open space or designated area where sellers display their products in public for customers to patronize. A marketplace is an online platform where multiple sellers can meet and make transactions for products and services with multiple buyers without the intervention of the marketplace operator.
In its broadest sense, a marketplace is any designated location where sellers and buyers can perform transactions. It can be a market square, retail outlets, food halls, farmer's markets, warehouse clubs, flea markets, etc. This type of marketplace is known as a traditional marketplace. In this type of marketplace, the buyer meets the seller in person to talk about the product, bargain price, and in some cases, make delivery arrangements.
In the e-commerce industry, a marketplace is also known as an e-marketplace or online marketplace. It is a kind of e-commerce website where multiple third-party sellers exchange items to customers. They provide product or service information for curated customers to make informed choices before purchasing the product. The marketplace operator does not own any physical product, maintain inventory, write product descriptions, images, or handle logistics. Instead, they act as a digital intermediary, connecting sellers with potential buyers to efficiently conduct transactions. As an online marketplace seller, you receive a dedicated space where you can list and manage orders. The marketplace operator is in charge of running promotions and driving customers to products on the platform.
A marketplace owner uses different monetization models to generate revenue.
- Subscription-based model: here, you make money by charging the sellers on your platform regularly for accessing the marketplace.
- Commission model: in this model, you either charge the seller, buyer, or both a fixed fee or percentage as commission from each verified sale.
- Sign-up fees: as the name suggests, you charge the vendors a one-time fee when they apply to sell through your platform.
- Product listing fees: in this model, you charge your vendors a fixed amount for each product they put for sale on your marketplace.
Real World Example of a Marketplace
Amazon Marketplace—or simply, Amazon.com—sells consumer, industrial, and business products. When you search for a product, you see available options from sellers who have listed their products on the marketplace. Amazon earns money by charging a commission for each verified purchase. When you order a product, Amazon processes the payment and deducts its commission from the sale. It then sends the order to the vendor, who handles logistics and delivers the product to your preferred location.
Another real-world example of a marketplace is Fiverr. Fiverr is a platform where freelancers offer their services to customers worldwide. On Fiverr, you can search for a wide range of freelance services, including graphic design, website design, digital marketing, copywriting, scriptwriting, and many more. When you order a service from a vendor, you pay in advance for the service. Fiverr holds the funds until the vendor completes your order before sending them the money. Fiverr operates a commission-based model and charges both the vendor and the buyer a fee for processing transactions.