Tech Entrepreneurs and Companies worldwide come up with new web and mobile platforms to facilitate the eCommerce demand. One of the most powerful sites today is a marketplace.
Let me clarify the difition of the marketplace first and then I will navigate you through the types and business models.
So, What is a Marketplace?
An online marketplace is a type of eCommerce site that offers products and services from different sellers. Consumer transactions are processed by the marketplace operator and fulfilled by the seller. (Wikipedia)
What are the types of Marketplaces ?
The marketplace can be defined:
Based on focus:
Vertical – focused on specific area/niche
Horizontal – mix industries
Based on Target Audience:
B2B – Business to Business: Business Services/Products to sell to Businesses
B2C – Business to Customer: Business Services/Products to sell to Individuals.
P2P (Peer-2-peer or Customer-2-Customer) – connects individuals.
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 less a marketplace manages by itself, the lower the fees it charges. Fiverr, eBay, and Etsy are unmanaged marketplaces.
Lightly managed – like Uber, Airbnb, and Grubhub 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 – cover 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 sellers need to do is confirm the offer.
Below are the most common business models in the marketplaces:
Commission – on charging a commission for every transaction occurring on the marketplace. The biggest advantage for marketplace owners is that this method is the most lucrative. The marketplace gets a piece of all the value that passes 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.
Membership/subscription fee – is based on charging monthly or yearly fees to sellers for using a certain set of marketplace features. This model is most suitable for marketplaces with high volume and on which users tend to make repeat purchases. (Example: Linkedin B2B Solutions)
Listing fee – Etsy also charges a fee for listing products. Listing an item on Etsy costs $0.20. There are also premium listings, like on Craigslist, when sellers pay for better visibility and higher ranking in search.
Lead fee – customers post requests on the site, and providers pay in order to make a bid for these customers. The model gives a better value proposition than the listing fee model: you only pay when you are put in touch with a potential customer. This model is not common in C2C marketplaces.
Freemium – the core offering is free, but after you get your users hooked, you offer paid value-adding features.
(Example: Linkedin, https://unsplash.com/ )
Featured listings and ads – for 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.