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The State of Online Marketplaces

Marketplaces are set out to dominate e-commerce. At this point, we are so used to the existence of marketplace and sharing economy platforms that we usually don’t realize if they are marketplaces or not. We simply take advantage of them. That’s not only us as the end-users, but vendors are also taking advantage of marketplaces to the fullest.

Some vendors don’t even bother to open up their single vendor e-commerce site, they just direct the users to their vendor page at a marketplace. And 90% of U.S. independent online retailers sell through marketplaces already.We don’t intend to get into the details of following such strategy, instead what we intend to do is to cover the current situation in the world of the online marketplace and sharing economy platforms and then take a look at the current situation in online marketplace business.

Before we start we should note that we handle multivendor online marketplace and sharing economy platforms together. Although they are two different things, most sharing economy platforms identify themselves as online marketplaces and some marketplace platforms are hybrids of multivendor online marketplaces and sharing economy platforms. So we’ll approach them as one.

The Current Situation in the Online Marketplace World

Marketplaces are becoming the dominant players in e-commerce. This is not a vain claim since it’s been backed up by solid data. Today 54% of millennials prefer multivendor online marketplaces for online purchases. One might think that this ratio falls down dramatically amongst non-millennials but the difference is negligible. 49% of non-millennials also prefer marketplace platforms when they make use of e-commerce for a purchase.

Although these ratios look very promising, online marketplaces and sharing economy platforms haven’t reached their full potential yet. Channel Advisor estimates that marketplace sales account for approximately 25% of total online retail sales. Which leaves out a hefty 75 per cent. Acquiring 100% of an industry may not be a realistic target but it’s clear that online marketplaces still have a wide area to expand into.

Adding the flexibility of business models and innovations that the marketplace and sharing economy model makes possible to the unused potential that is still out there makes marketplace platforms an attractive topic for investors and entrepreneurs.

Horizontal Marketplaces vs. Verticals

The basic marketing idea behind the first examples of marketplaces was very horizontal. They were positioned as pools to gather around as many types of products provided by as many vendors as possible. There are some approaches amongst them who differentiate themselves lie Amazon who holds their own stock and runs its own logistics services. And there are other examples like Alibaba (or AliExpress) who only acts as a mediator between vendors and customers and takes advantage of existing logistics providers.

Both approaches have their own ups and downs but they are not the subject of this article. The common feature of these two “very successful” pioneers are both horizontal. They focus on being the first place to look at whatever the customer intends to buy.

But today the market for horizontal marketplaces seems to have achieved maturation. There are already very dominant and strong players in this area who can be called behemoths of horizontal online marketplaces. Amazon and Alibaba are only 2 players in the global market. There are also very strong marketplace platforms which have very good brand loyalty, wide reach and a very strong foothold in local markets. Idealism is good, but it must be sculpted slightly with a little bit of realism. It’s hard to succeed amongst these giants in the world of horizontal marketplaces.

This may be the reason behind the new ventures prefer to go vertical. Vertical marketplaces have very clear advantages both in terms of business, technological infrastructure and user experience.

Focusing on a vertical market also makes it easier to offer something unique, start slow-grow gradually, start local-expand later and offer a better category structure with products or services that are hard to find in horizontal marketplace platforms.

Vertical markets are much more abundant. Yet still, there are so many unexplored vertical marketing fields that present opportunities for new enterprises.

B2B vs B2C E-Commerce

Online marketplace platforms were focused on B2C markets. But today B2B e-commerce is growing steadily and confidently. Today, 61% of B2B Buyers research products on mobile and 91% of them prefer to make the purchase online, once they have decided what to buy.

There are more marketplace ventures focusing on B2B markets. So B2B seems to have a great potential waiting to be exploited too.

According to data from 2017 , 80% of all B2B sales in the region were handled through e-commerce. This accounts for an amount of $7.6 trillion. Alibaba alone generated $11 billion in revenues. Data seems promising for B2B marketplace ideas. Very interestingly, Europe is growing slower than in other areas of the world when it comes to B2B e-commerce. Considering the scale of the European economy, this area may offer very lucrative opportunities for new ventures.

Goods vs Services in Online Marketplaces

Although it’s fair to say that marketplaces have made innovations in regards to commerce most of them have been offering goods or products. Marketplaces that offer services can still be considered “rare”. Service marketplaces have their unique challenges. Most significant of them being the handling of the transactions. Traditionally, for a service’s transaction to be completed the service must be fully provided which brings up the other unique challenge of service marketplaces: subjectivity.

When people trade a product, the processes are usually simple. The product must be advertised as it is. The price and payments must be clear and the product must be delivered in a reasonable timeframe. But the criteria evaluating the quality of a service can be very complex and subjective. Comparison of the e-commerce goods vs. services clearly indicate the challenges of service marketplaces. According to the U.S. Bureau of Economic Analysis consumers spend 69% on services while only 7% of them were acquired or paid online.

This may look intimidating but also makes it clear that service marketplace sector is still fairly uncharted territory. Waiting to be ventured in by innovative entrepreneurs and investors looking for high, unexploited potential.

Conclusion

We hope that covering the current marketplace business provides a general picture for the entrepreneurs and investors alike. Since being aware of your surroundings is the first step in orienteering you can either go on to our next article about Top 5 Sectors in Online Marketplace Business to determine your bearings. Or if you already have a business idea you can simply contact us to see if we can realize your business idea. We are confident that we can since in Solvea we provide tailor-made marketplace solutions for your business idea and get your marketplace ready to launch in up to 4 months.