5 Reasons to Start an Online Marketplace Business

5 Reasons to Start an Online Marketplace Business

Jack Lee

Nowadays both consumers and businesses have both moved their interactions online. Statistics show that the number of e-commerce sales worldwide will continue to grow in the coming years. An online marketplace is an e-commerce site where third-party users or companies provide products and services. 

New marketplaces tend to appear each year. Newcomers function alongside giants as eBay or Amazon. In fact, 35 of the current top 75 online marketplaces have launched between 2010 and 2015.

What exactly is an online marketplace?

An e-marketplace is a website or app that serves as a mediator between companies and customers or individuals offering products or services. Transactions within the website are processed by the marketplace operator. Usually, he doesn’t offer products or services on his own but provides a platform where the participants can interact.

According to research done in 2017 marketplaces account for almost 50% of online sales worldwide and customers have spent $1,5 trillion there. Here we’re going to share some reasons and benefits of running your own marketplace.

Revenue

The owner of the marketplace can choose the right revenue stream to fit the platform’s market niche and align with its business goals. This actually determines it’s a success. Some of the monetization models include commissions, subscriptions or advertising. You can, of course, combine several ones, but it’s best to start with one.

Some of the most successful companies like eBay and Booking, for example, use the commission model.

No inventory

This is one of the huge upsides of an online marketplace. Inventory is the things that your business owns but has yet to sell. If the inventory is perishable, it may rot and that would be a loss. Even if that’s not the case, most things lose value over time. Inventory problems always cost either money or customers. 

An online marketplace, however, doesn’t need any inventory. It is only connecting people that want to share or sell goods and does not store any. It saves on all costs of inventory and facilities. However, this doesn’t make things easier. You just don’t have to worry about all the money sitting in boxes.

Exponential Growth

The exponential growth of demand problems for vendors and resellers. We know growth is crucial to any startup that wants to be successful. A good reason of marketplaces being so attractive today is their capacity for fast and massive growth. They only facilitate a transaction and not take part in it. That’s why their labor force doesn’t need to grow with the growing number of transactions.

Staff is only needed to maintain the platform and increase its usage. This makes an online marketplace capable of rapid growth, which is usually a hard process for other businesses. This attracts many investments and interest.

A Scalable Business Model

As we already mentioned a marketplace doesn’t need to invest in inventory, which makes it less financially risky than an e-commerce store. What challenges marketplace owners is the balance between supply and demand. The higher-quality vendors attract more customers, while on the other hand, a growing customer base attracts more vendors.

Convenience

A major appeal of an online marketplace – it’s convenient. That’s the biggest desire of customers. They want convenience. The e-marketplace brings lots of offers together and the user is more likely to prefer an app with a broad range of options. This gives them the freedom to choose whatever they want without having limited options.

Downsides

Of course, as most things marketplaces have their downsides. One of them is that you need a massive pre-launch promotion, which can be very pricey.  Also, you have less control over the customer experience and that’s very difficult to handle.

Giants like eBay or Amazon exist and your business should compete with them. This is something that sounds very discouraging and you really need to think it through.

Another disadvantage is that low-quality products and flawed offers might affect the image of your marketplace and there’s hardly anything you can do about it. Your only way is to implement a filtering system for sellers.

A common problem of online marketplaces is one of the sellers and buyers. Which one comes first? It is a hard beginning as the business is notoriously difficult to spark

However, if you overcome the challenges, your online marketplace might be the next big thing.

Conclusion

We’ve listed 5 of the reasons you should start your online marketplace. In the era of online shopping this is a great business prospect, but keep in mind all the difficulties it brings with it. It provides overwhelming advantages and some pretty bad downsides as well. If you manage to deal with them, the massive success is promised.

If you are looking to create an online marketplace, we can help you with the overall web design and development. Don’t hesitate to get in touch should you have any questions. 

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