Disclaimer: Magenticians does not necessarily agree with the views expressed in this guest post. They are presented to bring to light all diverse views in the Magento and general ecommerce community.
In web terms, a marketplace is an ecommerce website. However, not every ecommerce website is a Marketplace. What is the difference between the two terms that make them distinct from each other?
To answer that, we have to understand how we have hopped from an inventory based ecommerce to the popular marketplace model of ecommerce.
Let’s take a look at the difference between the two models.
Inventory Model – An Overview
An inventory based ecommerce is a website where the stock of goods and services is owned by the ecommerce retailer selling it. The retailer itself may manufacture the products or services, or it can be purchased from the manufacturer first and then sold to the customers by the retailer. Whatever be the case, the retailer has to maintain a stock of products which will be sold to the customers directly and has to take care of the shipping of the sold products to them.
Process involved in inventory model of ecommerce.
Marketplace Model- A B2B and B2C Platform In One
The shift towards multi-vendor marketplace model is taking place as the ecommerce sites try to find a more stable balance between maximizing capital efficiency and customer experience with minimized logistical involvement. The logistical involvement includes from maintaining a niche based stock to shipping the received orders.
On the whole, a marketplace model of eCommerce involves providing a web platform to the establish a digital network which facilitates a communication between the sellers and the customers. The marketplace sites like Amazon, eBay, Etsy, and Alibaba provide a platform for the customers to interact with a selected number of Merchants. So, when an order is received on the site, it is not the site owner who owns the product. The site owner simply passes the order to the sellers and sellers fulfill the order.
A Multi-vendor marketplace involves three entities- Marketplace site, Sellers, and the customers.
Understanding the Shift in Terms of Differences
Now that we have an understanding of how both models work, let’s find out how the new model is so different, and better, from the inventory based model.
1) Comparatively Lower Initial Investment
Supply chain is the most important challenge of any ecommerce business. You’d have to invest a great sum of capital in maintaining an inventory of products you are going to sell if you want to handle all supply chain risks. Managing an inventory could include various costs and overheads like:
- Cost of products
- Cost of warehouses
- Shipping costs from manufacturer to warehouses and then from warehouses to customers
- Various overheads and random costs
Thus, managing an inventory becomes the heaviest burden. A Marketplace, on the other hand, offers the advantage of letting the sellers stock their own products and their own cost, which automatically eliminates most of the costs mentioned above from the website owner.
Moreover, the cost of launching a Multi-vendor marketplace website is typically same as launching an inventory based website. Despite being more complex, the website cost is not much of a concern. Just choose an effective ecommerce platform of your choice and install a Multi-vendor Marketplace extension to convert it into a ready-made marketplace site.
For example, Magento is the first choice for thousands of B2B based ecommerce sites on the web. There are various efficient Magento Multi-Vendor Marketplace extensions available which can be installed to convert a Magento store into a Marketplace website.
2) Huge Inventory Without an Inventory
The Marketplace model prevents the needs for managing a niche based stock of products. The stock of products is managed by the sellers on the marketplace. More are the number of sellers, the more strong is your inventory. However, you might have to face some challenges with the huge inventory of products on your site.
The large catalog might divert the customer’s attention, and eventually, it might even diminish to a great level. To curb this you have to have an effective Marketplace website that allows you to disable a product from the website. Using this, you will be able to get rid of the unsold products or less selling products, concentrating on the products that actually sell.
3) Scalability Is Much Easier
Marketplace websites don’t buy any products, it minimizes the risk compare to traditional inventory based websites that has to invest huge amounts in stocking the products to sell. Marketplace possesses an advantage by not managing a niche stock where it can increase the number of sellers in case of high demand. At least this will be a less costly option compared to purchasing the products and storing an inventory.
4) Cash Flow Through Commissions
Since marketplace websites can have a number of sellers, it earns by taking commission on each transaction between the sellers and the customers. To ensure sellers are attracted to the site, Marketplace websites do not take heavy commissions on the sales. As a result, the only way left to improve the treasury is to encourage a high number of transactions on the website.
Moreover, you cannot ask a similar percentage of commission from every seller and on every product on your marketplace site. Even big names like eBay specify different rates for different types of products.
Caption: A reference from a commission rate list on eBay
Tracking a large number of transactions is a huge task if done manually. So the sites are generally automated to track the sales and provide a report to the site admin and the sellers as well. Managing the commissions is what differentiates between a traditional ecommerce site and a marketplace site. We can see how the commissions are received by the sites in the image above for marketplace model of ecommerce.
5) Marketplace Solutions Are Easy To Get
As marketplace websites are getting popular day by day, you can find a huge number of already developed marketplace solutions. The benefits of the availability of such a large number of solutions make it cost economical. Platforms like Magento, PrestaShop, and Shopify (only to mention the popular ones) are good examples of such solutions.
Out of the three, Magento and PrestaShop are Open-Source ecommerce solutions and can be effectively converted to a marketplace site by simply purchasing and installing a multi-vendor Marketplace extension
Author Bio:
Ethen Roy is a Technical Writer evolved over years of experience in teaching (English, reading, & speech), then, working in the Information Technology field with various platforms. He loves to read literature in his leisure time.
