The main types of marketplaces. Which one should you choose?

Today many businesses are looking for convenient channels to distribute goods and services, reach a large audience, as well as cut down marketing and operating costs. Online marketplace platforms were designed to address these issues.

Connecting vendors and customers, a marketplace allows them to make payments and orders in one place. An organization or individual doesn’t have to build and promote a website or application to deliver services but just create a profile and add relevant information.

Thanks to these advantages, marketplaces gained high popularity over the past years. McKinsey & Company revealed that nearly 80% of B2B decision-makers prefer remote human interactions or digital self-service due to reduced travel expenses, ease of scheduling, and safety.

In this context, online marketplace development is a great investment opportunity. This article describes the main types of marketplaces to help you choose the best option. Let’s get started.

Explore the key benefits of a marketplace for vendors, customers, investors, and the owner.

The main types of marketplace platforms

Online marketplace platforms are generally classified by the target audience, focus, and management approach. Although many people believe that a marketplace refers to online retailing only, it comprises plenty of sectors from education and manufacturing to healthcare and insurance.

1. Types of marketplaces by the target audience

Business-to-business marketplaces

A B2B marketplace connects organizations (consumers) with other businesses (vendors), for instance, retailers, wholesalers, or manufacturers to purchase from them. By generating orders and carrying out transactions via an online marketplace platform, companies facilitate processes such as sales and procurement, as well as improve the transparency of financial deals.

Employing this type of website, providers can start delivering services much faster in comparison with other ways such as e-commerce website development or physical store opening. With a B2B marketplace, they can also expand their sales channels and attract a new audience.

Considering special aspects, organizations generally tend to buy in bulk or use services from a team of experts. As a consequence, the size of orders accumulated in the system often varies between thousands and millions of dollars. Therefore, it is crucial for customers to protect themselves from fraud and ensure high quality of service.

To increase credibility, a marketplace should take the following measures:

- implement a review and rating system, so that customers can estimate the quality of services and make more informed purchasing decisions - require vendors to submit legal documents and the necessary licenses, check them - verify new users who want to register in an online marketplace platform - ask suppliers to provide consumers with a money-back guarantee, return policies, delivery details, and service terms.

Amazon Business, eWorldTrade, and Thomas are examples of popular B2B marketplaces. Aiming to increase revenues, some business-to-consumer (B2C) marketplaces like eBay have already begun offering various goods to organizations, too.

Business-to-consumer marketplaces

A B2C marketplace is an app or website that matches vendors with individual customers. A large e-commerce marketplace can be compared with a retail store where consumers can find a variety of products offered by numerous providers. For instance, Booking.com is a B2C platform that connects thousands of hoteliers and property owners with travelers across the globe.

Considering our practical experience in building B2C marketplaces, we have recently created a marketplace that enables users to book tables in cafes and restaurants. Thanks to this solution, food service providers managed to continue generating profit during the COVID-19 crisis. Another project lately delivered by our team is an online pharmacy marketplace that matches around 1,500 suppliers of medical goods with consumers.

As of today, a B2C marketplace is the most popular model that comprises giants such as Amazon, eBay, AliExpress, and Booking.com that are likely to stay monopolists for many years. Therefore, it may be difficult to attract millions of users due to high competition.

To succeed in the market, it is reasonable to build a niche marketplace. A niche targets a group of consumers characterized by similar needs and preferences. So, before online marketplace development, you should conduct research on the audience’s pain points and expectations. This will help you work out an effective marketing strategy, choose a proper monetization model, and gain a competitive advantage.

Peer-to-peer marketplaces

Peer-to-peer (P2P) or customer-to-customer (C2C) marketplaces bring together individuals enabling them to share products and services via a single platform. This type of app/website unites people with similar tastes and issues.

The main feature of a P2P marketplace is that its user can be simultaneously a consumer and service provider. Customers can also switch their roles depending on their needs. A P2P model is generally distinguished by a shorter sales cycle in comparison with B2C and B2B marketplaces. Examples of P2P systems are Uber and Etsy.

2. Types of marketplaces by focus

Vertical marketplaces

A vertical marketplace delivers goods or services belonging to a certain sector or category. For instance, manufacturers of connected home devices deliver products to contractors and installers of home automation systems.

Etsy, a well-known vertical marketplace, focuses on vintage and handmade goods. TaskRabbit is a US marketplace that brings together freelancers with consumers. With this platform, customers can hire specialists to perform everyday tasks associated with cleaning, home repairs, office administration, moving, etc. By choosing this type of marketplace, you target a specific niche and therefore, increase your chances to stand out from competitors.

Horizontal marketplaces

Offering different goods and services from numerous vendors, a horizontal marketplace can be considered as an online department store that fulfills various consumer needs.

Striving to reach as many customers as possible, this type of app or website usually provides products across multiple regions. Amazon and AliExpress are world-famous horizontal marketplaces where consumers have access to almost anything from clothes and home decor to electronics.

3. Types of marketplaces by management approach

Unmanaged marketplaces

In an unmanaged marketplace, the owner doesn’t have to request documents and invest in the quality control of products or services delivered by third parties. A platform supplier is usually not occupied with vendor and customer identity verification, as well as feedback analysis.

To increase consumer credibility, unmanaged marketplaces implement a review and rating system. The lowest transaction fees are one of the primary advantages of this solution. In most cases, transactions are peer-to-peer.

Lightly managed marketplaces

Owners of lightly managed marketplaces place attention on quality assurance, identity and background verification. Focusing on customers, they generally require vendors to provide return policies, terms of use, and guarantees such as money back in certain cases. Considering practical examples, Uber checks the background, documents, and licenses of drivers before connecting them to the platform.

Fully managed marketplaces

In this model, owners have control over the sales process. Serving as an intermediary in financial deals, fully managed marketplaces generally charge the highest fees compared with other types of online marketplace platforms.

To ensure the audience’s trust, these platforms undertake critical tasks such as identifying the most trustworthy providers, standardizing prices, verifying vendor qualification, as well as checking their documents. As a consequence, this type of marketplace offers superior customer service.

Considering practical examples, Opendoor is a US online marketplace that purchases the property from third parties while charging a commission. Then, the organization makes the required repairs to further relist this property for sale at a higher price.

Final words

Building an online marketplace platform may become an excellent investment opportunity for your business. When a niche, target audience, and monetization strategy are identified properly, a marketplace will attract numerous users while you will generate revenue.

To achieve success and earn a profit, it is important to start with market research and competitor analysis. You should also define your potential customers and investigate their needs, preferences, pain points.

With extensive experience in online marketplace development, we recommend that you begin with creating a minimum viable product (MVP). Implementing only the key functionality, you will be able to test its operating feasibility and make the necessary customizations according to user feedback. As a result, you will improve time-to-market and create a solution that aligns with the audience's expectations.

To learn more about this approach and its benefits, read our article "MVP for startups: Why building an MVP Is a great idea"

If you have a project idea, contact our team. Our software experts will get back to you within one business day and help resolve all issues. Consultation is for free.