One fine day, a German fellow spent a Saturday morning searching for old editions in a bookshop. Then it occurred to him that he couldn’t be bothered trudging around the whole of Munich to ask if somebody sold a 1859 edition of On the Origin of Species. He much preferred sitting down in a terrace, drinking a beer and flicking through the pages of the book he was holding.
It was back in 1999, and this avid lover of literature was (with creative licences) Boris Wertz, the creator of one of the first marketplaces that is still trading today. We’re referring to the website JustBooks, which was taken over by Abebooks in 2002, and finally acquired by the giant Amazon in 2008. Why not bring the catalogues of all the bookshops in the city together into one place, one country, the whole world? The man would save himself many walks and would gain many calories from drinking beer. The evolution of the species.
Other book lovers would look down at Boris: where is the thrill of the search now? Well, Boris would have said, nobody wants to stop searching, but vain efforts in the process should be a thing of the past. And as easy as big and small online shops make it for us when it comes to revising their catalogue and stock, they are not convenient if we want to compare prices and products between them.
With this objective in mind, the first digital marketplaces were born.
What is a marketplace?
A platform where several sellers are brought together to facilitate the display and sales process, in exchange for different rates or commissions, although there are marketplaces that don’t charge any commission or allow some products to be uploaded onto the catalogue free of charge.
Users can access these ‘electronic markets’ to search through the multi brand catalogue, to search by product type, price, a multitude of keywords, and make quick comparisons. How nice, isn’t it? To start off, a marketplace is the best way of expressing democracy and the fierce capitalist competition at the same time, since it’s a place where anyone can theoretically enter in the same conditions (most of the marketplaces don’t allow much in the way of personalisation and all product pages are identical).
But each utopia has its dark areas. In the end, algorithms or privacy policies influence which products are highlighted on the platform, and as always, the most well known brands usually appear on the popular and best-seller lists that overshadow small or recently arrived shops. The original idea is that digital marketplaces are used to exhibit shops and less typical kinds of products, but large companies don’t want to lose their piece of the pie in any place, even though they have an excellent flow of traffic on their own website and mobile application. This implies an uneven pulse, and popular brands come to the marketplace with a strong beat and a large part of the race already run.
However, we must give the tortoise the opportunity to shine among so many hares.
Can you tell me where the nearest marketplace is, please?
The most important thing is to know where to start, and which is the best way to advance. Every business must search for their ideal niche from where products can be offered to the audience that actually searches for them in a specific way, rather than a large mix where it’s harder to locate results, or where it’s proved that they carry out more general purchases. For example, if your business sells jewellery, it’s likely that a marketplace which brings together manufacturers of jewellery or crafts is more beneficial, instead of Amazon, the common answer, where this kind of product represents a lesser percentage in searches and sales.
Many small businesses break the chain of the gigantic marketplaces on principle, or because they don’t fit within their budget due to the excessive prices of rates and commissions, or due to searching for a niche which is much closer to their business model, and not just into the large pot where all the beans fall into. Besides, a marketplace usually offers better results for businesses in which products don’t suppose such high customer loyalty, but where shopping fluctuates over time according to factors such as the price or the appearance of new models.
But this is like looking up at the sky and thinking that all stars are the same: there isn’t a unique kind of marketplace. We start to distinguish patterns and constellations right away, just like Boris Wertz did, who pointed out the following kinds of marketplaces:
- On demand: These marketplaces are the most common for services rather than products, and respond to needs of the moment like an Uber style rented car.
- Managed: A third party intervenes in this model to guarantee the smooth running of the marketplace, and to provide support, logistics analysis and maintenance tasks. This guarantees a quality control of the products offered in the marketplace, and introduces the possibility of the consultant to participate in the buying and selling process.
- Community-driven: In these marketplaces, there is a dominant feeling of belonging among all the members who share a buying, selling and manufacturing philosophy, and this encourages greater loyalty like in the Etsy craft community.
- SAAS: This system offers users a user-friendly tool for building their own website inside the network of the marketplace. The attraction of the free software usually brings profits to the platform by way of sales commissions.
- Decentralized: The ‘anarchic’ marketplaces, as there is no operator controlling the situation in them, and they follow a P2P operation: anyone can enter to buy and sell. We could name this as the torrent of e-commerce, since some experts fear that this system is used as a platform for illegal sales.
