How to Create an eCommerce Marketplace

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Olga Demidenko
Author, Geomotiv
Published: May 13, 2021

Today, customers expect every vendor to be present online, and it’s in the vendor’s best interests to have multiple digital channels for product advertisement and selling. One such channel is an eCommerce marketplace: a digital market where numerous vendors offer their services and products. This article will discuss an eCommerce marketplace, its essential components, and what stages an eCommerce software development process includes.

What is an eCommerce Marketplace?

Before talking about product development, it is crucial to understand what the product is. An eСommerce (also called online) marketplace is a digital platform that connects sellers and buyers - but unlike an eCommerce website, an eCommerce marketplace has multiple vendors. The best example of such a platform is Amazon or eBay: while there is a single website, many vendors present there. 

Before we go further into discussing the online marketplace, we need to fully understand the difference between an online marketplace and an eCommerce website. Let’s dive right in.

An eCommerce Website

An eCommerce website is a digital shop of a single brand/company. On this website, a company sells only its goods and services, and there are no other vendors involved.

The biggest challenge with an eCommerce website is that a vendor has to launch, design, and set it up all by himself. Even though there are such platforms as Shopify or Magento that significantly simplify the set-up process and don’t require development from scratch, the vendor will still be in complete charge of all the processes involved in the website maintenance and optimization. Also, owning an eCommerce website means the seller needs to run the inventory and manage it according to the customers’ demand.

The good news is that it becomes easier for its owner to track the traffic and analyze users’ behavior to improve marketing strategy by having an own website. This website can also promote and display the company’s brand, so it will contribute to brand awareness and recognition.

An Online Marketplace

As said above, an online marketplace is a digital platform where numerous vendors are present. Think of Amazon or AliExpress: users land on the homepage, and then they browse the categories and choose a product/service from any seller.

The best thing about online marketplaces is that everything is ready: you just create your shop, pay a fee, and you are good to go. The online marketplace takes care of user acquisition, marketing, order shipping, and other essentials.

Online marketplaces are an excellent place for eCommerce beginners that don’t want to invest in a standalone online shop just yet (though established brands are present on such marketplaces too). Online marketplaces usually have a vast customer base which is another significant advantage considering how much marketing and user acquisition efforts might cost.

The Main Benefits of eCommerce Marketplaces

Both eCommerce websites and online marketplaces are good options for those willing to become present in the digital environment. However, this article focuses on an online marketplace, so the next thing we talk about is its benefits to sellers and buyers. By learning about these benefits, you can outline your development strategy better and set clear development goals and milestones.

Convenience for Vendors

When a vendor comes to an online marketplace, everything is ready to set up their shop and start selling. That means there is no need to develop a website, think of design and navigation, and do too much marketing to attract customers. Instead, everything is ready, and the only thing a vendor needs to do is sign up, create a shop, pay a fee, and start selling.

Exposure to a Broad Audience

Online marketplaces are usually well-known even to those people who rarely shop online. This is because marketplaces invest significant amounts of time and resources into promotion and user acquisition. Hence, when a vendor joins an online marketplace, their shop becomes immediately accessible and visible to thousands of people who visit this marketplace regularly. In this way, an online marketplace takes a significant part in promotion and marketing and presents a ready user base to its vendors.

A Better Choice of Vendors

As for the buyers, an online marketplace presents them with a massive list of vendors to choose from. Customers are free to browse the products by using preferred filters, and this gives them a chance to buy those products and/or services that 100% satisfy their needs. An online marketplace is a great way to discover new sellers without the need to do a monotonous search online.

Scalability

This one is for vendors, too. With an online marketplace, the process of your shop growing and expanding goes in an incredibly swift and easy manner: you just add more categories or products to it. On the contrary, if a seller has their eCommerce website, the process of adding more products or categories can be somewhat troublesome, depending on the platform that you use.

Audience Engagement

The ultimate goal of any online marketplace is to match buyers and sellers. Hence, an online marketplace is very focused on audience engagement and discovery, meaning this platform does its best to drive buyers towards sellers and vice versa.

It is a huge advantage both for customers and vendors. When a customer lands on such a platform, they are offered a list of recommended products based on the past purchase history. As for sellers, they can rest assured that their products are presented to relevant customers that are most likely to buy them.

