An online marketplace is a website or app that facilitates shopping from many different sources. The operator of the marketplace does not own any inventory, their business is to present other people’s inventory to a user and facilitate a transaction. eBay is the ultimate example of an online marketplace, they sell everything to everybody. There are many other types.

Because they offer real convenience to consumers, over the last several years the number of marketplaces has exploded. If you were creating a department store in 2017, it would be an online marketplace, I call them Department Stores 2.0. Because users access suppliers’ inventory electronically and the marketplace doesn’t have to own it before offering it to consumers, all the products being sold by suppliers are available to consumers and there is real-time information about the products being presented to consumers on an online marketplace’s site or app. It’s a much broader assortment than any store could offer.

Consumers don’t like using apps from single retailers. They are much more likely to download an app that offers product ranges broader than one store can offer. That’s one of the major appeals of a marketplace.

Marketplaces have some downsides. Because products are being offered from many sellers, the information about them is often not comparable and the delivery speeds of sellers are not uniform. That can surprise consumers in a bad way. Making a marketplace work smoothly means drawing on many suppliers simultaneously and making it seamless for consumers – that’s hard to do.

A vertical marketplace sells products from many sources but they are all of one type. For example, TrueFacet.com sells only jewelry and related products. The site does the important job of guaranteeing authenticity and because jewelry is such a high-ticket item, that’s an important value-add. I recently met Tirath Kamdar, the Founder and CEO of TrueFacet, at a conference called ShopTalk, which bills itself as ‘the nextgen commerce event’ for retailers. Kamdar believes TrueFacet is ‘creating the VIN of the jewelry industry.’ By giving each piece of jewelry a unique identifier when it’s listed on the site, TrueFacet adds value by verifying the authenticity of a product.

A horizontal marketplace sells products of many types but they all share a characteristic. For example, Panjo, another presenter at Shoptalk, is a marketplace for enthusiasts. According to Chad Billmyer, Panjo’s CEO, ‘belly dancer enthusiasts behave the same as Porsche enthusiasts.’ By providing community, infrastructure and data, Billmyer believes Panjo will drive traffic for people to pursue their passions and buy and sell from each other at the same time.

Another horizontal marketplace that also presented at Shoptalk is Dote. Dote offers women who don’t want to download individual retailer apps the ability to shop at multiple retailers simultaneously, including Madewell, Forever 21, J.Crew, Lululemon, Brandy Melville, Topshop, Free People, Ann Taylor, Loft, Zara and others. Users can see the products from different retailers all together and at the same time in the same app. Dote focuses on a type of customer and offers them multiple products across many types of retailers.

A global marketplace sells everything. The ultimate example of that is eBay. (Full disclosure: I’m an avid eBay shopper. As I write this article, I am wearing this suit available from Saks for $3895 plus tax. I bought it new with tags on eBay for $1100.75. Most of what I wear is a similar story. I have bought and sold five cars on ebay and hundreds of other items, all at great values and with very little grief or frustration.) eBay has 167 million users, over 1 billion items for sale, more than 80% of the items are new, and this year will sell almost $90 billion worth of product. Their appeal is their breadth of product. Bob Kupbens, VP of Seller Experience at eBay, said at Shoptalk, ‘scale gets you transparent pricing,’ if there are enough things being bought and sold, users can see what a fair price should be and they feel like they’re getting the right value. Kupbens also pointed out that an environment like eBay, ‘polices itself because there’s a community of people in a more efficient marketplace.’

What’s Motivating Marketplaces?

In almost every type of e-commerce today, there is one thing making everyone move faster and more efficient: Amazon.com. Nothing is as motivating as having a huge competitor with virtually unlimited resources, technological capability and potential. Amazon itself is a hybrid marketplace, offering products of its own and other companies’ while also providing a platform for buyers and sellers to transact through Amazon either on their own or with Amazon’s assistance of various types.

There are many other hybrid marketplaces. Numerous companies big and small, now including Walmart, the second largest ecommerce site in the country according to comScore, are allowing users to offer their own products in marketplaces that are springing up on various ecommerce websites. If they’re run well, the marketplace adjuncts to ecommerce sites bring increased traffic and a broader array of product that gives consumers more reasons to stay on a site and not wander.

As department stores’ appeal declines, marketplaces appear to be one of the places that are replacing the multi-brand retailer. We are seeing an explosion of marketplaces now. Ian Friedman, Co-Head of Goldman Sachs Investment Partners, Venture Capital & Growth Equity team, who moderated a panel discussion on marketplaces at Shoptalk said, ‘For marketplaces to succeed they must do three things well:

• reduce friction in both selling and buying to create sufficient liquidity on both sides on the marketplace
• engender a greater level of trust and transparency to encourage participation, and
• create both proactive and reactive mechanisms for addressing inevitable issues that come up between marketplace participants'

It is common in the retail industry for new retail concepts to explode and proliferate the way marketplaces are now. What is also common is that after a time, there’s a shakeout and only the most successful survive. Eventually, all online marketplaces will all have to prove their staying power by offering efficiency and unique value to consumers. Those that can’t will wind up losing market share the way department stores are now and eventually those marketplaces will disappear. Those that can survive and compete effectively against Amazon will continue to create value and profitability.

Source: www.forbes.com