When is a marketplace really necessary?
Now the million dollar question will come to the minds of retailers or small business owners: why a marketplace, when the excellences of individual e-commerce and online shops have been praised for years?
As a matter of fact, a marketplace isn’t necessarily better, and it’s not necessary either. The great advantage of a marketplace is that the initial investment is less than preparing a website and to hire all the services, tools and maintenance of an e-commerce platform. That’s why this is an interesting option for small businesses that have just started out and want to do tests on the kind of clients, and to gather information and profits while preparing a greater and more personal website launch. Later on, one or several marketplaces can be a good complement to a brand’s website, providing there is an analysis on if this splits sales too much or generates losses in one of the channels.
Once inside, to participate in a marketplace will be like opening a stand in a typical and crowded multi-floor shopping mall, but also like being part of a cooperative that enforces some specific rules. The most important part is the necessity to carefully adhere to the standard delivery regulations and customer service of the marketplace. Make your service stand out among the rest of the competition that offers the same, and in the same conditions. This is what Uber took advantage of up against the classic city taxi service.
A marketplace is also a fantastic scenario to practice SEO, to check keywords used by other sellers in the same niche, which searches are carried out the most and which ones work better, since many marketplaces provide metrics that you will be able to interpret, in order to vary your action and supply strategy.
Among other advantages, the marketplace automatically deducts commissions from the total sale for you, without the need to issue subsequent invoices, and they pay between 7 and 15 days after the transaction. In that sense, you will find yourself with two methods:
- Commission per transaction: Sellers are only charged for each individual sale. It’s the most popular and most used variant.
- Commission by listing: Sellers are charged a fixed rate in the marketplace, which scares away many who think that it’s unfair to charge all sellers the same, regardless of whether they sell a little or a lot. As a business strategy, it is considered that this is filtered from the start to the sellers who are going to take it seriously, and put all marketing resources and best products in to obtain high sales levels. Other marketplaces also charge buyers a subscription to check their catalogue, and charge sellers advertising commissions.
In relation to payments, another important key will be to find out about the payment methods that you can offer customers. Paypal is the most popular and the one that is preferred by most users, but there are many others like Payza or Skrill, as well as conventional credit cards. Also look into the complementary package delivery services like Shippo or Shyp if your volume exceeds the handling capacity by means of using the public postage service.
Also remember that from the moment you want your business to combine its catalogue in various channels at the same time, product information management software will be essential, such as a PIM system that guarantees all your catalogue information to be homogeneous among your operations centre, your online shop and any marketplace you choose.
A shop on every corner: The figures on marketplaces
For 2017, it’s expected that the total sales in marketplaces will exceed 30 billion on a global scale.
The majority of users are now not afraid to buy in shops that only offer an online option, and nearly all users discover the shopping location by surfing the internet where there are many more probabilities for the results of a marketplace to appear before a small shop, which is still fighting for its positioning.
To find out everything about the world of marketplaces, and especially if your intention isn’t to participate in one of them, but to create your own marketplace, Boris Werts and the expert Angela Tran Kingyens have compiled their successful experience into this extensive guide that covers all the aspects of the technical and strategical operation of marketplaces as increasingly more powerful scenarios.
It’s in your hands to decide if you want to launch your e-commerce business on the big net or to go fishing in smaller seas. Whichever your intention (all are perfectly valid, but their effectiveness depends on each particular case), we bring the best marketplaces together here for all kinds of online shops with generalist or specific objectives.
A guide to the best e-commerce marketplaces for 2017
Cratejoy: The subscription boxes are a current trend which are taken advantage by companies that also offer a conventional catalogue, and initiatives that base their sales on selling periodical subscriptions, which are usually each month. Crates of fresh foods, books with surprising titles, collectors objects from pop culture… The imagination (and the real demand) is the limit. Cratejoy facilitates this process, and has a 10% commission on each sale.
iOffer: Up and running since 2002, the iOffer business model is based on the possibility of haggling between buyers and sellers. It’s free to show products, but they charge a minimum commission per sale and some standardised rates if you want your products to appear highlighted on the main page or in sections of categories.
alittleMarket: A French proposal on handmade products which covers a wide range: clothes, furniture, accessories, stationery, accessories, art, jewellery and costume jewellery. Their commission margin is low at 5%, but they charge a fixed rate of €0.50 for sales under €10.
