What is an online marketplace and when does it make sense?

Series: Online Marketplace Info

What are online marketplaces?

Online marketplaces are the digital equivalent of historic city centre marketplaces. As a digital platform, they offer suppliers the chance to present their range of offers and to be found more easily. This also brings advantages for the customers. Convenience is high - everything that people want is more easily available. This simplifies finding, processing and communication. And the suppliers also benefit from the better findability, the appeal of the marketplace brand and possibly other services of the marketplace.
That sounds tempting at first. Yet marketplaces are among the most complex business models. We take you by the hand on your way through the marketplace jungle.

Who are the entities involved?

Operator

Marketplace operators can be individuals or companies. They are the owners of the platform. Their tasks include setting up and operating the marketplaces, managing supplier and customer accounts and monitoring transactions. If there are problems or disputes, they are responsible for taking action to resolve them. Furthermore, marketplace operators can offer additional services to help sellers sell their products or services or to make it easier for customers to solve their problems.
Revenue is generated, for example, through advertising, one-off, monthly or turnover-based fees paid by either providers or customers. More on this will follow soon in another blog post.

Vendors

On marketplaces, private individuals or companies can offer their products and services. This is done on catalogue-like search and offer pages or on individual supplier profiles. Suppliers are responsible for their own product offerings and for meeting the marketplace requirements. In addition, the description and presentation of the goods is usually their responsibility. Customer enquiries and transactions are handled centrally by the operator or individually by the supplier, depending on the marketplace. In the event of violations of the marketplace rules, suppliers can be sanctioned by the operator. The providers' profit is generated by the sales margin.

Demand

Depending on the marketplace type, target customers can be either individuals or organisations. Customers usually have personal accounts. These facilitate purchase processing and communication in case of demand or complaints. On marketplaces, customers can browse different offer categories according to their wishes, compare them via different providers, make purchases and finally evaluate them.
Depending on the marketplace, the benefit for the buyer results from easier searchability and comparability, central payment processing or other individual advantages.

When does it make sense to have your own marketplace?

Running a marketplace has many advantages and disadvantages. So many, in fact, that we want to devote a separate blog post to this topic. Therefore, here is just a brief summary of the advantages with which companies can stand out from the competition with the help of their own marketplace:

  • Higher demand: Demanders love marketplaces because they have a large and wide range of products available to them here.

  • Regular income: Stable funding is ensured through various income opportunities on marketplaces.

  • Monetisation of user data: Advertising revenue from selling user data is another way to make money from running marketplaces.

  • Good standardisability: Processes between operators, providers and demanders are usually similar, so that successfully functioning aspects can be used as a blueprint for other areas.

  • Good scalability: Once an infrastructure has been developed online, it can be expanded much more easily than with local shops.

  • Opportunities for expansion and change: Through new providers, other service providers, innovative products or further integrations, marketplace operators can diversify their offer in a relatively uncomplicated way.

  • Simplified inventory: As a marketplace operator, having your own inventory is not a necessity. Since the providers are responsible for the transactions, a lot of obligation for storage and transport is omitted here.

  • Integration of services: Additional services can be a lucrative offer for providers with which marketplace operators can earn money and retain providers.

  • Integration of financial services: In addition to the various payment systems, marketplace operators can expand their offerings to include loans or insurance.

  • Differentiation from the competition: The differentiation of your product or service is not only based on price, but on other added values.

  • Reduction in purchasing costs: Requirements can be covered centrally and invoices are issued across all suppliers. This minimises your effort.

Summary and conclusion

On online marketplaces, providers offer goods and services to sell to potential customers.
Customers can find, compare and order products and services more easily. Suppliers themselves can present their products and / or services more easily on marketplaces and process transactions.

It can make sense for companies to operate their own marketplace in order to differentiate themselves from the competition and to position themselves strategically. Examples are a direct customer relationship, control over communication and presentation or personalised offers.

Do you have further questions about marketplaces or other development topics? Would you like to build your own marketplace? Then contact us! We will support you in setting up your business model and the right software!


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