The State of Online Marketplaces in Numbers

One more thing to talk about in terms of online marketplace development is the market size of online marketplaces. If you are not yet convinced that the development of an online marketplace is profitable, have a look at the following numbers:

  • eBay annual net revenue 2020: $10 271 million;
  • Amazon annual net revenue 2020: $21.33 billion;
  • Etsy annual net revenue 2020: $1 725 million.

It is also worth looking at the Digital Commerce 360 report on the state of global online marketplaces in 2020. While the report contains quite a lot of helpful information, we’ll list the main highlights below:

  • $2.67 trillion spent globally on online marketplaces in 2020;
  • about 50% of top online marketplaces were launched in 2011 or later;
  • $773 billion sold on the leading U.S. marketplaces.

An online marketplace indeed is a profitable investment. The trick is to develop a robust and scalable platform that offers a full range of features and services to buyers and sellers and acquires an audience. It leads us to part two of our article - the development of an eCommerce marketplace.

Things to Know About an Online Marketplace

The first step in developing any software product is narrowing down the scope of requirements by determining its primary purpose, type, model, and other details. The same rule applies to eCommerce marketplace development: before starting to work on it, it is essential to define its business model, type, monetization strategy, and USP. Let’s have a look at each requirement one by one.

Business Model

The business model of an online marketplace defines what kind of business owners this marketplace will target. The possible options are:

  • B2B for small businesses;
  • B2B for medium-sized businesses;
  • B2B for enterprises;
  • B2C.

The choice of the model will depend on your business goals and your competition. Thus, it is obligatory to do marketing research before defining the business model of your future marketplace.

Type: Horizontal vs. Vertical

There are two types of an online marketplace: vertical (Airbnb, Udemy) and horizontal (Amazon, Alibaba, Asos, Etsy).

A horizontal marketplace can be called a one-stop-shop because it sells everything under one roof and across different industries. The above-mentioned Amazon or Alibaba are great examples: when you land on a homepage, there are multiple categories available, so you can search for anything you want. The main benefit of such marketplaces is that they suit all possible needs and attract bigger audiences.

A vertical marketplace focuses on a specific industry and niche. Hence, it sells only a particular type of product and/or services. Think of Etsy here: it focuses on crafts and handmade, and you don’t expect to find any mass-market products there. And while a vertical eCommerce marketplace focuses on a single user group, it also means its marketing strategy is more precise and straightforward.

Again, to choose an online marketplace to develop, think about whom you want to target and what your goals are. Try to keep as realistic as possible and to weigh all pros and cons of each type to your budget, resources, development time, and business objectives.

Monetization Strategy

The next thing to think about is your monetization strategy. Here are the possible options:

  • Sellers’ subscriptions (memberships): as the name suggests, your sellers have to pay a subscription or membership fee regularly, and there may be several options of subscriptions available.
  • Commission: your platform charges a confident % for every item sold. The commissions vary greatly, so you might want to check similar marketplaces to see how they pulled it off.
  • Featured listing: the marketplace charges a particular fee to make a seller more visible (“featured”) by putting this seller on a homepage, for example.
  • Listing fees: a marketplace charges sellers for being listed on the website and making their products/services available. Listing fees are often combined with commission fees.
  • Charging of the demand side aka buyers: most online marketplaces do not charge their sellers, but buyers get charged with this monetization strategy. It works well when an oversupply of providers and buyers see great value in the products/services offered.
  • Advertising: quite prominent but still efficient in terms of monetization.

Building an Online Marketplace: the Essential Components

After you decide on your eCommerce marketplace’s type and monetization strategy, the next step is understanding its main components to incorporate them into a product. 

A vendor builds an eCommerce website, and hence, it has functionality for buyers and an admin dashboard for the vendor. But with an eCommerce marketplace, things are a bit more complicated. For it, you may need to have two separate apps with individual functionality (for buyers and sellers) and an admin dashboard for you to manage. The admin dashboard is used to communicate with both vendors and buyers and ensure the proper functioning of the marketplace website. Sounds a bit too much, isn’t it? Let’s break each component into features for better understanding.

