Enterprise Marketplace

Marketplace 101: What is an Online Marketplace and How Does It Work?

Sara Matasci
September 8, 2022
Marketplace 101: What is an Online Marketplace and How Does It Work?
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Throughout the world, eCommerce has reshaped the way we live, work and shop. Combining convenient delivery with wide product selections and competitive prices, online commerce has made it possible for consumers to buy anything they want at a moment’s notice.

In particular, online marketplaces are standing out in the overall eCommerce landscape. For the last two years, marketplaces have grown at twice the rate of overall eCommerce, and today, online marketplaces are responsible for two-thirds of global eCommerce sales. This growth has been fueled by widespread popularity: over the last two years, consumers’ adoption of marketplace shopping has grown by 35%. 

How do marketplaces work, and how have they become so popular among consumers? In this blog post, we’ll take you through the basics of the marketplace model and highlight examples of some of the world’s most important and unique marketplaces. 

What is an online marketplace?

To put it simply, an online marketplace is an eCommerce site that brings together inventory from many different sellers in one place. Marketplaces are different from traditional eCommerce sites, which sell products from a single company that purchases inventory from wholesalers, stores it in a warehouse, manages and markets the products, and ships them to the recipient once they’ve been purchased. In contrast, an online marketplace brings together multiple players who are each responsible for different parts of the process:

  • The marketplace operator is in charge of hosting and managing the marketplace. 

  • Marketplace sellers are third-party vendors who use the marketplace as a platform to sell their products and services. Marketplace sellers typically take care of order fulfillment, shipping, and processing returns. They pay a commission to the operator for every item sold. 

  • Marketplace partners provide separate tools and services to ensure the marketplace runs smoothly. These can range from tax compliance to logistics to feed management.

How does an online marketplace work?

In an online marketplace, the products for sale come from third-party sellers, instead of being sold directly by the marketplace operator. The marketplace operator is still responsible for the look, feel and overall customer experience of the site, and sometimes, they may also offer their own first-party products alongside offerings from their network of third-party sellers. 

When a customer purchases from a third-party seller through the marketplace, the seller fulfills the order and ships the item directly to the customer. The seller can sometimes also handle customer service, exchanges and returns. In exchange for offering the seller a new channel for growth, the operator earns a commission on each sale. The online marketplace offers a benefit to everyone involved — operators, sellers and buyers: 

  • The operator is able to offer significantly more products without having to take on the risk and responsibility of storing them or shipping them. 

  • The seller gains a new customer audience, often taking advantage of the established credibility of a popular brand. 

  • Most importantly, the buyer gains access to a wider range of products at more affordable prices.

Any retailer can launch and operate a marketplace. Some companies are digital natives, maintaining a thriving marketplace of third-party sellers without owning a single product or a physical storefront. Other traditional retailers use the marketplace model to grow their eCommerce performance in tandem with brick-and-mortar stores. Some of the world’s most famous brands now prominently feature online marketplaces in their overall strategy.

It’s important to note that online marketplaces aren’t just for consumer retailers. Business-to-business (B2B) suppliers are also taking advantage of the marketplace model. B2B marketplaces operate under the same basic principles as retail marketplaces, offering products from various third-party sellers who each take on the responsibility for storing goods and fulfilling orders. 

Like in retail, many B2B businesses use marketplaces to add more products to their eCommerce offering. However, there are other types of B2B marketplaces that are also growing in popularity, such as manufacturer-led marketplaces where channel partners become sellers, creating a seamless online experience for business buyers. In the past year, B2B marketplace sales grew more than seven times faster than overall B2B eCommerce, and have since become the most used B2B sales channel. 

What is an example of an online marketplace?

Marketplaces come in different shapes and sizes. Two of the largest and most well-known marketplaces are AliExpress and AmazonMarketplace. AliExpress is a China-based marketplace that allows consumers in more than 200 countries and regions to buy goods at wholesale prices. The AliExpress marketplace is localized in a dozen languages and serves an estimated 150 million global customers on an annual basis. Amazon Marketplace allows third-party sellers to market their products alongside Amazon’s own base of products. Amazon partners with more than 1.9 million sellers to support its global online marketplace, and marketplace sales now comprise 58% of the company’s total sales figures. Many of your favorite retailers and B2B businesses also have their own online marketplaces. Though smaller than global giants like Amazon and AliExpress, these marketplaces are tremendously beneficial to brands and retailers. 

Madewell is a popular clothing retailer that promotes “Labels We Love” through their online marketplace, selling third-party items alongside their own clothing lines. However, some marketplaces don’t offer any first-party products at all: Shop Premium Outlets, A Simon Digital Marketplace brings together third-party products from across its network of outlet stores, but it doesn’t offer any products of its own. 

Other popular brands, retailers and B2B suppliers that offer online marketplaces include ABB, Best Buy Canada, Carrefour, Debenhams, Hudson’s Bay, The Kroger Co, Leroy Merlin, Maisons du Monde, Toyota Material Handling, UNFI, and hundreds of others throughout the world.

Marketplaces are poised to continue growing at a rapid pace, playing a larger and larger role in our everyday lives. Stay tuned for more Marketplace 101 content from Mirakl as we walk you through the ins and outs of this game-changing technology.

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Written by
Sara Matasci
Director, Corporate Marketing at Mirakl

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