What is an Online Marketplace? How it’s difference from e-Commerce Industry

Introduction

Everybody who is anybody has a mobile phone, and most of them are smartphone users. This, coupled with the rise of broadband and high-speed mobile data availability, shopping online has become the norm. 

The world of online shopping has two main components: the online marketplace and the eCommerce industry. The ease of access to the online shopping platforms has presented with significant opportunities for growth. In India alone, there were 250 million annual online shoppers in 2023, which is just a small percentage of the population, leaving a big room for future expansion. Globally, the online shopper population is expected to grow to more than a whopping 2.91 billion by 2027. A quarter of the global retail sales in 2025 will be online, and global figures will reach 7.4 trillion dollars by 2025.

Online marketplace and e-commerce are often used interchangeably, but they are different business structures and appeal to separate mindsets in the retail sector. Both are digital shopping platforms, but the online marketplace has multiple sellers and eCommerce is the broader term given to the business of selling and buying goods online directly to the customer. In the article below, we will explore the key differences between the two, their advantages and disadvantages, and how they impact businesses and consumers. 

What is an Online Marketplace?

Online marketplace is a website or a platform that lets the buyer connect with multiple third-party sellers. The sellers list their products in the marketplace, and the buyer can make the choice. An online marketplace is a connection between sellers and buyers but does not maintain an inventory of its own. Each digital marketplace has a set of rules for display and descriptions that a seller needs to follow. It can be termed as an evolution of the e-commerce industry. 

Key Features of an Online Marketplace

• Multiple sellers encompassing of businesses and individuals

• Secure payment processing, listings, tools for communications, dispute resolution, and sometimes

• logistics are managed by the platform

• The earnings come through fees, commissions, or subscription plans

• Buyers get access to multiple brands and product categories

Some popular examples of online marketplaces are Amazon, Flipkart, eBay, Etsy, Nykaa, Alibaba, MakeMyTrip, etc.

What is the eCommerce Industry?

The e-commerce industry includes online buying and selling through marketplaces and independent online stores. E-commerce businesses can have a standalone website for the brand or a particular product, managing inventory and sales independently. E-commerce websites highlight the brand and since they manage their own sales and payments they can track the customer engagements online and refine their marketing strategies for more revenue. 

Key Features of eCommerce:

• Direct-to-consumer model without third party commissions 

• The business has full control over its operations, including pricing, placing, and marketing

• All profit goes to the brand and revenue comes from selling

• The brand’s identity is clearly established with visible ownership. 

Popular e-commerce websites are Apple.com, Zara, and Nike, to name a few. 

Difference Between Online Marketplace and E-commerce

The table below highlights the key differences between the two:

Aspect	Online Marketplace	E-Commerce Business
Ownership of Inventory	There is no ownership of inventory, sellers provide and deliver the products.	Ownership is with the business, giving full control on decision-making.
Number of Sellers	Multiple third-party sellers with a wide range of products.	Single brand or business with a wide range of products.
Revenue Model	Commission-based, listing fees, or subscriptions.	Direct sales and profit margins.
Control Over Pricing	Sellers set their prices within set platform guidelines.	The business has full control over pricing and product displays
Marketing Responsibility	The platform is the marketplace and the online marketplace is responsible for marketing and promotion itself. It offers individual sellers an option of advertising to promote their stores.	Business handles its own marketing and advertising to attract and engage customers.
Brand Identity	There can be different products from the same industry, and hence marketplace branding dominates.	Has a unique brand identity and focuses on building and promoting a single brand and its products.
Customer Relationship	Buyers interact with multiple sellers through the online marketplace; the platform may handle disputes.	Direct customer interaction, leading to better brand loyalty and a chance for personalized engagement.
Scalability	Easily scalable as sellers or products increase. Individual sellers find it easy to list more products.	Expansion requires investment in inventory, warehousing, delivery systems, and logistics.
Inventory	The customer gets a range of options to choose from but merchandising will require more effort. The seller can add or remove products as per customer expectations.	The industry does not have the option to disable the product that is not selling. The inventory management or service supplies need continuous maintenance, and if you want to remove a product, you have to either lower the price or get rid of it.
Investment	Online marketplaces have less initial investment as there is no inventory management cost. But, the cost of launching the website can be high because it needs a user friendly, easy to navigate website for multiple vendors.	Investment is required prior to launching the website. You will need a user-friendly e-commerce website layout, along with investment in digital marketing to attract buyers.
Cashflow	Better profit margin as you get a percentage of every transaction.	Profit margins take some time to reach a high with positive cashflow, and the business needs to maintain everything themselves.
Shipping rules and order management	Vendors take care of the processing and dispatching of orders.	E-commerce websites need to manage their own shipping, delivery, and return aspects.
Cost of development	Online marketplaces are complex platforms. It can require multiple iterations and custom solutions to maintain that need professional help.	An e-commerce site is a one-time investment, and building the website is cheap and easy through various site development platforms.

Online Marketplaces vs eCommerce Businesses: Which is the Best?

Advantages of Online Marketplaces

• Diverse and large product selection.

• Low entry barriers so that small businesses can sell without incurring the cost of website development.

• Online marketplaces make it easy to set up the product display.

• The sellers get built-in-traffic with millions of active users. 

• Global reach, as most online platforms have an international presence and can deliver globally.

• Reduces marketing and administrative costs for the sellers 

Advantages of e-commerce Industry 

• Unique identity of the brand is maintained, and the business has full control over branding.

• Higher and better profit margins without restrictions. 

• Direct and personalized relationship with the customer. 

• Business can implement personalized marketing strategies for their audience.

• The e-commerce site gets full control and freedom on pricing, discounts, listings, and promotions. 

• Cross-sell and up-sell strategies can be easily employed. 

• Each access to behavior analysis such as abandonment rates, clicks, feedbacks, visits, etc. 

Online Marketplace or eCommerce Industry Platform

Here are some important points to consider when choosing an online marketplace or eCommerce industry platform:

• Are you focused on personalization or ease of use?

• Do you have the resources to handle advertising?

• Is your marketing preference through a familiar existing platform or giving tailored experience to customers. 

• Are you will to wait for the profit to break even or are ok with third part sites taking a part of the profit?

• Does your customer base prefer shopping on third-party sites?

Online Marketplace and e-commerce Business

Choosing between the online marketplace and e-commerce business will depend on various factors. Here is a brief overview of which different types of business prefer:

• Startups and small businesses often lean towards online marketplaces because they get a quick exposure, and a customer base without the need to invest in a dedicated website. 

• Established brands have e-commerce websites to maintain exclusivity, get better brand control, and foster customer loyalty.

• B2B companies uses online marketplaces for bulk buyers and e-commerce websites for direct sales.

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• Niche product sellers use dedicated e-commerce websites to stand apart from the competition and boost brand visibility.

Conclusion

Both online marketplaces and eCommerce industry offer infinite growth possibilities for businesses across different industries in the digital economy. Find out your needs, preferences, and target audience before choosing from the two. Online marketplaces have simplified logistics, and payment options, while on the other hand, e-commerce industry gives higher control over branding and pricing. It is good to know the differences before your brand goes online. Your business goals, investment capacity, and long-term visions should be the prime factor before choosing the suitable model. 

Read Also: Role of Artificial Intelligence in Customer Segmentation

Written By – Amit Bhateja