Understanding The Segmentation Of eCommerce Marketplace: Introduction

In the last few years, there has been an upsurge in electronic commerce. Today’s world is moving into an era of intangible business processes where business communications and transactions take place at the click of a mouse. eCommerce have found the internet as a new medium to deploy old age EDI traditional methods of business and thus getting a new boost.

In simpler words, the term eCommerce can be delineated as buying and selling of goods & services by transmission of funds, data over an electronic medium. The inception of eCommerce was in the 1960s when businesses started using EDI (Electronic Data Interchange) to share documents with other companies.

The Compact Timeline Of The Rise Of eCommerce

In 1979

The American National Standard Institute developed ASC X12a standard organization to maintain the EDI.

In 1980

Number of users using EDI rose to huge numbers.

In 1990

The rise of revolutionary eCommerce websites, eBay and Amazon.

An online marketplace is a genre of eCommerce site that connects those looking for products and services with sellers who have that particular product or service. It is an example of true green field opportunity. It creates new buying and selling opportunities. And unlike, an eCommerce site anyone can build a marketplace with minimal capital requirements since there is no inventory to build or manage.

eCommerce Revenue Statistics

Gartner estimates that the digital commerce platform market will grow at a Compound Annual Growth Rate (CAGR) of over 15% from 2015 through 2020, including revenue from SaaS, licenses, and maintenance.
Forrester estimates that B2B e-Commerce will top $1.1 trillion and account for 12.1% of all B2B sales in the US by 2020.

Revenues from ecommerce marketplaces are expected to double between 2017 and 2022. Juniper Research forecasts that the global marketplace platform providers’ revenues will grow from $18.7 billion in 2017 to $40.1 billion in 2022, driven by the sharing economy. The Americans are expected to contribute some 57.2% of it by 2022.

Segmentation Of The eCommerce Industry

eCommerce Industry Segmentation

Online marketplaces are more than just selling goods. Across the globe, there is a boom in the marketplace serving specialized demands and catering to certain niches.

Clothes, decor and electrical items; these are the most common and most popular products. The number of searches, the number of search results and the number of retailers are high on these specific products. For unique or niche-specific products, you may be the first retailer. The low count of retailers in a specific niche may help to direct all the traffic to your website.

For unique or niche-specific products, you may be the first retailer. The low count of retailers in a specific niche may help to direct all the traffic to your website. Click To Tweet

The success of niche-specific products is for a simple reason i.e. There are 10000 searches for clothing but there are at least 5000 retailers for the same, every retailer may or may not receive a customer. However in a niche based product, there are 500 searches and only a few retailers like maybe 5, this is when the cash flow starts.

Online Marketplaces For Products

Online product marketplaces involve the selling, buying and renting of products by paying money. These products can be either be delivered to the buyer or picked by the buyer from a mutually agreed location.

These involve three major transactions:
  • Retail new products
  • Resale old products
  • Rental products for a limited time use

Retail marketplace: Brings together sellers of products on the marketplace. It functions as a virtual marketplace for third-party sellers to sell their products.
The major demand for this marketplace is the ease of purchasing, access to a large market of buyers & sellers and the ability to compare prices online. Example: Amazon, Etsy

Resale marketplace: Focused on resale and re-commerce. Resale marketplaces are gaining popularity as an increasing proportion of consumers are opting to buy old and used items. Example: Craigslist, Ebay Classified

Rental marketplace: It allows people to rent out the items they own. In this manner, they can recover the investment on these resources they expect to use only rarely. Example: Turo and Airbnb

Online Marketplaces For Services

They allow providers to sell their services online:
  • Online delivery of services- these include B2B and B2C programs or software services as well as services that can be remotely delivered by specialists and freelancers.
  • Physical delivery of services- aggregate providers of physical services such as food services, beauty, wellness, booking platforms, maintenance, and household service platforms.
  • Direct booking of services on the website such as hotels, air tickets. Like Make My Trip.

Broader Segmentation Of Marketplaces: Business Models

Online Marketplace Business Models

A marketplace can be categorized in terms of participants (both in the demand and on the supply side).

C2C (customer to customer): Grass root transactions where private sellers sell their goods to peers. Presuming that there are no entrepreneurs and all participants are equal. They have similar interests, income and go to web platforms to share something. This helps to lower the administrative costs and get the best prices from the suppliers. Example: Ebay, Taobao

B2B (business to business):Businesses sell to other businesses to gain beneficial terms. Business to business online marketplace is operated by a third party. Open to buyers and sellers from a particular industry. A B2B situation occurs when procuring raw material from other businesses, needs services for operational reasons, re-sell goods produced by others. Example: Alibaba, walmart

B2C (business to consumer):It allows entrepreneurs and their customers to interact with each other. The advantage is that the customer gets everything they want and there is a wide variety of offers. Example: Amazon, Flipkart

B2B2C (Business to business to customer):Where a business rather than approaching the customers directly, assign it to another business. The end-user will recognize the business making the product or service in this model.
The table below shows a comparison between the three key business models for the marketplace. Example: Coca-Cola sells its products via an extensive distributor network to many eating joints, but Coca-Cola also markets their products directly to consumers.

