On Monday, Adobe announced that it will be acquiring Magento, a leading e-commerce platform, for $1.68 billion dollars. This move by Adobe has stressed Magento’s main rival, Shopify. Leadership at Adobe say that the deal will help Adobe add commerce to its Experience Cloud. They said that Commerce is an integral part of the end-to-end customer service. Magento Commerce Cloud currently offers digital commerce, order management and predictive analysis. Earlier this month, we witnessed Walmart acquiring 77% stakes in Flipkart, India’s leading e-commerce website for $16 billion.
By earlier industry norms, marketplaces were considered to be a part of e-commerce sites. This however has changed over the years with both taking different places under the scope of online commerce. People who are not used to industry norms tend to get confused between the words e-commerce and marketplace. People tend to use the terminologies interchangeably, which is far from being correct. So, let’s understand what the difference between an e-commerce website and marketplace is.
The major difference between an e-commerce website and an online marketplace is that the former involves buying inventories sold on the website. Marketplaces are only a two-sided market, providing a platform for sellers and buyers to come together. They do incur the cost of storing inventory or any risks involved in the same.
Handling Long Tails
Both the platforms work on the demand-supply curve. In both cases, there will be some head (in-demand) products that will sell much better than the tail (out-of-demand) products. Both the platforms need to have the entire range of products to attract customers. In case of e-commerce platforms, the under-selling products are either discarded or sold at heavy discounts thus taking a huge hit on margins. In case of marketplaces, the sellers take the entire ownership of the products thus the marketplace does not get affected when products are not sold or taken down from the website.
The Margin Game
E-commerce websites own the products sold on the platform. Thus, it is easier for them to manipulate costs as per their margin. Marketplace platforms on the other hand, only charge a small amount of each transaction charged (read a related article on choosing the right business model for your marketplace). Hence, it takes more time for a marketplace to make the same money as e-commerce marketplace just considering margins on products sold.
Customer Relationship Management
Talking about customers, while E-commerce websites only must look at one set of customers, marketplaces have two set of customers; sellers and buyers. Marketplace websites must spend more time into building relationships. To build a good brand name, an e-commerce only focusses on its direct customers and does promotions accordingly. In case of marketplaces, the platform owner has to spend time nurturing both the set of customers and run promotions/ attractive offer for both of them, thus taking a bigger hit on the already low margins.
A Scalable Model
When you are in for the long haul, it is important to understand the difference between both the platforms from the perspective of sustainability. E-commerce marketplaces must buy their entire inventory. So, when they need to scale the model, it requires investments for growth. On the other hand, marketplaces need to just add new sellers on the platform who get products. Also, most marketplace platforms offer easy scalability of merchants on the marketplace.
Buyer Relationship Management
While E-commerce sites must invest a lot to provide more choices to buyers of the website, Marketplace websites provide choices by just adding new sellers on the platform. This drastically decreases the cost of maintaining relationship with buyers.
Technology for Platforms
Leaving out the option of developing your own e-commerce website or marketplace website from scratch, the most popular way today is to use SaaS platforms to build your websites. For E-commerce sites, you have development platforms like Magento, and Shopify and technologies like SAP Hybris, and Salesforce Commerce Cloud.
To develop marketplace websites there are many development platforms like Yelo which give you the power to develop your entire marketplace for any business without any technical knowledge. Yelo provides you with a fully customizable website that allow customers to browse and discover products, adaptive mobile apps for iOS and Android so that your marketplace can be accessed on the go, a merchant portal where your sellers can add their products and manage listings, and a feature-filled admin dashboard which allows you to control your marketplace and merchants.
As per a recent study, online marketplaces will make up for more than 40% of the online retail channel by 2020. The number only goes to show how people are finding more value in marketplaces as compared to e-commerce website. Today, you can build a marketplace for any business; products selling, providing hyperlocal service, collaborating freelancers and renting spaces. Having said that, if you have a current e-commerce website and want to move to marketplaces, the transition is possible and could be smooth. There are examples like Amazon and other popular e-commerce websites who have moved to marketplace models in some sense.
These are some of the important differences between e-commerce and marketplace.
Do you know of any other? Please leave a reply to benefit others in the journey of establishing their own marketplace.