MARKETPLACE VS ECOMMERCE WEB

In the web industry, a marketplace is an e-commerce website. However, not all e-commerce websites are marketplaces. What are the sheer differences between these two different models? We gathered ten main ones to help guide you through your Marketplace journey.

1. Lighter initial investment
With an E-commerce website, it is often necessary, in order to jumpstart your activity, but also to maintain it, to invest beforehand a great sum of money in inventory, as to create a large offering for the clients. Marketplaces offer the advantage of letting their sellers handle their stock on their own, which can considerably reduce your initial investment. Thus, Marketplaces will generally be able to index more products, as it gathers them from multiple vendors, without endangering its finances. The cost of launching a marketplace website is roughly the same as a quality e-commerce website, despite being much more complex.

2. A much larger inventory
The greater the inventory, the more likely it will be for a customer to find what they are looking for. A larger catalog however implies that more work will be put into merchandising as the attention span of your visitors will eventually diminish even if they are interested in the website.
The Pareto principle tends to apply in Marketplaces, as a minority of products will amount for the majority of sales. On E-Commerce websites, that means you will have to get rid of unsold products at some point, by vastly lowering their prices, as keeping them in stock would prevent you from stocking something else that sells better. On marketplaces, you can choose to deactivate a product that doesn't sell with the push of a button. Since you never bought it, there are no costs associated.

3. A scalable model
As a Marketplace doesn't buy any products, it takes considerably less financial risks than traditional E-Commerce websites that has to constantly invest in stock that may never sell. That way, Marketplaces achieve economies of scale more easily, and therefore allows them to expand faster than E-commerce websites. If traffic grows very fast, it may be necessary to more agressively seek new vendors to meet the demand, but you won't need to worry about spending large sums of money into new inventory or storing facilities.

4. A 2-ways customer relationship
Being able to sell a lot of products is good, but is not all it takes for success to ensue. Customers have to see your business as a major actor of the sector if you really want your activity to prosper. In fact, you also have to provide them with top notch customer service. This is no trivial task and can require a lot of commitment from an E-Commerce website, that is the go-to actor if anything happens or if customers have inquiries. On the other hand, Marketplaces play more of a mediator role that monitor transactions between buyers and sellers and only steps in if something goes wrong between the buyer and the seller.

5. Long tail marketing
Since a Marketplace indexes a great amount of products of the given sector the website operates in, it is able to give strong emphasis on its SEO and SMO, especially by positioning itself on more long tails than usual using Google Adwords. It therefore allows the company to market more specific products rather than general categories where competition is fierce and as such get better rankings in search engines. As a Marketplace doesn't ship the products to the customers directly, it cannot brand them, as opposed to E-Commerce websites. However, vendors will have invested in Marketing beforehand to promote their brand, so that expense won't have to be covered by Marketplace operators.

6. Positive cash flow
The result of these various savings is clearly felt in the finances of the company. Since E-Commerce websites have heavier initial investments to make to fire up its activity, its treasury will take longer to break even. Marketplaces have better profit margins since their revenue is essentially percentages of the transactions, which is money that they can subsequently re-invest into their activity in order to achieve a perennial growth.

7. A more complex navigation
A marketplace essentially gathers multiple vendors, each with their own product list, but all are eventually organized into one well-coordinated catalog, with therefore more references than traditional E-Commerce websites, as they are not limited by stock. It allows to create more detailed and hence efficient filters for the research bar, which means the user can then refine his search a lot more precisely.

8. Specific metrics
As a consequence of owning a more complex catalog, Marketplaces are able to further track their sales with more accurate metrics. It can, for example, not only know which are its best products but also know which vendors are more efficient. As a result, it is able to set in motion the best measures for each scenario and promote content that truly matters to its users.

9. A volume approach
Primarily earning revenue from the commissions it deducts from sales, Marketplaces need to sell greater volumes of products than E-commerce websites do, as its margins for each sale are lower. As such, it has to deal with a lot more transactions, which is why it is critical to stress on the automation of its systems as much as possible.

10. Different technology
Nowadays, a large amount of solutions that can be used to build an E-Commerce website are available on the market , such as Magento, Prestashop or Shopify to only mention the most popular ones. The necessary technology to build a Marketplace is different, while it is possible to theoretically build one with the previously mentioned technologies, it is very complicated because they were not meant to be used that way. Real powerful Marketplace solutions come down to very few competent actors on the Market at the moment, IZBERG Marketplace being one. Developed since 2012, our complete solution comes with several modules that can transform any website into a multi-vendor platform.

In 2013, a study from French E-Commerce trade union Fevad shows that among online merchants, those with a Marketplace has recorded a growth twice superior as those who didn't, on average. Thus, could Marketplaces be the natural evolution of E-Commerce websites, holding the key to perennial growth? Fret not, you do not necessarily have to choose between one or the other, as Marketplaces can very well complement existing E-commerce websites.