Amazon.

Online Marketplaces By Management Type

An unmanaged marketplace (Fiverr, eBay, Etsy) is often where customers will base purchases off of reviews and ratings and are commonly peer-to-peer based. The operator or owner of the marketplace does not do quality checks, does not do feedback analysis and has lower fees.

A lightly managed marketplace (Uber & Airbnb) invest in quality control and do background checks but nothing beyond verification of ratings and investments in customer service.

A fully managed marketplace (Opendoor) will cover the entire sales process from start to finish. Fees are much higher on these marketplaces as service quality and customer experience are paramount to the entire marketplaces’ success.

To put this simply, an unmanaged marketplace has trust that comes from reviews and ratings, a lightly managed marketplace has protection guarantees for users, and a fully managed marketplace has complete mediation for the entire process.

Want to Know More ?…

If you want to know more about marketplace app development for the industry you are in, talk to our industry experts who will let you know the scope of marketplace app in your industry. Let’s Nurture has experience in developing numerous marketplace application on web, Android, iOS and Cross-platform domains for diverse industries.

We consult, design and develop next-generation marketplace web/ mobile applications (solutions) with in-depth understanding to deliver a product beyond your expectations which suits your business goals. Our experience in Android app development and iOS app development is second to none. The best thing about us is that we offer out-of-the-box solutions with innovative features that many do not even think about. This is what makes your marketplace application platform unique. Our front end developers and UI/UX designers ensure the marketplace application to be user-friendly and flawless.

Now is the time if you really wish to give it a GO!

Author

Jay Shah
Posted by Jay Shah

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