Value of saleTens of dollarsTens and hundreds of dollarsThousands and millions of dollars
PricingNegotiable market based price (market price)Standard pricingCustomer pricing
Length of sales processHours to daysDays to weeksDays to months
Number of decision makers involvedOne or twoOne or twoSeveral people to a dozen or more
Complexity of buying processSimple enough; the price, delivery and payment terms are negotiableRelatively simple; the price, delivery and payment terms are negotiable, but more rarelyComplex, long stipulations concerning the price; all the nuances are discussed even all warranty
Motivations for purchaseIndividual needs or emotionsIndividual needs or emotionsBusiness needs
Buying process for provider to use marketplaceSingle stepMultiple stepMore multiple step
Goal tasks of marketplace
  • Present the good/service
  • Present own solution and UVP
  • Create a community of customers
  • Show a great variety of goods/services
  • Present the brands
  • Create conditions for competition (more comfortable, reliable, faster)
  • Suggest a solution for business
  • Sell to big players
  • Be the first in own niche
GapsPublic flea markets, private servicesRetailers (goods or services)Supply chain, wholesalers, service

Dissecting The Modern eCommerce Marketplace

Horizontal eCommerce: An eCommerce Marketplace sells products from a large number of categories. A horizontal marketplace targets all types of sellers and buyers. This is the traditional type of eCommerce and presents itself as a one-stop-shop for all the needs of the customers. They also tend to find supply chain or scale advantages that help them offer great prices. Popular Example - Amazon.com, sells everything a consumer would ever need like books, food, furniture, toys, groceries, apparel, etc. Amazon does not have to worry about inventory management thus can increase the category as much as possible. The outlook of the website is similar to a supermarket like Walmart.

Vertical eCommerce: Vertical eCommerce are specialist ecommerce. It is very different from what traditional eCommerce understands and is also attributed as the category killer. These eCommerce websites showcase only one product segment of their platform. Since they focus on one or just a few product categories, they can engineer the experience in a way to influence the customer. Hypothetical Example - A jewelry retailer in a vertical eCommerce platform can include images of how the stone glitters in different light conditions. Also, an online pharmacy might want to add the salts and requests for prescriptions that are more apt to pharmaceuticals.

Finding The Right Revenue Model For Your Marketplace

Online Marketplace Revenue Channels

Have different ideas for your business but fail to find the right business model to translate our activities into profits? The challenging thing about monetizing a marketplace is that buyers and sellers are looking to complete transactions with one another and the commission introduces friction to the process.

In general, most marketplaces take a commission from their sellers – either through listing fees, lead generation fees, or transaction fees. The primary reason for monetizing the seller is simple: after you’ve seeded the marketplace with initial supply, demand becomes the limiting factor for marketplace growth. Charging buyers creates friction and limits their participation.

The most common monetization models:
  • Transaction fees
  • Listing fees / Advertisement
  • End-user / buyer subscriptions
  • Selling own products

Let's Begin With Transaction Fees vs Listing Fees

In case of the transaction fee, where the marketplace takes a definite amount of each transaction generated through the platform. It's the fairest monetization model for suppliers, as the fee is paid when they sell. This encourages more suppliers to join the marketplace and it increases the liquidity of the marketplace’s supply for two reasons:

  • When you take away the upfront fee it’s easier to join.
  • You only charge when a sale is made, you lower the supplier’s risk of losing money.
  • A transaction fee model also scales nicely: the more sales your platform generates, the more revenue you bring in.

On the other side, listing fees can have the opposite effect. Charging suppliers on your site can discourage some to list. After some time there will be no new suppliers to list on your site. In that particular light listing fee model is a little unfair as it hits all the suppliers with the listing fee-no matter how their sales end.

However, there is an upside to listing fees. They assure some level of quality control for a better end-user/buyer experience. When sellers need to pay to list, they are more likely to list items with a high chance of selling, as well as invest time developing each listing. In other words, you won’t have to worry about providers flooding your marketplace with low-quality products and poorly written listings.

Listing also can be done in the form of advertisement. The seller has to pay an amount of money to get their product listed. The fees charged can vary according to the section where the product is being listed. It is not necessary for every seller to pay this fee but those who opt for this will receive more traffic and customers.