An App for BuyersAn App for SellersThe Admin Dashboard
User profileStore and inventory managementStatistics on the traffic, users, items, vendors
Product filter and searchSupportA list of all your vendors
Product listingTransactions managementA list of items for sale
WishlistsProduct listing and managementCustomer data
Shopping cartShipping managementRevenue data
Multiple payment optionsNotificationsStore management
NotificationsContact info on sellers and buyers
SupportShipping and fee management

As an online marketplace owner, you use the dashboard to manage the marketplace, communicate with your vendors, configure shipping and fees, and overall manage all aspects of the marketplace functioning. Thus, an admin dashboard must have all the needed features and easy navigation for easy access to any required information.

Of course, this is not the whole list of marketplace features but lists the essential ones. It is also highly recommended to prioritize all the elements (high, medium, and low priority) to adjust the development process correspondingly and set proper deadlines and milestones.

Choosing the Development Method

Finally, the time has come - you now have to choose the development method for your eCommerce marketplace. There are three available options: an eСommerce platform (such as Magento), from scratch, and a website builder. Each option has its pros and cons, so let’s have a look at them.

Open-Source eCommerce Platform + CMS

There are various open-source eCommerce platforms for building an online store, and the most popular are Magento and WooCommerce. These platforms share standard functions, and their main differences lie in functionality, customization, and available plugins. What’s best about them is that they have an open-source code, and this allows multiple customization opportunities (on the condition that you find experienced developers to handle it).

So how do you turn an eCommerce website into a multi-vendor marketplace? Luckily, it can be done with the help of third-party plugins such as Apptha Multi-Vendor Extension for Magento 2 (we’ll focus on Magento as an example). The cost for this plugin will be $499 for three months and $999 for a year - and don’t forget about other possible customization costs. When adding this plugin to your Magento website, you turn it into an online marketplace with an option to add multiple vendors and manage both them and the customers. The plugin comes with various valuable features such as easy commission calculations, SEO-friendliness, product comparison, and much more.

On the one hand, building a multi-vendor marketplace with an eCommerce platform sounds relatively straightforward. But on the other hand, think of the following: you might spend quite a significant amount of money on Magento customization.

Custom eCommerce Marketplace Development

A custom eCommerce marketplace is one built from scratch. In this case, you approach a software development company and request to build a marketplace website for you.

The most significant advantage of a custom marketplace development is that you get a unique solution built precisely following your needs. While ready-made eCommerce platforms have limited functionality and need lots of customization, a custom product will come out precisely as you need it. You are always able to make any changes and provide necessary maintenance and support without relying on third parties.

So what about drawbacks? The biggest con of custom development is its cost and time. While a ready-made solution is almost immediately available, it will take you quite a while to develop one from scratch. However, a custom-made online marketplace can be more cost-saving in the long run compared to ready-made solutions, so consider that.

Looking to build a successful eCommerce marketplace? Our dedicated team of eCommerce developers is ready to help you.

SaaS Platforms

The final option you have is using a SaaS platform such as a website builder or a platform like Shopify. The main feature of both these options is a straightforward and quick setup that allows a short time-to-market. However, this solution also has some severe drawbacks:

  • Limited functionality: you will have to do lots of customization;
  • Possible issues with maintenance and support;
  • Possible security issues;
  • Possible scalability restrictions.

Also, note that control over the platform will not belong to you, which might cause issues in the long run. Examples of such platforms include Sharetribe, Mirakl, Arcadier, Izberg, Marketplacer, Cocolabs, or Kreezalid.

So how do you choose between the three options and determine which one will suit your needs the best?

Option 1 (an open-source eCommerce platform) is excellent for those who want a relatively quick start since the platform is available and ready. However, be prepared to spend some time on customization and various add-ons depending on your needs.

Option 2 (a custom product) is for those who wish to retain complete control over the product and need a valid competitive advantage. While custom development sure takes time, it will reward you with great functionality and an opportunity to implement any needed changes at any time.

Option 3 (a SaaS platform) is suitable for companies with a limited budget and a need for quick time-to-market. However, this option will be appropriate even for big and established companies, and the condition that their USP (unique selling point) is their products.

Summing Up

The development of an eCommerce marketplace is a complex and lengthy process, especially if you decide to go with custom development. However, considering the growing popularity of online marketplaces and the high demand for them, your product may bring you excellent ROI in the future if you invest enough time and resources. 
And in case you have any questions or want to know where to start, don’t hesitate to contact us. The Geomotiv team has rich experience in building custom online marketplaces, and we will gladly walk you through the process and answer all your questions and concerns.

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