What Is a Marketplace? What to Know About the Online Marketplace Model

Key Takeaways

• An online marketplace is a website where buyers and sellers come together to transact business electronically. The owner of the marketplace takes a cut of the money changing hands.
• Marketplaces that are online are an excellent business opportunity because the company holds no inventory, instead using that money to improve customer satisfaction and increase marketing for the marketplace.

Online marketplaces are transforming the way we shop, connecting customers and vendors from across the globe with ease. For entrepreneurs, these virtual stores can help you establish an affordable business in the digital age.

By embracing today’s technology, anyone can be part of what is now becoming our global marketplace: A community where buyers and sellers meet on one easy-to-use platform that brings together products ranging from all sorts of categories worldwide.

Does running such a marketplace have any advantages over a traditional eCommerce store? Are there still opportunities in the marketplace sphere? Let's find out more about the marketplace business model and answer the question, "what is a marketplace"?

Online Marketplaces: A Definition

What is a marketplace? An online marketplace is a particular type of market that uses a website and/or app that allows buyers and those who sell products to connect and trade goods or services. It is a C2C eCommerce platform site where companies, individuals, and organizations can purchase items from other companies or private individuals. These marketplaces provide the convenience of shopping from home, as well as various payment options and delivery services.

Marketplaces differ from online stores because the owner of the marketplace isn't selling products directly; they are the facilitator of the sale, bringing those who buy and those who sell together.

In other words, other businesses come to you to make use of your platform and sell their products. You take a cut.

The Advantages of Owning an Online Market

Marketplaces that are online allow businesses to increase their reach by selling their products directly to consumers without the high overhead costs required for traditional retail stores.

For example, a small business can create a seller account in a marketplace's online store and start selling products online without needing additional staff or resources. This makes it much easier for small businesses to compete with large companies on a global scale, especially if the focus on a niche part of a select industry.

Although managing a marketplace may seem complex at first, it can actually be easier than directly running a store online and is a winning systems for everyone involved. Here's why.

The Marketplace Holds No Inventory

This is the most enticing part of having your own marketplace.

By not having to keep inventory like you would with an online store, you'll be risking much less when you choose to open a marketplace online. Transactions happen on the site, and you take your cut...no shipping required!

1. No Inventory Investment – When you manage a marketplace, there's no need to invest thousands to millions of dollars in inventory.
2. No Warehouse Costs – If you aren't offering your own products, there's no need to rent a warehouse or purchase additional space to store inventory.
3. No Overstock Problems – When you don't hold inventory, you don't have to worry about that inventory getting old or going out of style. You also don't have to guess whether the stock you own is simply unpopular or whether you just never found the right price.
4. No Shipping Problems – If you aren't offering physical products, you don't have to worry about buying boxes, tape, and packing materials. You also don't have to invest in inventory software, not to mention the need to hire people to ship items.

Improve Customer Satisfaction

Since you own the marketplace, you don't have to focus on any of the problems of having physical inventory that we mentioned above. That means you can focus on making every end user—seller and buyer alike—as happy as possible.

Running a marketplace requires entrepreneurs like you to take the reins in creating a platform that meets user needs, typically via the curation of content and moderation of any problems. This is the value that people on both end of the transaction are looking for.

Because you can focus all of your energy on making marketplace users happy instead of running the inventory part of the equation, you simply focus on customers and their satisfaction. That's something that can keep them coming back again and again.

Scale with Ease

We always suggest that you take time to create a 3-to-5 year plan for you business. You want to plan for the future, to have a vision as you grow at a steady pace so that you don't quickly outgrow your marketplace software platform.

But what if your business takes off right away and experiences 10X growth before you know it? That's a good thing...but only if you are ready for it.

In comparison to other digital enterprises, marketplaces are a lean business model that scales easily. Adding thousands, or even millions, of listings can be accomplished with additional Cloud servers—but only if you pick a robust and scalable marketplace platform in the first place.

Because there's no money tied up in inventory, incoming funds can directly be funneled right back into growing the business instead of renting more warehouse space and hiring more shipping staff.

Vendors Selling Makes You Money!

Whether it's a C2C, B2B, or B2C marketplace, online marketplaces have revolutionized how people shop for products and services in our modern world. By offering convenience and accessibility to customers around the world and allowing businesses of all sizes to compete globally, these platforms are playing an increasingly important role in today's digital-driven economy.

If you're curious about an idea you've had for an online market and what it would take to build a multi-vendor marketplace, we'd like to talk to you. Clarity offers a complimentary discovery process where we'll work with you to create a plan. We have both business advisors and technical staff that can guide you on the path to reach customers. Get in touch with us to make your marketplace B2B idea happen!