In an attempt to scale, more and more online sellers are launching eCommerce marketplaces. But is this the future of online selling, or a flawed ideal to be approached with caution?
Busy, busy? Here’s the TL;DR
- There are three main types of global marketplaces–B2B, B2C, P2P
- Online eCommerce marketplaces are a quick way to scale or start selling online
- Amazon, eBay, Etsy and Walmart are the biggest online marketplaces
- 55% of businesses selling through online marketplaces see a profit margin of over 20%.
- Building and running your own online marketplace means you control everything from the mailing list to the pricing structure
- The cost of building your own online marketplace is similar to the cost of building a regular eCommerce site.
- There are seven overarching steps to building and launching your online marketplace
In 2022 it seems like every online retailer either sells through an eCommerce marketplace or has created its own online marketplace.
So, it’s only natural that if you have an eCommerce business, and you want to grow, you’d be curious to know how online marketplaces can benefit them.
Two pathways to growing your eCommerce business with online marketplaces:
- Sell through an existing marketplace like Amazon
- Build your own marketplace to compete with other eCommerce marketplaces like Amazon, eBay etc.
But are eCommerce marketplaces the utopian dreamland they appear on the outside?
Or is there a dystopian darkness lurking beneath the surface?
This article will reveal the perks (and cons) of selling in or becoming a marketplace. And how to know which strategy is best for you.
Then, you’ll learn about a viable alternative to online marketplaces you may not have heard of before.
First up: the basics of eCommerce marketplaces.
The three categories of online marketplaces
First thing to know, there are three main categories of online marketplaces. Three utopias your marketplace might feel at home.
Each one with its perks and potential flaws.
Business-to-business marketplace (B2B)
B2B marketplaces are online marketplaces that connect manufacturers and suppliers.
eWorldTrade, Global Sources and Made-in-China are all high-profile examples.
Business-to-customer marketplace (B2C)
A B2C marketplace is an online marketplace that acts as the middle man between a business selling products and a consumer who wants to buy those products.
Amazon, eBay and Walmart are the top online marketplaces in the B2B category.
B2C and B2B marketplaces both use the same business models:
- Commission-based business model
- Subscription-based business model
- Listing fee business model
Depending on your strategy, you can use more than one model for your online marketplace.
Just like the Amazon marketplace does with subscribe and save.
Peer-to-peer marketplace (P2P)
A P2P marketplace is an online marketplace for anyone who wants to buy or sell anything.
Facebook marketplace is the first example to come to most people’s minds.
Etsy, Upwork and Airbnb make the list as well.
What is an eCommerce marketplace?
eCommerce marketplaces are like going to the mall or a factory outlet.
There is any number of brands, products and stores available—all under one roof.
But, instead of a roof, it’s a website.
And the products are located anywhere in the world.
Think eBay, Amazon, and a few more we’ll mention in the next section.
eCommerce marketplaces work like this:
- Potential customer lands on the marketplace website
- The customer browses based on categories, brands or deals etc. either through an on-site search or in category drop-down menus.
- Hopefully, a purchase occurs.
- Often—but not always—the supplier then ships the product directly to the customer.
Your marketplace can be a niche marketplace that sells only one product category, or you can sell any number of product categories.
Or you could compete with the more bargain-focused marketplaces.
You can sell products in an auction or with a set price.
It all depends on the brand and strategy of the online marketplace—the vision of your utopian head, e.g. Jeff Bezos.
Once again, eBay and Amazon are examples of this.
10 top online marketplaces
A quick Google search will deliver you an almost endless number of online marketplaces.
Some cater to demographics. Some pander to buying habits.
Just like any brand or store has a personality, so do marketplaces.
Here are 10 top online marketplaces:
- Amazon — this is by far the most popular online marketplace in the world
- eBay – second most popular online marketplace
Why are online marketplaces a growing trend?
For online sellers, eCommerce marketplaces are often viewed as the promised land of online selling.
With some legit benefits.
Namely, 55% of businesses selling through online marketplaces see a profit margin of over 20%.
Other marketplace perks include:
- Quickly launch an online business without too many overheads. In fact, some eCommerce businesses shape their whole selling strategy around the Amazon marketplace.
- Get online sales you wouldn’t have otherwise seen, i.e. potential customers browsing for another brand, then stumbling upon your glorious product.
- You can counter not being able to use third-party cookies for ad targeting—as most online marketplaces already have an established customer base.
- It works well for dropshippers.
