What Is a Marketplace Business Model?

I have experience selling on both marketplaces and my website. My goal here is to help you decide which one to choose: marketplace or your store. 

In this article, I will provide you with the following details:

• Benefits or advantages of a marketplace model
• Types of marketplaces 
• How a marketplace model works

Key Takeaways:

• Marketplaces are great for traffic
• You reduce your business costs with the marketplace model
• Selling in marketplaces is easier to manage

Let us begin!

What is the Marketplace Model?

A marketplace model is a type of business where you gather sellers and buyers in one place.  Think of it as a literal public market. In it, there are sellers of all sorts of products. Buyers go to the market and decide what to buy. 

The biggest marketplaces in the world are:

• AliExpress
• Amazon
• Etsy
• eBay

In a marketplace model, a business entity provides the infrastructure. It is like a mall where the mall operator owns the whole building. The tenants get a space for their business, and then they sell their products. 

The biggest difference between an online marketplace and a physical one is rent. Most online marketplaces do charge a “rent.” Instead, they charge a fee.    

Types of Marketplaces

While marketplaces share a common trait, there are several types of it. 

• B2B – the B2B marketplace model means business-to-business. It is a kind of marketplace where businesses sell their goods to business owners who will resell the products. A good example of this is Alibaba. 
• B2C – business-to-customer marketplaces are the ones where a business entity sells items to consumers. The biggest in the world is AliExpress. Amazon and eBay are B2C marketplaces. 
• C2C – the consumer-to-consumer marketplace is rare. The best example I can provide is a swap website. On a site like this, a dog owner may sell his puppies to other people. 

A crossover is possible. For example, not all eBay sellers are business entities. Many sellers are consumers themselves. These sellers just want to dispose of things that they do not need anymore, like pre-loved cars, mementos, etc.  

Advantages of the Marketplace Model

The marketplace model is difficult to operate. However, it does provide for a guaranteed income if you succeed in operating one. 

Here are the advantages of a marketplace model: 

• Increased Visibility
• Reduced Business Costs
• Ready-Made Business Infrastructure
• Easy to Manage

Let us discuss each one. 

1. Increased Visibility

There is no doubt that marketplaces like Amazon and Etsy have a huge traffic. People download the apps or go to the website to buy all the time. Companies like these have built goodwill over the years. 

If you start or build a dropshipping store, you also need to work on your traffic. Some of the ways by which you can do that are:

• Blogging
• Advertising
• Building your social media profile 
• Video publishing (YouTube or TikTok)

Driving traffic to your store is hard work. Even if you manage to bring in traffic, the next challenge is confidence. People are more likely to purchase from known marketplaces than an independent stores.  

2. Reduced Business Costs

If you build or buy a pre-built Shopify store, you must pay a monthly fee. The price varies per country but let us say that the average is about $30 monthly. You must pay this regardless of your sales volume. 

On the other hand, selling in a marketplace like Amazon has no fixed fee. You only pay a fee once you make a sale. Etsy has a listing fee, but this is minimal. At $0.20 per listing, you only pay $20 for four months for listing 100 items.   

3. Ready-Made Business Infrastructure

It is difficult to build a store, even if you use a platform like Shopify. You need to sign up for payment processors, integrate them, choose apps, design the store, etc. 

Marketplaces already have an infrastructure. All you need to do is sign up and upload your product images and descriptions. 

The caveat here is that your “store” looks the same as everyone else. You have no control over the size of the images, the number of images, or the font of the texts you want to use. 

Despite these limitations, you can still stand out in marketplaces if you use vibrant colors. There are many AI tools you can use for dropshipping, including those that can significantly alter photos.  

4. Easy to Manage

A store in a marketplace is easier to manage. It has a dashboard where you can see your sales performance. This is not to say that you won’t get a dashboard in Shopify. You will, but there are certain limitations to it. 

Furthermore, your competition is limited to Amazon only. The research stats you get can easily give you a clear picture of what is going on in Amazon. If you build your store, you are pretty much competing against the whole world. 

Summary: Managing a business in an online marketplace has lots of advantages. Apart from cost reduction, you will be competing in a smaller space compared to an independent store, which forces you to compete globally. 

Common Fees Dropshippers Pay for the Marketplace Model

Marketplaces implement different kinds of fees. Below are some examples:

• Listing Fee – you pay a small amount for every listing you make. The best example here is Etsy where you pay $0.20 per listing. This fee allows you to make your product viewable or available on the site for four months.
• Transaction Fee – some marketplaces charge a percentage of the product’s price, and some charge a flat rate for every item sold. Amazon charges $0.99 for every product sold.
• Monthly Fee – this type of fee is rare and is rather offered as something optional. Amazon charges a monthly fee of $39.99. in exchange, they waive the transaction fee. This kind of fee is best for sellers who have a huge sales volume. 

If you plan to sell in marketplaces, you have to take into account these fees in your pricing structure. The last thing you want is for these fees to eat in your profit. In addition, these fees do not include what your payment processor may charge for each of your sales. 

FAQ: Marketplace Business Model

What is an example of a marketplace business model?

Examples of marketplace business models are AliExpress, eBay, Amazon, and Etsy. 

What type of business is a marketplace?

It is a business where the business entity builds the infrastructure for sellers and buyers to meet. 

What is the meaning of marketplace in business?

A marketplace business means you build that market, physically or digitally, and then invite sellers to register and then sell their products. Buyers will find the products and complete the transaction on your website. 

What is the key characteristic of a marketplace business model?

The main characteristic is that there is a structure provided by the owner. This infrastructure allows sellers and buyers to create accounts and make transactions. 

Then, you can sign up for a 7-day free trial of Drosphip.IO. Use it to find products and spy on potential competitors. Regardless of the business type you choose, you can use Dropship.IO to gain an advantage over other sellers.