Vide Dressing: Specifically for women’s, men’s and children’s second hand luxury clothing, although they charge a high sales commission (15%).
Thredup: Another variant of the P2P applied to the strong fashion sector, which is based on evaluating the quality of products and to buy them from the sellers. Then the marketplace puts another price on the products and sells them to users. Through this system, sellers are spared the sales process, but they will receive much less of a pay-out: usually between 5% and 40% of the value for standard products, whereas luxury items can offer sellers up to 80% of the final price, since they are more sought-after.
Grailed: The alternative to the sale of men’s second hand luxury clothing, which is the same as Farfetch. The attraction of these proposals is based on very well designed platforms that do away with the old prejudice of buying used, worn out, or roughly treated materials in small shops or flea markets. They charge a 6% sales commission, and another commission of 2.9% for PayPal.
Getable: If your business is based on heavy equipment, this platform brings together multiple options to rent construction materials, such as cranes, vehicles, diggers or steamrollers, and guarantees users to compare rates and to get the best ones. They carry out marketing in name of the brands, they include an insurance policy and charge a percentage for each rental.
Thumbtack: This company brings together domestic chores, reparations, personal, physical, mental or lifestyle training, and educational lessons. Their system is based on compiling a report on the customer’s needs, before showing it to the seller, who will then prepare a quote. Their commission system is a little more complex, which is based on credits obtained by the seller. Taskrabbit presents a similar operation applied to services in the neighbourhood, while Udemy and Skillshare stand out in the marketplaces focused on educational lessons.
Instacart: Although practically every supermarket chain already offers online sales and home delivery, there are those that stand out among the food marketplaces like Instacart, which searches for products in local shops. However, their profit margin is obtained by increasing the price on the seller’s base product, which is sometimes up to 30%.
BloomNation: Allows searches of local florists including a multitude of variables by type of flower or gift, and assures that the photographs of each seller are 100% original. They charge 10% on sales, excluding taxes.
Raise: An extensive sales catalogue of gift cards from different shops, although the company also offers the curious alternative that users can sell cards they have received and don’t want to use. They charge a sales commission of 12% and a rate of 1% for each product listed in the marketplace.
Citify: Following the trend of local promotion, this young marketplace lets you discover products in a city, and in a way that is ideal for small shops or artisans with a physical shop, although it also includes wholesalers’ warehouses. Citify charge a sales commission of 5%, and Scott’s Marketplace is their direct competition with rates at 4.99%. The same idea but with experiences and activities is offered by Headout, AirBnB for accommodation, Storefront for short-term space rentals, Dogvacay for pet sitters, and StyleSeat for hairdressers and beauty sessions.
depop: Especially orientated towards sales made through mobile phones for a wide range of products. They charge a 10% commission, 3.4% for payments made through PayPal, and 2.5% for transactions processed through depop itself, including credit cards and Apple Pay.
Tictail: In this mixed case of selling fashion, furniture and accessories, it’s possible to save the expense of commissions, as they charge 10% if the purchase is made through the marketplace, but they don’t charge anything if the user is redirected from the marketplace to the online shop and the purchase is made there. It’s interesting to combine both vias and to check which works better. eCrater is similar but more expensive (with commissions of up to 30%).
Kinnek: As not all e-commerce is destined for B2C, there is also a marketplace for B2B, like this one orientated to equipment and materials. It particularly protects small businesses, that mustn’t pay any rate or commission for hiring services, but they charge suppliers through a monthly subscription and some fees per transaction.
Newegg: Focused on the sale of electronic products, Newegg it’s a giant that receives less publicity than other marketplaces, even though their number of visits is enormous. The commissions vary between 8% and 14% according to the type of products, but the registration process isn’t direct, and each seller must pass a quality control before receiving an approval to sell on Newegg. In this category of electronics, Shopclues is also included, but their commissions are identical or a little more expensive, and up to 17% according to the category of the product.
