Amazon, eBay, Etsy, Pinterest… even Facebook. The world of online marketplaces is a booming one and, for consumers at least, they are often the first point of contact for buying pretty much anything online – they are becoming the de facto online shopping search engines.
But what exactly are marketplaces, where did they come from and how should you choose which ones to be on?
What is a marketplace
The official definition of a marketplace is” an e-commerce site where product and inventory information is provided by multiple third parties, whereas transactions are processed by the marketplace operator.”
In an online marketplace, consumer transactions are processed by the marketplace operator and then delivered and fulfilled by the participating retailers or wholesalers (often called Drop Shipping).
In general, because marketplaces aggregate products from a wide array of providers, selection is usually more wide, availability is higher, and prices are more competitive (compared to vendor-specific online retail stores).
There are two kinds of marketplace: those that specialise in a single product type (such as shoebuy.com, erento) and those that offer pretty much everything (such as Amazon, eBay, Rakuten etc…).
According to power tool marketplace erento: “Online Marketplaces can offer a cost-effective way to build an online presence and tap into the enormous revenue potential that the Internet now offers. The opportunities available online have seen the growth in such marketplaces which have been developed often to help time-strapped buyers with a one-stop solution for their needs.”
Marketplaces can help any vendor sell to anyone as they tend to expert at search engine optimisation (SEO), marketing and promotion. They can however lead to your customers becoming loyal customers of the marketplace rather than you the retailer, which can cost dear in terms of loss of up and cross sell opportunities and repeat business.
Examples of online marketplaces include Amazon, eBay, Rakuten, erento, etsy, OnBuy, UniSquare, FlipKart, Bubbles and many, many more.
Where did they come from?
The history of the marketplace is interesting as they are, in part, the history of the internet. The first – to all intents and purposes – was Amazon, founded by Jeff Bezos in 1994. Originally called Cadabra (from Abracadabra) and set up to sell books online in the very early days of the web, the company changed its name in 1995 to Amazon to be (a) easily found as it begins with an A; (b) because the Amazon is the largest river in the world; or (c) Because people kept calling Cadabra “Cadaver” (you choose which is the right answer!).
As the web has grown, so has what amazon sells and it now bestrides the globe and sells pretty much everything – even moving into the grocery business in the UK this year.
Currently, its biggest rival has become eBay, which was launched in 1995 as an online auction site that allowed users to sell their secondhand stuff online to the highest bidder. Since 2010, however, it has morphed into a site that sells new and has to all intents and purposes become a marketplace.
Across the work there are many, many others often serving their own domestic or regional markets, but they all work in pretty much the same way, with the same challenges. They essentially aggregate products or retailers of specific products and operate across regions and business sectors.
What are the key marketplaces… and what are their pros and cons
The big dog – Amazon is the largest marketplace in the world and sells pretty much everything.
• Amazon.com is the fifth most visited website in the United States, and in the top 10 in the UK consistently, so it provides huge selling opportunities. The number of merchants is large as well though, so you have to constantly look for ways to stand out from the crowd.
• The Amazon’s platform is very reliable and is designed to prevent fraud from customers and ensures them of their order’s safety as well. This two-way security brings additional trust – most people tend to use well known marketplaces such as Amazon as it’s generally considered to be safer than smaller competitors or private online stores.
• Simple pricing is one of Amazon’s key selling points. Selling on your own online store might inflate the marketing costs to heights you wouldn’t have ever expected and it’s not easy at all to determine future profits. Amazon, on the other hand, collects a fee for each item sold, usually a percentage of the price – and that’s pretty much it.
• Amazon has a lot of merchants you’ll have to compete with. Even if you manage to outsmart them all, there’s nothing that would stop the marketplace from identifying that your products are profitable and offering them to the customers itself. At better price and better conditions, of course.
• Depending on the situation, you won’t get your money for 14 to 90 days after selling an item. For smaller sellers, it might cause some difficulties of running business.
• There are cases when Amazon closes a merchant’s store without any obvious reasons. Just a couple of negative reviews can evoke substantial problems, even though they make up only a small percentage of all your customers. The only way to completely avoid this is to satisfy every single customer, which might prove to be rather difficult.
A contemporary to Amazon, eBay has similar presence on the internet, but the business model is slightly different. The largest C2C (consumer to consumer) marketplace on the internet, it provides a possibility to sell nearly anything you want by setting up an auction as well as by a fixed price. It is increasingly moving into selling more ‘box fresh’ new goods in direct competition to Amazon.
• eBay.com ranks as the 7th most visited website in the United States, and most of these visitors can become your customers if you know how to reach them.
• If you’re selling rare or unique items, the auction system might prove to be your best friend, as the price can inflate to unexpected levels. If your merchandise is widely available, selling with a fixed price might prove to be a better choice though
• Increased trust. eBay has anti-fraud systems in place, increasing the confidence of customers, as they are ensured they’ll get their money back if they don’t receive exactly what they ordered. This usually leads to increased sales, as trust is one of the most important issues when buying online.
• eBay requires that all transactions are made through PayPal. While this increases security of both parties, it might cause some unexpected problems which can range from withholding your earnings for a long time to an overall closure of your account.
• If you’re selling items that can be easily counterfeited, such as perfumes, clothes and other branded merchandise, you might find some competition that offers the same items for a much lower price. They are almost certainly fake, but they can easily get lost in the ocean of products offered on eBay, resulting in you losing potential customers.
• The auction system is one of the main advantages of this selling system, but have in mind that if your items are easily accessible, you shouldn’t expect extensive bid wars on them. This might make you lose some profits you may gain in other marketplaces.
Etsy differs from the other online marketplaces, in theory at least, because it is a community for crafters and sellers of ‘vintage’ goods. Unlike Amazon, it operates more like eBay used to, being a community of buyers and sellers.
• The pros of using Etsy are the same as any marketplace: it obviates the need for a crafter to set up they own website; it is a great shop window for what you do; it attracts a relevant audience and offers simple payment tools.
• Low cost: each item you list costs $0.20 plus a 3.5% transaction fee – unless if sellers elect to use Etsy’s “Direct Checkout” feature, a 3% fee is charged on each transaction.
• Well known, well respected and well used by shoppers for crafts and vintage.
• It takes a lot of work to promote yourself on Etsy, say many of its users – you have to describe each item and offer help to anyone looking which can make running Etsy shopfronts more of a full time job than any part time user may want.
• It can also be cumbersome to post individual items
• Manufacturers and brands can also be on there competing with you.
Alibaba is the ‘Chinese Amazon’ and as such is possibly the biggest marketplace in the world – though it has, until recently, only really operated in China. Increasingly, companies and sellers in the UK are trying to tap into the lucrative Chinese market through Alibaba’s Tmall subsidiary. It has also opened a UK site too in recent months, so if you are looking at marketplace selling, it would be wrong to overlook it.
• Alibaba is the most popular destination for online shopping, in the world’s fastest growing e-commerce market. Transactions on its online sites totaled $248 billion last year, more than those of eBay and Amazon.com combined.
• Huge audiences for your goods offer you great scope and scale – and value for money when posting.
• Works on a revenue share model rather than a fee based structure so is more co-operative between site and the seller.
• Revenue share model may be costly for lower value sellers getting started
• Cultural issues – especially ‘rent’ culture in China (or bribes as they are known elsewhere) – could see your listing fall way down the list
• Language is a barrier is selling into China. The Chinese love English goods and the kudos they bring, but you need to be able to list in Chinese to be fully effective.