And, scaling is quicker and more achievable.
As eBay has boasted, 96% of small businesses using the global marketplace export to around 17 countries.
For customers, who wouldn’t want to type a search term once, click once, and see one page of products that all match your search intent? (provided the UX of the marketplace is good).
It keeps life simple and leads to more online sales for you.
But don’t think selling via online marketplaces is a magic pill for scaling.
Not even Amazon has the power to deliver a flawless UX. One where every product is an exact match of the user’s search intent. See this article for more information.
There are downsides of marketplaces for online sellers.
Although you can effortlessly gain customers you’d never have otherwise gained—thanks to customers finding you while searching for other brands/products—it can easily go the other way.
Here’s what I mean:
Another brand or offer can quickly sideswipe a customer looking for a product you sell.
And there go your online sales.
Happens on Amazon all the time.
Ever notice how Amazon suggests other online sellers’ products smack in the middle of your listing? Does that seem fair to you?
In this case, it would be much more profitable for you to be the seller of all products displayed on the page.
Other bummers of selling via an online or global marketplace:
- The volume of your eCommerce sales compared to the seller and listing fees might not feel worth it.
- An online marketplace can raise fees, favour competitor products and make changes overnight that can potentially kill your momentum.
- You have little to no control over your brand story. You have no real connection with the customer database outside of the product you ship them.
More retailers are becoming an online marketplace
The most obvious reason to become an online marketplace is that you’re already a multi-brand retailer.
It’s simply time to grow.
Or, you’ve located a gap in the competition.
Even so, let’s weigh up the whys and why not(s) of becoming your own online marketplace.
Pros: Why you should become an online marketplace
Here’s why becoming an online marketplace might work out for you.
Running an online marketplace means you control everything from the mailing list to the pricing structure.
- You control the revenue stream, branding and advertising.
- You can charge a higher fee for things like premium listings etc.
- You can choose to excuse certain products if they don’t fit your brand.
- You can do what Amazon does and cross-promote products—you will earn from seller fees regardless of which listing wins.
After the initial workload of setting up your online marketplace, you can automate most processes. e.g. invoicing, new product listings etc.
More reasons why becoming an online marketplace is a must:
- Becoming an online marketplace is the quickest way to extend your product range and enter new categories
- Your customer database benefits from the product range appealing to a broader market
- You can build a community of like-minded online sellers
- You have a front-row seat to customer data
- Online marketplaces often make more sales per transaction
- More products mean more SEO opportunities
- You can quickly adapt to product trends by inviting new suppliers to sell through your online marketplace.
- You’re able to build your brand by selling third-party products.
Finally, the cost of setting up an online marketplace is not too different from the cost of setting up an average eCommerce site.
But there are caveats.
Caveats that might make your dream of running a utopian marketplace feel more like a dystopian nightmare.
Cons: Why you should absolutely not become an online marketplace
Like any coin, turning your eCommerce store into a marketplace has an upside and a downside.
Let’s see if these downsides deter you from busting out as an online marketplace.
- Launching can be rough. 90% of eCommerce (online only) businesses fail in the first 120 days.
- It’s risky. Imagine finding investors, pumping out your advertising and then the site crashing from a few thousand people trying to sign up within the same day.
- It might speed up your expansion, but at what cost? You’re certainly not making the same margin.
- The bigger you get, the more you’ll have to negotiate margins, licensing fees etc.
- You’ll need to put in to get the buy-in from suppliers and online shoppers
- Managing the performance of dropshippers can go rogue.
- Customers compare prices; you lose the sale to third-party sellers. Unless your products tick every box for the customer, you could forever be living off the margin crumbs from other sellers.
- Brand loyalty becomes marketplace focused rather than product-focused.
- Setting up accounting systems, contracts etc. and then administrating selling and licensing fees can be costly. Reporting can get out of hand.
- Online marketplaces can suffer from negative feedback due to poor quality products, or your suppliers might fail to deliver on their end of the sale—especially when dropshipping is involved.
- Marketplaces can take a huge toll on your customer service team. Dealing with customers can feel like a 10 hr drive with a bunch of snotty-nosed whingers in the back seat. Can you ensure quality customer service?
- Marketplace sellers may hold you accountable for their failure.
- Before you start a bakery, you need to know how to bake a muffin—make sure you pace your growth at a rate you can handle.
Phew! That was heavy.
Still here? Kudos to you. Let’s read on.
What does it look like to become an online marketplace successfully?
