If you are selling products online, is it the case that you might be wondering what is the difference between marketplace and eCommerce platforms? Many people erroneously use the terms marketplace and eCommerce interchangeably when referring to online shopping and selling. Depending on your products and business model, it may make more sense to use an eCommerce solution rather than a marketplace platform. There are pros and cons to each approach, but in today’s business world, most retailers cannot afford not to sell their products online.
Marketplace and eCommerce platforms both serve similar business purposes, mainly selling goods to customers. First, let’s take a look at this question from the perspective of an online retailer. We’ll help you weigh the pros and cons and determine which option is best for your business. Next, we’ll review the web development side of things and see whether eCommerce sites or marketplace platforms are the better choices for your business purposes.
Marketplace Vs. eCommerce Platform: The Pros and Cons for Retailers
Online retailers need to weigh a number of different concerns, including profit margin, customer loyalty, and product development, when choosing between a marketplace platform and an eCommerce site. These two choices are not necessarily mutually exclusive. There are hybrid approaches that allow retailers to have both an eCommerce site and sell their products on a marketplace platform. Keep that in mind while we go through the pros and cons of each approach to online retail.
Time and Money
One of the immediate advantages of choosing to sell your products on an existing online marketplace is that you will save time and money initially. Creating a seller profile and retailer shop on a marketplace platform like Amazon or Etsy takes little time or technical knowledge. You can start selling your products quickly and reach customers where they already are. Saving time on development helps you increase your profit margins and focus on product development and sales.
Developing an eCommerce website will surely cost you more upfront. You will most likely need to hire a web developer to build and maintain your website. There are online eCommerce platforms like Shopify that allow businesses to create and set up eCommerce websites easily. However, you’ll likely still need to hire a web developer for any custom designs, functions, integrations, or features. Other costs to consider when creating an eCommerce website include:
- Domain name
- HTTPS certificate
- Payment gateway
While taking the route of developing an eCommerce website will take longer and cost more money initially than using existing marketplace platforms, the long-term potential profit margins are better. Marketplace platforms charge businesses when they list items; they take a commission on every sale made and depending on the platform you choose, there may be other fees charged to you as well. Over time the commissions and fees can add up to be a significant figure. In the long-run, if your business model is successful, eCommerce sales generally create better profit margins since there are less fees.
Marketing and Brand Recognition
Retailers know that brand recognition is essential when it comes to creating a successful business. Just because you spend the time and money to build an eCommerce website does not mean you will have visitors. Once your website is built, you need to spend more money and time marketing your website, brand, and products to users online. Your customers need to be able to find your website when they search Google and other search engines. This means you will need to invest in search engine optimization (SEO) and paid advertising.
In order to be successful, your business needs to build brand recognition and trust. People have gotten very comfortable buying products online, but they are still wary about entering their information on websites that they do not trust. Your business model might not account for the time it will take to build brand recognition and loyalty.
Marketplace platforms allow retailers to circumvent the process of building brand identity or loyalty. Marketplaces like Etsy and Amazon already have brand recognition and trust. Marketplace sellers get to piggyback on the consumer trust already built by the marketplace and access a large audience of potential buyers immediately. These businesses don’t have to worry about SEO or paid advertising either.
However, there is a drawback to being part of the marketplace. There is less potential for you to build brand identity or connect with your customers in a unique way. Marketplace platforms focus on customers and products, not on the retailers. It can be very hard to build brand identity or loyalty when all of the focus is on the product. Platforms like Amazon offer little in the way of customization to allow your business to stand out from the rest.
On the flip side, if you build your own eCommerce website, you have complete control over your branding and User Experience. The ability to create custom themes and features for your customers is very attractive to many businesses. You need to weigh the immediate costs and time with the potential profit margins of the future.
Marketplace platforms offer sellers very little to no access to their customers. This lack of access makes it difficult to market your products or build brand awareness and loyalty. If you cannot reach out to past customers and notify them about sales or new product releases, you are forced to rely on new sales without harnessing the power of past purchases. The lack of direct access to customer analytics and communications is a major downside to marketplace platforms.
eCommerce websites have complete access to all customer analytics and can reach out directly to customers to notify them of sales, new releases, and other brand news. Direct access to your customers also means that you can provide a higher level of customer service, get more in-depth information and feedback about product development, and analyze purchase behavior to better market and optimize your website’s User Experience.
Marketplace Vs. eCommerce Platform: The Pros and Cons of Development
Now that we have a better understanding of marketplace platforms and eCommerce websites, let’s take a look at the differences between developing a marketplace vs. developing an eCommerce website.
We’ve already discussed the marketing and brand recognition challenges that eCommerce websites face. If you’re creating a marketplace platform, you will face similar marketing and brand recognition challenges. Marketplaces need to attract sellers as well as buyers. While this may sound like double the work, it is actually cheaper for marketplaces to drive traffic to their websites.
How could that be possible when marketplaces need to attract sellers as well as buyers? Marketplaces benefit from the viral spread of their brand. Sellers join the marketplace to sell more products. They, in turn, organically advertise the existence of the marketplace in an effort to draw more customers to their products. Happy customers further spread the recognition of the marketplace. The initial stages of marketing and brand recognition remain just as difficult as eCommerce websites, but once sellers and buyers are attracted to the marketplace, brand recognition grows quickly and organically.
Unless using dropshipping, eCommerce websites need to hold inventory in order to meet customer demand. This means warehouse space needs to be purchased or leased, and inventory levels need to be managed to meet customer demand without hurting profit margins by holding products that don’t sell. There is more financial risk when inventory is purchased and held. Inventory could be damaged, lost, stolen, or sit unsold. All of these possibilities could negatively impact the business and profit margins.
Marketplace platforms have no inventory because they are simply creating a space for sellers to list their products and connect with buyers. This means you need a lot less space to run a marketplace business. There is no risk if products don’t sell either. If a certain product gets no traffic, it is the seller’s responsibility and you don’t have to suffer the financial burden of holding onto a product that is not selling and taking up storage space.
Marketplace owners are taking less financial risk than eCommerce website owners. Marketplace owners do not buy or sell anything. This makes their business far more scalable. We’ve already discussed how marketing a marketplace platform is actually simpler and cheaper than an eCommerce website. These same factors also allow them to grow very fast too.
If an eCommerce website wants to scale up, it takes more time to do so. They need to buy more stock, find additional storage space for their new stock, and hire additional staff to manage, sort, stock, and ship all of their additional products. Instead of spending time and resources on staff, space, and stock, marketplace platforms can spend more time on web and mobile app development to create a rich User Experience.
The margins for marketplace platforms are smaller than those of eCommerce websites. Marketplaces earn their money by charging listing and commission fees. If these businesses want to be profitable, they need a large volume of listings and transactions to occur on their website.
eCommerce websites make a greater margin on each individual sale, so they don’t need to be as concerned with volume as quality sales. For example, if your business sells expensive items, one or two sales a month might create a nice profit margin for the business. Marketplace platforms take commission and listing fees. While commission fees on expensive items will certainly bring in more money than cheap items, a few expensive sales will not generate as much revenue as a high volume of smaller sales.
Final Thoughts on Marketplace Platforms and eCommerce Websites
Are you still wondering what is the difference between marketplace and eCommerce platforms? I hope that by now the doubts have been cleared.
While both of these approaches involve online sales, they are very different in terms of execution, cost, and creative control. Based on your business model and your products, or lack thereof, you should be able to see which method is the best approach for your business. Whether you are a seller trying to decide how to list your products or a business owner considering starting an online business, there are pros and cons to marketplace platforms and eCommerce websites that need to be considered in full before making a final decision.