OpenBazaar: As its name suggests, it’s the great online bazaar without commissions that works as a gigantic network to put sellers directly in contact with interested buyers. The reason for the omission of rates is that there is no parent company or business behind it to control the process. Their payment system is Bitcoin, which is prohibited in some countries.
Jet: One of the most well known platforms is based on a membership. That way users have access to the catalogue, and more competitive prices than in other marketplaces, in exchange for an annual fee. Only brand products are included and the company has established a fairly high level of commission of 15% on the majority of products.
Big Cartel: Focused on artisans, independent sellers and artists, but only produces results if the brand has already built an audience, since it’s difficult to stand out in the marketplace. They charge a monthly rate and their commissions on sales through PayPal or Stripe are 2.9%.
Sears: The great American commercial chain opens its catalogue to third parties in exchange for a monthly rate of $39.99, but it’s susceptible to increase if the sales made by the member don’t exceed $400 per month. They also include commissions for products and for the sales and delivery process.
The Facebook Marketplace: In response to the transactions made by individuals who have been selling for years from private profiles, the largest social network in the world is added to the world of marketplaces with a system of classified advertisements to facilitate sales in local areas. Given that the transactions are carried out among those involved, and that the objective of Facebook is to make profits through advertising, they don’t charge commissions or rates on transactions.
Etsy: The large marketplace for handmade products (although some sellers don’t fulfil this starting point and sell vintage products). Their rate list is extensive: $0.20 for each product listed, 3.5% on the price of each transaction, 2.5% for foreign currency conversion, and variable VAT, payment system and advertising fees. There are alternatives like Zibbet, which doesn’t charge commission and allows up to 10 products to be uploaded free of charge (a good idea for starting and testing), and there’s Bonanza, Shopandmade, Folksy in the United Kingdom, Custommade, DaWanda or Shapeways where products are only created using 3D printers.
eBay: The great introducer of the classic buying and selling system via bidding, although they also include fixed price sales. Their volume of visits is gigantic but their system is complex and includes commissions on sales, as well as rates to list products. Catawiki is a similar option.
Flipkart: India main marketplace, which has experienced rapid growth over recent years. The commissions vary according to the kind of product and reach up to 15% of the total, on top of which shipping fees are added, a fixed rate and 15% tax. Sellers with the best results are favoured and paid earlier.
Rakuten: The giant Japanese company based on high levels of competitiveness among sellers is essential for entering this market. However, their commissions are high and up to 15%, according to the type of product, the sale price, as well as the shipping and processing fees, plus a standard fee of $0.99 per product sold.
Alibaba: The Asian market equivalent, which contains other massive marketplaces like AliExpress and 1688. Their main trump card is that they don’t charge any hidden commissions or rates, but obtain profits from commissions in other marketplaces within their group, marketing fees, their payment system Alipay, and from the memberships.
Amazon: Possibly the most famous marketplace in the world, and the largest in many countries. Going against their popularity, suspicious company policies have been discovered, there is a difficulty to appear highlighted among thousands of products in the same category, and they charge a high percentage of sales (between 10% to 25%).
Summing-up: Marketplaces are just a tiny spot in a big city
Don’t forget that the alternative of entering your business into a marketplace is to build your own e-commerce website by means of using platforms like Magento, Shopify, Volusion, Prestashop, Bigcommerce or WooCommerce. Some of them make this process easier, as it’s usually complicated and expensive, and this done by means of user-friendly and personalised templates such as Squarespace, Selz o Weebly, which is aimed at small businesses and artisans.
Other platforms and meeting places for sporadic sellers and non-professionals like Wallapop, VarageSale, Poshmark, Mercari or Beepi haven’t been included on our list and follow a P2P model. There are also platforms to create your own marketplace like Sharetribe, crowdfunding networks, and platforms for local sales like Craigslist. All these proposals are equally valid, according to the business model you wish to implement and the complexity that you want to reach in your infrastructure, either to opt for a single channel, or for a multiple presence in several marketplaces at the same time.
As always, we recommend that you don’t let yourself be guided by eagerness and trends: the most efficient and professional way is to check which platforms turn out to be profitable for your sales, apart from the trends in e-commerce. Are you currently in a marketplace, or do you like to be a lone ranger and trust your own online shop?