Membership vs. Subscription model: These are the two membership plans that the admin can use for sellers. Admin can tempt the vendors into a membership plan by giving better and profitable features in the plans. In case of membership fee, which is paid once, the revenue is not dependent on the vendor's performance. The vendor understands the amount for the membership comparing it to the reputation and traffic received on the marketplace. They are always looking to sell their goods, showcase their services and stand out in the crowded eCommerce sector. Unlike the commission model, the subscription model does not get benefitted from each transaction. The subscription can be for a customer as well as vendor depending on which revenue model, the admin prefers. By this model, the vendor and customer have the leverage to choose for how long they want to avail it. One of the main advantages of the subscription model is steady monthly revenue and gives a recurring revenue and budget-friendly offers to the customers.

One of the main advantages of subscriptions model is steady monthly revenue to the owner & budget-friendly offers to the customers. Click To Tweet

Private label products: The Marketplace owner can earn revenue by producing and selling their own product on the marketplace. The sheer amount of purchase data gives the marketplace owner a clear and unique advantage when it comes to starting a brand. This is an alternative source of revenue for the marketplace. The owner has to be immensely confident about the quality and customer experience their brand provides.

Other Revenue Streams Are:
Revenue streamDefinitionAdvantage/disadvantage
Advertising and Membership feesFees for banner advertising and other extended listing services on another website such as “opt-in”High requirement on customer retention and loyalty
Posting feeA fee for each “posting” or order entered into the systemThe dilemma of whether to permit free posting initially to encourage volume or whether to charge
Revenue sharingRevenues generated through strategic partnerships with business partners who provide analytics, ratings and news service or publishing their own data and analysisThe electronic market must step up the partnership or provide analysis tools for their data.
Software licensing feeFee for licensing a sophisticated trading platform with integrated logistics and back-office functionalityThe electronic market has to have a huge investment in internal system development

Approaching Vendors And Merchants For Marketplace

On-boarding vendors on Marketplace

You must have heard about the chicken-egg problem...which came first? Similar is the case for marketplaces. Though the marketplace is one of the most profit-generating businesses in the contemporary eCommerce market. But building a successful marketplace isn’t that easy. Beginning with supply chain management, customer support, and product quality, marketplace reputation to bringing in sellers and the customers on the site a marketplace is a challenging business.

So, in particular, There are two approaches to bring in vendors:

Business Approach

Carpet bombing - Reaching Industry Vendors
  • Make a list of companies you want to attract but hard to reach all of them.
  • Find them in Yellow pages or LinkedIn.
  • Companies databases are being sold on the net. Unfortunately, no one can guarantee that the contacts in those databases are valid, but some can be trusted.
  • This way is appropriate if you are about to cover hundreds or thousands of vendors in a certain industry niche.
Email - Designate the profit
  • Try to hit through main points why vendors should come to your marketplace.
  • Give links to the "About us" page.
  • Designate the profit.
  • They will work with if you have more than just "let's try to start a marketplace".
  • Dont forget to leave your phone numbers -this will surely build their trust.
Call - Hear their voices
  • If you have only 100 (lets say) potential vendors, the best option for you will be contacting them pesonally and live.
  • Receive immediate feedback.
  • Requires preparation.
  • Can influence their attitude and point of view.
Meeting - Give your business a face
  • Face to Face Interaction.
  • Can register a vendor account right there.
  • Negative feedbacks can be even more valuable thean positive.
  • Best suitable when you start online marketplace for a local community like a city or even a district gives you the most powerful level for success.

Individual Approach

Social Campaign - Catch them where they inhabit
  • Social media is for engaging audiences in mass since you cant write mails to all the people in the world.
  • Starting a social media campaign will gather more prospects than any other platform.
  • Little Expensive.
  • Your other clients can support you and spread the world.
Google ads - throw a net in the sea
  • Paid, Fastest way.
  • Golden rule the more you invest in business the more you have returns.
  • Starting a commercial campaign in Google or in social networks think of where your future merchants will land.
  • Give people comprehensive information about your marketplace, monetization method, their prospects becoming your vendors, leave your email and phone number.
  • Point of first contact where you have to conquer merchant's trust.
  • Start with narrow geographical or interest targeting. Watch out for the click-bots and block locations where they operate immediately.
Video - Breed emotions
  • Another channel of attracting people to sell on your marketplace.
  • Can lead thousand of sellers to marketplace.
  • The emotional hook which is the point of promotional video, will not only brings you vendors but also from the loyalty from the first contact with your marketplace business.
Blog - Become primary source
  • Good way to attract people to sell on your marketplace.
  • Success stories of existing merchants, business insights, market overviews and other useful information for sellers keep them close to your business.
  • free useful and forever.
  • Blog obviously is not the best instrument for the market impact. But it's perfect for continuous growth.
Facebook twitter linkedIn youtube instagram
Top Table of Contents