Remember that old-school Kevin Costner film called Field of Dreams?
With the iconic line, “If you build it, they will come.”
Unfortunately, when it comes to becoming a marketplace, this ill-advised mentality means certain failure.
So, here are your simplified steps to becoming a leading online marketplace:
- Test your idea – Question suppliers and potential online shoppers. Compare your eCommerce site to competitor eCommerce sites.
- Structure your seller accounts and seller fees – Will you take a commission, listing, or monthly subscription fee?
- Choose your online platform – There are several eCommerce platforms, like Woocomerce, Shopify, Magento, and more.
- Run a live test using your products.
- Find third-party sellers to join your posse – You can advertise or share the opportunity in business directories, networking groups, online forums, offline stores, etc.
- Launch your marketplace and start selling.
- Promote with PR and online advertising.
Retailers who turned to the “marketplace” side
You might wonder, “are there any great examples of other online retailers who stepped into this eCommerce sales wonderland?”
As it happens, there are.
Here are a few that became some of the biggest online marketplaces across the globe:
- Best Buy (Canada)
- Go Sport (UK)
- Walmart (USA)
- Woolworths Everyday Market (AU)
- Urban Outfitters (USA)
- MYER (AU)
- Kroger (USA)
- Bunnings (AU)
And now, in 2022, Macy’s has announced that they are launching a curated digital marketplace for its flagship brand and Bloomingdale’s.
So, is there an expectation for every online retailer to become an online marketplace?
Will those who don’t “marketplace” be left behind?
Will there come a time when we’ll only want to shop using online marketplaces?
Or will there be a shift back to selling triggers like exclusivity?
For example, will online shoppers be more likely to boast about purchasing a shirt from an online boutique store or a niche marketplace?
Maybe these statistics can offer some direction.
Speed of growth:
- Amazon’s global marketplace adds 2,000 new third-party sellers every day. They’ve done so since 2016.
- Amazon (U.S.) welcomes 800 per day
- Walmart has 800 sellers join per month
- Etsy brings in twice as many marketplace sellers as Amazon, and eBay adds even more.
Marketplace growth in 2022:
- Public and private unicorn marketplaces grew by 70% in value since January 2020–from $2.9 trillion to $5 trillion
- The number of fashion marketplaces has shot up by 142%.
The trend of starting a marketplace is such that even pop culture junkies TikTok created TikTok Shopping.
Plus, Walmart’s marketplace eCommerce sales grew by a whopping 90% compared to the previous two years.
But that’s not all. Wish, Google Shopping, and Target look like they are becoming global marketplaces.
Online marketplaces are here to stay and are fast becoming the standard in how an eCommerce business increases capacity for speedy growth.
But you’re still not bound to becoming one yourself.
There are three ways you can move forward:
- Become an online marketplace
- Become a marketplace seller
- Use an alternative scaling method like the Longtail UX Customer Acquisition Platform. You still see rapid growth without settling for a lower margin—more on this below.
Becoming an eCommerce marketplace isn’t vital to your success.
Being involved in at least one of the three options above is.
Questions for the online marketplace dreamer
With everything you now know about becoming a marketplace, let me ask you a few questions that might have you shifting in your seat.
- Does becoming a marketplace fit your brand?
- Does your target market prefer to shop through an online marketplace?
- Are your competitors becoming online marketplaces? Have they succeeded? Why/why not?
- Can you support the customers and the businesses who will sell through you?
- Do you have the technology and the team to optimise product content quickly?
- Do you have the investment and advertising budget to compete with other marketplaces?
- Are you prepared to negotiate margins and fees as some sellers become more successful than others?
- Do you have the stock numbers and personnel to handle rapid expansion?
Conclusion: To marketplace or not to marketplace?
Online Marketplaces aren’t going anywhere.
And it’s clear: For your business to grow—to scale—you must either be a seller or the marketplace itself.
But maybe you’re still hesitant to leave your online success up to the strength/weakness of a marketplace.
And you might feel like becoming a marketplace is more effort than it’s worth—or more than you know you can handle.
Here is an alternative that removes the downsides of a marketplace and makes scaling even more viable.
About Longtail UX:
Longtail UX is the creator of the LUX Smart Page: a hyper-relevant, multi-product landing page. Each one targeting a single long tail keyword and only shows products that are an exact match of the search term.
The more long tail keywords that are relevant to the products you sell online, the more pages we can build for you—And the more customers you acquire.
Click here to see what the LUX Smart Pages look like plugged into your site.