The Critical Role of Ecommerce Marketplaces

ecommerce marketplaces illustration cart and keyboard feature

In theory, it’s never been easier to enter ecommerce. Investments and fixed costs are marginal because everything is now available “on demand” or “as a service.” Digitization even allows people to run an online business from their bedroom without renting large warehouse space, let alone going into debt to build up inventory.

The flip side is that an off-the-shelf ecommerce shop can get lost in the online traffic. Without marketplaces and SEO knowledge, sellers have limited chances of an acceptable ranking in search engine results. A single product in a single shop in the infinite expanse of the web is unlikely to be found easily.

Those who only think of ecommerce marketplaces of major American and Chinese operators when they consider the global platform economy overlook opportunities this business model also offers medium-sized and smaller companies. Retailers or service providers whose offerings complement each other can learn from the big players and serve their customers better together rather than independently. From close, exclusive partnerships to a loose cooperation, there are many possibilities with an ecommerce marketplace.

The notion of one-to-one marketing is a myth in most cases, which is why retailers benefit so much from the ecommerce marketplace model. This not only delivers all the infrastructure and processes but a wide variety of customers as well. If a retailer’s products are right and the prices are competitive, there is a good chance of piggybacking onto an established player.

What might something like this look like? A good example is a vertical marketplace. The basic principle works for all sectors in which a product has to be assembled or installed by a craftsman. A bathroom specialist operating nationally or internationally in cooperation with local tilers and installers might be a good candidate for this model.

Global Opportunities

An ecommerce marketplace also offers merchants opportunities to increase cross-border sales. In Germany, for example, there are 73 large and small online marketplaces selling physical products, according to the business information portal iBusiness. The UK, France, Spain and Poland also have significant players. Alternative versions have sprung up such as classified ads and community site Gumtree, which was bought by eBay in 2005 and has since expanded to the U.S., connecting local buyers and sellers all over the world.

But for all of their advancements, ecommerce marketplaces also return us to principles that predate the internet. The pioneers who prophesied a radical shakeup of business ignored the complexities involved in transacting online, across multiple countries and jurisdictions. Marketplaces cannot function without intermediaries. They’re needed to make ecommerce fairer, to get a small “stall” noticed and to make sure payment and delivery happens between parties and countries.

Creating a Successful Customer Journey

Omnichannel is the future of retail and it is, by definition, an inclusive concept. Thus, well-frequented ecommerce marketplaces are vying for tenants. From the retailer’s perspective, what matters is whether the platform, from the marketing concept to the crediting of the seller’s account to shipping, is well constructed.

A key to this, regardless of the marketplace’s size, are processes that facilitate the customer journey at every step, from browsing to checkout to delivery. Of course, the simpler and smoother for the customer, the more complex the interaction between the retailer’s IT systems, the platform and the service providers.

Marketplaces and Payments

By cooperating with a networked payment services provider (PSP), smaller marketplaces can offer the optimal choice of payment methods without having to become a financial services provider or a fintech or acquiring a banking license. In this division of labor, software from the marketplace and the PSP interlock. For each connected retailer, the PSP maintains a separate ledger account where it matches incoming payments and credit card authorizations from a wide variety of sources against receivables. The PSP is also able to divide a customer payment among several sellers.

This happens behind the scenes, so regardless of how many sellers’ products are selected and put in the shopping cart, the customer simply sees a total price. Large marketplaces such as Amazon set this up themselves, but smaller marketplaces can work with a payment specialist to make it happen.

The key driver is the network effect. Google and Facebook understood early on that many people appreciate a single point of contact to find everything, and that model works best if you make it easy for everyone to feel part of a community. Every new member of a community attracts others, and the web expands organically. Ecommerce marketplaces are an essential piece of this puzzle. 

Jed Danbury is vice president at Computop