Marketplace: The Savvy Middleman of eCommerce
Online marketplaces are the modern interpretation of the middle age’s middlemen. Their business is to make sure a buyer and a seller meet and get a cut off a deal.
With technology taking over the old ways, all the “middlemanship” has gone online.
In 2020, marketplaces compete fiercely on both sides of the commerce equation: they fight to attract more sellers and pay a hefty amount to get millions of buyers clicking their way to the checkout page.
Are you in the market for developing your own marketplace but have little-to-no idea about the cost, time, effort, or best practices involved?
Are you hesitant to start your own online marketplace from scratch or use a SaaS solution like Sharetribe?
Do you need to know more about the monetization options of such a business model?
Could you do with a bit more understanding of the must-have features of a marketplace?
Read on for the practical, actionable insights from a software development company specializing in Custom eCommerce Development. We have a fintech marketplace development under our digital belt as well as eCommerce clients like Nordstrom and Tailored brands to base our advice on.
Definition and Types of Online Marketplaces
When it comes to defining a marketplace, there's virtually no need for that. Pretty much everyone with access to the internet and a credit card has used one of those or regularly does so.
They are convenient and safe, have great customer services, a dizzying assortment of choices, fool-proof search options, and a shopper-friendly return policy. What else could you desire?
But if you are going to try on the cap of an eCommerce entrepreneur, it’s best to understand the nitty-gritty of the underlying theory, specifically the difference between the marketplace software and eCommerce store.
What is the Marketplace?
The marketplace is an online platform that enables a user of a service or product to find, choose and pay for it, at the same time enabling multiple vendors to create their storefront and fill it with items to sell / rent.
Marketplace vs eCommerce Website
Middleman Role vs Seller Role
Marketplace owner is a middleman, who may choose to sell or not to sell any items at all. The main business model is a commission off sales by other vendors performed via the platform and/or advertising and sponsored placement.
Etailers with an online store create the shop to sell their own products.
Single vendor vs Multiple vendors
Online shops will only carry one seller who has access to the admin panel, while platforms may have thousands or millions of them.
Unique Features: Recommendation Engine, Vendor Dashboard
Marketplaces will usually be more technically complex with extra features, like a comparison of vendors, vendor ratings, recommendation engines, store admin panel, etc.
Terms & Conditions
Shipping, delivery, payment terms, warranty, and a return policy are uniform for an eCommerce store.
The same terms will vary for every vendor on a marketplace, so that's why a robust module should be created by an eCommerce development company to allow for multiple options in the vendor admin panel.
Types of Marketplace Platforms
First things first: there are both online and offline marketplaces. If you can bargain with a dude about the cost of a carpet and bring the price down by two-thirds in the process – congrats, you are shopping in an offline market. Just kidding.
Online Marketplaces are categorized according to different parameters:
The subject matter of sales/rental:
- Product (Amazon)
- Service (AirBnB)
- Consulting (Upwork)
- Hybrid (OLX)
Who 2 Whom
- B2B - Business to Business
- B2C – Business to Customer
- P2P – Peer to Peer
- Retail / eCommerce
eCommerce Marketplace Business Model
Monetization of a marketplace is manifold, so at the end of the day, many of the big players end up with a few revenue streams in the pot.
However, it makes sense to be approachable during and after the launch of an online marketplace platform to attract more vendors.
These are the basic methods of how platforms that provide a space for a seller and a buyer to meet and perform a transaction to make money:
This is a widespread model for many platforms. A percentage of each successful sale is extracted towards the profit of the platform. A percent may be as minimal as 5% or as high as 30% off sales.
In this business model, owners can forecast their earnings as soon as they have reached some steady pattern of sales, and there are no noteworthy new competitors on the market.
In this model, vendors will pay a certain amount regularly to have access to the feature of the resource.
One of the most widely used techniques when it comes to classified ads and similar platforms is the one in which a user only pays to add a name to the marketplace. Many premium domain marketplaces will have this structure, such as for example, BrandBucket.
One of the best monetization methods for quick acquisition of new vendors, whereby many of the basic features are free and some of the advanced features are paid for
Advertising, Sponsorship & Preferred Placement
Amazon uses it, Booking.com uses it, and many other giants use it as the only one of the major revenue-making streams in their business model.
