Marketplace: Types and business models

Tech entrepreneurs and companies worldwide come up with new web and mobile platforms to facilitate increasing eCommerce demand. As a result, one of the most powerful sites today is a marketplace.

Let me clarify the definition of a marketplace first, before I navigate you through different types of marketplaces and the business models they suit best.

So, what is a marketplace?
– An online marketplace is a type of eCommerce site that offers products and services from different merchants. Consumer transactions are processed by the marketplace operator and fulfilled by the merchant. – (Wikipedia)

2. BASED ON TARGETED AUDIENCE:

• B2B – Business-to-Business: Business Services/Products to sell to businesses
• B2C – Business-to-Consumer: Business Services/Products to sell to individuals
• P2P – Peer-2-peer or Customer-to-Customer – connecting individuals

3. BASED ON MANAGEMENT APPROACH:

• Unmanaged – usually peer-to-peer, where customers look at ratings and reviews when considering a purchase. The marketplace owners don’t invest in background checks, quality assurance, or feedback analysis. In general, the more a marketplace manages itself, the lower its fees. Fiverr, eBay, and Etsy are unmanaged marketplaces.
• Lightly managed – like Uber, Airbnb, and Grubhub, that invest, somewhat, in quality control and background checks. For Airbnb, these investments are for customer service and user verification. For Uber, costs include verifying drivers and ratings.
• Fully managed – covers the whole sales process for sellers. For example, Opendoor, a marketplace for real estate, buys properties from sellers and puts them on the market. The only thing a seller needs to do is confirm the offer.

HOW TO MONETIZE A MARKETPLACE?

Here are the most common marketplace business models:

1. Commission:

charging a commission for every transaction that occurs in the marketplace. The biggest advantage for marketplace owners it’s the most lucrative. The marketplace gets a piece of all the transactions that pass through it. Well-known marketplaces like Alibaba and Fiverr use this business model as their main revenue stream. The commission-based model scales well and, most importantly, is suitable even for marketplaces with relatively low transaction volumes.

2. Membership/subscription fee:

based on charging monthly or annual fees to merchants for using a certain set of marketplace features. This model is most suitable for marketplaces with high volume and on which customers tend to make repeat purchases. (Example: LinkedIn B2B Solutions)

3. Listing fee:

Etsy also charges a fee for listing products. Listing an item on Etsy costs $0.20. but there are also premium listings, like on Craigslist, when the seller pays for better visibility and a higher search ranking.

4. Lead fee:

customers post requests on the site, and merchants and service providers pay to bid on these customers. The model gives a better value proposition than the listing fee model, because you only pay when you are put in touch with a potential customer. This model is not common in P2P marketplaces.

5. Freemium:

the core offering is free, but after users are hooked, you offer paid, value-adding features. (Example: LinkedIn, https://unsplash.com/ )

6. Featured listings and ads:

for merchants and service providers to buy more visibility for their offerings. If this model is used, listing on the site is typically free, but providers can pay to have their listing be featured on the homepage of the site.

Conclusion

Does your company need its own marketplace? No matter what type of marketplace you need and how wish to monetize it, ITFAQ’s extensive experience in marketplace development will ensure you get the ideal eCommerce solution for your business.
Contact us today to get started on developing your marketplace platform.