For business owners, becoming proficient in profitable product sales can be both exhilarating and challenging. This requires identifying your target audience and creating a strategy to engage potential customers. To achieve this, it is vital to envision the various types of marketplaces and the unique marketplace business models they use. These models serve to define the purpose of your business and structure the objectives that need to be accomplished.
In this article, we will discuss their definition, types, and advantages. Furthermore, we will explore how to choose the most appropriate marketplace for your business. Continue reading to gain further insights.
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What Is A Marketplace Business Model?
The marketplace business model is designed to conduct transactions between multiple buyers and sellers. Its primary function is to act as an intermediary that provides a platform for buyers and sellers to connect, communicate, and conduct business activities.
When it comes to this type of business model, the platform owner typically generates profits by demanding a certain commission for each transaction that occurs on the platform. Moreover, the platform owner may also charge fees for additional services, such as advertising or analytics.
Marketplace business models are highly versatile, and they can be presented in different forms:
- E-commerce marketplaces,
- Job marketplaces,
- Service marketplaces.
Recently, these business models have become increasingly popular as more and more consumers and businesses are utilizing online platforms to purchase and sell goods and services.
Types of Marketplace Business Models
We have already mentioned that marketplace business models are pretty versatile, and there are many types of them. Let’s define some of the most popular ones and talk about their features and benefits.
Commission Model
The first and probably the most widely used model we want to talk about is the commission one. As you can guess from the name, its main point is that the creators earn money from the fees that the customers are charged for their transactions. Most of these platforms charge no money for registration, so anyone can join. However, you might need to pay extra for additional services.
The biggest advantages of this model are:
- Reliability,
- The possibility of monetizing.
When you establish a price that is both affordable for users and profitable for you, it’s a great way to form a solid customer base and get stable revenue. Some examples of this business model are Airbnb, Fiverr, Amazon, etc.
Subscription Model
Unlike with the previous option, you can’t register on the platform for free. In order to use the marketplace, both buyers and sellers have to pay a subscription fee. To attract more customers and make them stay, it’s essential to make your marketplace engaging and beneficiary for them right away.
The usage of this model allows you to understand your approximate monthly profit and keep it relatively stable each month. Today, many dating websites and Couchsurfing platforms use this type.
Freemium Model
Another common business model is a freemium one. The whole point of platforms based on this model is they can be used for free, or you might pay for them. It depends on the features the customers want to have access to.
Usually, platforms of that type offer a few basic costless features that are enough to operate on the platform, but they don’t allow to use it fully and comfortably. In order to get additional possibilities, the customer will have to pay extra and go premium. This type of platform can be really beneficial, as many users are attracted by the fact of free usage.
Many stock photo platforms take this business model as their base.
Listing Model
Then we have a listing marketplace model, where the sellers are being charged for each post on the platform. It’s more advantageous for platform owners than the commission model, as they charge not only for the items that are getting sold but get a percentage for each item that is posted on the marketplace.
Why do many customers choose this type of platform? Actually, in most cases, the fees are much lower than on all the other platforms we mentioned above. Also, because the sellers pay for each advertisement, all of them are checked for quality.
One of the most popular platforms that use a listing model is Etsy. Also, many realtor websites use this type to promote their services.
Featured Ad Model
Last but not least, we want to mention the featured ad model. It is not fully independent, and it’s usually a part of some other marketplace type. Basically, its main point is the fact that a seller can pay extra in order to place their item at the top of the page so that more buyers can see it.
It gives customers more possibilities for advertisement and for platform owners, more ways of gaining profit. However, it might be a bit challenging to control the flow of ads and not make the platforms too overloaded.
The Pros And Cons of the Marketplace Business Model
Just like any other type of business model, the marketplace one has its own pros and cons. We gathered some of them below.
Some of the advantages are:
- It gives small businesses a great opportunity to widen their customer base and engage a bigger audience, which probably would’ve been impossible to do on their own with limited resources.
- Marketplaces are equipped with all the necessary tools for placing the items and advertising them. It makes the process of transactions and transportation easier as well.
- Also, the usage of this kind of platform provides more opportunities for networking.
The drawbacks of marketplace business models include:
- It might be pretty hard to establish trusting relationships with customers, as the sellers don’t communicate with them directly.
- Some of the fees and commissions might be pretty high, so it might not be beneficiary for sellers with limited resources.
- Most of these marketplace platforms are really competitive, and quite often, they’re dependent on the other platforms.
Summing Up
Establishing a solid foundation for your business often demands more effort than you may anticipate. Apart from completing formalities and setting aside funds for expenditures, it is crucial to have a thorough understanding of your target audience and competitors.
Selecting the appropriate business model that aligns with your company’s requirements and objectives is a critical decision. So choose one wisely.