10 differences between Marketplace and E-commerce you should know

Most people presume that online marketplace and e-commerce websites may be the same thing.

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Though both of them are used for online business purposes, there are some basic differences between them. For instance, a marketplace is an online platform where the website owner allows third-party sellers to sell on the platform and invoice the customers directly, i.e., various sellers can market their products to the customers. The marketplace owner does not own the inventory; neither does he invoice the customer. In fact, it is a platform for both the sellers and buyers, similar to what you see in a physical market.

On the contrary, an e-commerce website is a single brand online store or multi-brand online store where a specific brand sells its own products on their website. The inventory is owned by the website owner only. The website owner also invoices the customer and pays the value added tax. There’s no option to register as a seller, similar to what you see at a retailer shop. And it is customer specific. An e-commerce website is also called single vendor website where a one store owner can operate the website for selling goods.

To say in a different way, a marketplace may be an e-commerce website, but not all e-commerce websites are marketplaces. While it may primarily sound confusing, here are 10 significant differences between a marketplace and an e-commerce website you should know.

Actually, the best place to sell online differs from vendors to vendors depending on their products, needs, and goals.

Here are 10 differences between Marketplace and E-commerce you should know.

#1 Marketing approach and targeting

It is very important to have a clear concept about your marketing approach and targeting in online marketplace and e-commerce business. While in e-commerce you have to focus on targeting buyers, in a marketplace you must attract not only buyers but also sellers who will be the heart of your platform. In e-commerce, the individual merchant has to spend more to drive traffic to their site. Once a buyer finds his selection, the selection process is simpler, as they are selecting from the products offered by only one company. On the other hand, marketplaces benefit from various users operating on their site. As there are many merchants, they individually advertise the existence of the marketplace causing a viral spread of awareness. The more the buyers are happy, transacting on the site, the more they help to spread the recognition of the marketplace

#2 Scalability

A marketplace doesn’t sell or buy any products. So it takes considerably less financial risks than e-commerce websites which have to constantly invest in stock that may take time to sell or never sell at all. As mentioned, marketplaces gain economies of scale more easily, and, therefore, allow them to expand faster than e-commerce websites. When traffic grows very fast, it may be necessary to 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.

#3 Larger inventory

Keep in mind, the larger the inventory, the more likely it will be for the buyers to find what they are looking for. A big inventory often implies that extra effort should be put into marketing to draw the attention of your visitors even if they are interested in the website.

The Pareto principle, also known as the 80/20 rule, tends to apply in Marketplace development, as a minority of products will amount for the majority of sales. Sometimes keeping a larger inventory in stock might cause problems in stocking something else which sells better. On e-commerce websites, the Pareto principle means that you will have to get rid of unsold products at some point, by massively lowering their prices. On the contrary, on marketplaces, if there is any product that doesn’t sell, you can choose to deactivate it with the push of a button. As you’ve never bought the products, there are no costs associated.

#4 Time and Money

To build your own e-commerce website can be as simple or complicated as you want it to be. There are many issues involved in it. So there will be a lot of time and work involved to set up and maintain your e-commerce website. But in a marketplace, as everything remains ready, you can register, list, and sell without spending much time and extra work.

Again, since e-commerce websites have more initial investment, they take longer to break even. On the other hand, marketplaces have better profit margins as their revenue is basically percentages of the transactions. Depending on the volume of transactions, this is the earned money that is usually re-invested into product development to accelerate growth.

#5 A business of volume

In marketplaces, the margins for each sale are lower comparing to e-commerce sales. It is because primarily earning revenue from the commissions it deducts from sales. As a result, Marketplaces need to sell greater volumes of products than e-commerce websites do. Therefore, it’s to deal with a lot more transactions, for which it is crucial to put emphasis on the automation of its systems as much as possible.

#6 Trend indicators

There are trend indicators which are used for detecting trends in business markets. They also point to the price movement direction. With the help of trend indicators, marketplaces are able to further track their sales more specifically. It is also known by them that which products are the best and which vendors are more efficient. As a result, best and effective measures can be possible to take and promote content that truly matters to its users.

#7 Engaged audience

Audience engagement is very important in online business – whether it is a marketplace or an e-commerce website. Marketplaces have always been transaction-oriented and the goal is to match buyers and sellers. Marketplaces regularly focus completely on moving buyers towards purchases and sellers towards listing more products or services. In fact, marketplaces benefit from network effects: more buyers attract more sellers and vice versa.

Engaging audience in the e-commerce business is hard. It’s time-consuming and expensive. Even after you gain some experience, you may still be targeting the wrong people. Different social media like Facebook can help greatly to engage audience.

#8 Trust

Building trust in both a marketplace and an e-commerce is essential for you to sell online. Your users need to trust your platform and each other. 67% of customers trust a purchase on a familiar marketplace even if the merchants selling the product are unfamiliar to them. In case purchasers have had a satisfactory experience, 54% will return to buy from the same marketplace again, and trust is a key part of this experience. On an e-commerce website, it’s quite challenging as it is run or owned by a single individual.

#9 Technical aspects

Currently, a large number of tools used to build an e-commerce website are available on the market and the most popularly known ones are SAP Hybris, Salesforce Commerce Cloud or Magento. Marketplaces give buyers a one-stop-shop to buy everything they need. Therefore, marketplace solutions have been tailored from the ground up to address specific marketplace shopper and operator requirements.

The technical aspects to build a marketplace should be unique. It should offer powerful APIs (application program interface), be cloud-based software enabling short implementation times, and have a scalable database designed for multi-market use. Modern marketplace solutions support Omni-channel technology; assimilating physical in-store, web, fulfillment and social commerce channels into the one platform.

#10 A more complex navigation

In a marketplace, the products are organized in one well-organized set because it predominantly has various sellers who have their respective list of products. But, on an e-commerce website, the arrangement of the products is based on categories. There are more detailed and hence efficient filters for the research bar, which means the user can then refine his search a lot more accurately. Therefore, in terms of the navigation process and patterns, there is a huge difference.

It’s good to know the differences between an online marketplace and an e-commerce website before you start an online business. The success in the marketplace development is seen growing regularly while the trend in the e-commerce website is constantly evolving. Before starting a new business, there are many things to consider, such as managing logistical supports, making an effective shopping experience, excellent customer service, etc. At first, identify your needs, preferences and target audience. When it is done, you will find it easier to choose whether to use an online marketplace or an e-commerce solution.

About Charlène Guicheron

Co-Founder and CEO of Kreezalid

After 5 years helping companies to develop their online marketplace, I saw success stories as well as failures. Today I share my experience and my clients feedbacks through useful resources that will allow you to focus on what really matters for the success of your online marketplace. Because believe me, the secret isn't in the code ...