There are a lot of articles from the different experts about how an eCommerce business works but I can conclude briefly that it is basically also a retail channel but it is more complicated. But there is another related business model that I would like to explore in detail which we call the virtual marketplace model like Ebay or Amazon.

What is the virtual marketplace?

  • This can also be called an e-commerce marketplace where third-party sellers are allowed to sell their products.
  • The third-party sellers might be individual traders, large-scale manufacturers of goods, or anything in between.

Advantages of Marketplace model:

  • Sell a large number of SKUs without maintaining any inventory.
  • Operational efficiencies are improved because some overheads are transferred to the third-party sellers.
  • Allow you to focus on developing e-commerce technologies.
  • Margins improved.

We can say that this is the win-win business model when every participant can also gain benefits. However, there are some serious flaws you should never ignore.

Disadvantages of a Marketplace Model

This business model is so great but it does not mean it is the bed of rose for you.

  • To begin with, it is tough to differentiate your e-commerce business. In the marketplace model, the problem becomes still acuter as you are not even the seller of your own goods.
  • It is not easy if you want to implement product quality control. The reason is the seller is primarily responsible for the products but when any problems occur, the loser will be you, your website will lose customers, get the bad reviews, that’s a nightmare.
  • Probably the only sustainable competitive advantage that an e-commerce player can develop is a strong brand. With a multitude of sellers, brand salience is one of the first things to get hit in the marketplace model.

The Future of the Virtual Marketplace Model

Nothing is perfect and advantages still exist but they cannot prevent marketplace model from developing across countries. In fact, the biggest e-commerce marketplaces could be bigger, and more valuable, than the biggest pure-play ecommerce players. With a lot of retailers, joining really big marketplaces with the best traffic numbers can make them survive in this fiercely competitive environment. Therefore, it can be said that the future for virtual marketplace í actually bright.