Online marketplaces are long-term businesses. No one, including us, would like to work on startup businesses that do not offer a clear source of earning profits. And, the online marketplaces are flourishing more than ever before. The majority of the entrepreneurs wish to create a marketplace around a unique business niche in the ecommerce market. However, some of them are puzzled or have a limited understanding of the ways by which online marketplaces are generating profits.
Well, let us first know a bit more about online marketplaces.
An online marketplace is a gateway facilitating the exchange of goods and services from various points of supplies. The best advantage of such marketplaces is that the seller does not need to own an inventory. The marketplaces facilitate the inventories of the sellers on their platform while offering an easy, efficient, and safe mode of transactions. Some of the most prominent online marketplaces include Amazon, eBay, Flipkart, and OLX. Although these marketplaces are from different business niches, they have made a significant impact in the world of online marketplaces. In order to give you a clear understanding, in this blog, we will be discussing the types of online marketplaces and the ways by which online marketplaces are generating profits.
What are the types of online marketplaces?
Let us begin with the types of online marketplaces. The marketplaces can be grouped into three main categories, B2B (Business to Business), B2C (Business to Consumer), and C2C (Consumer To Consumer). Following are some of the major types of online marketplaces:
B2B Marketplaces
It is a website wherein wholesale sellers sell their goods and services to the purchasers in bulk quantity. Usually, this type of marketplaces is operated by third-parties that let the marketplaces use it by abiding by their terms and conditions.
Examples of B2B Marketplaces: Amazon and Alibaba
B2C Marketplaces
Such marketplaces are inclusive of two types of users: the business and the consumers. Herein, businesses sell their goods and services directly to the consumers unlike selling to other businesses in B2B marketplaces.
Examples of B2C Marketplaces: AliExpress and Booking.com
C2C Marketplaces
This marketplace brings together individuals with similar requirements, choices, and incomes to share goods and services with each other in exchange for other goods and services or money. Such marketplaces can be included in the category of sharing economy that lets people make optimal use of their resources opting for renting instead of purchasing.
Examples of C2C Marketplaces: Etsy and Airbnb
How are online marketplaces generating profit?
Coming to our major concern and probably your primary question: How do online marketplaces make profits?
Especially if you have ever thought or are planning to launch your marketplace, you might want to know the ways by which other marketplaces earn profits. Let us be straight here, all you need to do is, opt for the right marketplace business model that coordinates with your mission, vision, and business plan. Developing ecommerce companies can choose the business model that perfectly fits your requirements to start your business journey successfully. Below are the subscription models for your reference:
The Commission Model
It is the most popular business model for all the modern marketplaces that involves charging commission from every transaction. When the consumer pays to a provider, the marketplace platform facilitates the payments and charges in percentage form or a flat fee. The biggest advantage of this commission model is that the providers are not charged before getting some value from the marketplace. Due to this reason, the model is considered as the most lucrative for providers wherein businesses use commissions as their main model for business.
The Membership Model
It is also known as the subscription model which implies a revenue model wherein some or all the users of the marketplace are charged a recurring fee for accessing the marketplace. Unlike the commission model, the membership model throws some reliable insights into the revenue generated. In this model, the owner of the marketplace gets money from the registered users at a regular interval. The classic value proposition for providers using the membership model is that they are provided with the facility to find new customers. On the other hand, consumers also benefit from the model by finding unique experiences as well as saving costs.
Listing Fee Model
To listing fee model, instead of charging the users for signing, the users have to pay for listing goods and services. The payment option in such models is quite transparent as the marketplace defines its own set of rules for multiple products. All users can get access to the same information and can pay the same amount for all the goods and services offered. The most effective benefit of the listing fee model is that as the number of listing increases, the admin of the marketplace earns more and more.
The Lead Fee Model
This model can be lined between the Commission Model and the Listing Fee Model. Herein, the consumers’ posts requests on the website and the providers make payment in order to bid for such consumers. This model helps in generating better revenue than the Listing Fee Model. You only need to pay when you are connected with a potential consumer. This model works only if the lead value is high. Therefore, the C2C marketplaces do not often use this model and it is most commonly used by the B2B and B2C marketplaces.
The Freemium Model
The crux of the Freemium Model is that this is a free offering. However, once you grab your users’ attention, you can offer paid value-addition features. The basic version of the service is for free; however, the advanced version is only open to the VIP users who pay a handsome amount.
Conclusion
When it comes to business models for marketplaces, there is no ‘one-size-fits-all’ approach. Therefore, when designing your marketplaces, you need to keep in mind your industry, your competitors, the size of your marketplace, the obstacles in the target market, the life cycle of your marketplace, and the list goes on. We would recommend you to start with exploring the basic revenue generation models and later switch to the advanced models.