It’s basically like Google ads, only they are not Google. Because there are so many goods on the platforms, being featured on the first page of search results costs money to vendors. This is the best way to get exposure to lots of highly converting traffic.
Custom Online Marketplace Development vs Open Source Software vs SaaS
Now, you have decided to go ahead and create a multi- vendor marketplace. What are your options?
There are 3 of them: to build a marketplace website from scratch, to use open-source software like Magento, or to use a turn-key SaaS solution.
Developing a multi-vendor marketplace platform
This option provides the most flexibility in terms of design, logic, features, and business model. It’s the most unique and scalable way to approach the mission.
On the other hand, it's time-consuming and can be pretty pricey, depending on your vision.
It’s a great choice if you have initial capital and decided to create another business to diversify your portfolio. You may have a specific niche where you see a gap in supply and want to address it, or you may want to copy into the market an existing platform that has low adoption by international players, and give it a push with localization.
Using Open Source Software
Magento, OpenCart, Sharetribe, Drupal, and other eCommerce platforms allow for a possibility to turn an eCommerce store into a marketplace with the help of mostly paid for extensions.
You are somewhat limited by both the open-source solution and the extensions, and your site looks a lot like the other sites. You still need some software development company to complete the job for you, but the basic software has cut the time necessary for customization by many times.
Marketplace SaaS solution
If you have limited funds and time, or if you are looking to experiment and see the demand for a marketplace in your niche and geo, a SaaS tool might be a good fit.
Sharetribe, Marketplacer, and Near Me are the biggest players in this space, and their pricing starts from as low as $79 per month with limited features.
You probably can DIY the site too by following a YouTube tutorial. Needless to say, you will have very little flexibility, need to upgrade your pricing plan once too often, and are stuck with the site like every other one. Should the business grow, you will consider switching to a custom marketplace platform.
It’s a great way to start a business quickly and to test a niche though.
Marketplace Features that are a User Expectation
If you were puzzled about how to create an online marketplace like eBay, you may start your journey by enumerating the features you absolutely love about this eCommerce platform.
Many of them are standard table stakes in the industry. In fact, with giants like Amazon and eBay molding the agenda of the industry, it’s pretty easy to learn from the best. We find these fundamental features to be absolute must-haves for any marketplace platform:
All of these features are truly user expectations at this point. Yes, they will be taken for granted by the platform visitor. No, you cannot deviate from this basic list much without losing coveted traffic and credibility.
How Do You Build a Marketplace App or Platform?
Once you decide on the method of platform development and choose one of the first two options: custom code or open-source software-based product, you will need to find a software company to help you implement your vision.
Before you even start looking for a company that will either deliver a project for you based on your requirements or hire a team for your project manager to manage, consider doing some homework:
- Research the global players in your chosen niche, check out their revenue model, technical foundation, beginnings, etc.
- Research the big local players in your chosen niche and type of marketplace platform.
- Find one thing that will make your product different from existing offers: be it a more flexible commission, tons of marketing budget, fastest delivery ever, delayed post-payment options, customer service, etc. Without a differentiation point, you are likely to be swept off your feeble feet before you even start.
- Analyze the must-have features you want to have in your eCommerce multi-vendor platform.
- Send a request for information to a few pre-selected software development vendors from different locations, like the USA, Europe, Eastern Europe, and Asia. Give Zoolatech a chance too, right? It's just an initial request, and we'll be delighted to make our best offer.
- Choose the best custom web development company based on rates, a technical solution with offered expertise, years on the market, portfolio, and responsiveness.
- Do a prototype and create documentation supporting the project
- Have UX/UI design made & approved
- Choose your tech stack.
- Develop the platform and soft launch it.
- Keep testing & scaling.
- Promote your marketplace and continue to work on enhancement endlessly.
Zoolatech Can Help: eCommerce Expertise & Fintech Marketplace Case
Oh, yes, you heard it right!
We are experts in everything retail and eCommerce (does Nordstrom ring a bell?)
We have experience developing a marketplace with a fintech client as well.
Zoolatech is rooted in Silicon Valley, so all the business processes from Request for information to the finalization of the contract are executed in the best of western traditions.
Our development team is located in Ukraine, Kyiv – so you get the best of English-speaking tech talent at a fraction of a cost of an American crew.
Sound too good to be true? Let us prove you wrong! Send your request for information here, whenever you are ready.