Marketplaces: An online marketplace is a type of eCommerce web site where product and inventory related information is provided by various third parties and payment transactions are performed by marketplace operators. There are basically three parties involved in the whole transaction.
First is the eCommerce company itself that is providing the platform to transact. Secondly, the payment gateway company that offers services to process the payments made by the online customers and lastly, the supply chain and logistics company that delivers the product to the destinations.
The marketplace provides an opportunity for online customers to select products from a wide array of products that are provided by multiple vendors. The availability of products is higher and prices are very competitive than any vendor specific online store.
Components of marketplaces: There are various components of online marketplaces such as
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- Sellers
- Customers
- Products & Services
- Infrastructure
- Payment Gateway companies for payment processing
- Packaging companies
- Logistic companies.
Advantages of marketplaces: There are various benefits of using an online marketplace. Benefits are derived by every stakeholder that is associated with the process of online shopping.
- Wide publicity of the products: The products are displayed on such a platform that publicizes each and every product to every online customer who are availing the services. This in itself gives an incentive to every participant as all of them are benefiting directly by it. This also means that the retailers associated with online marketplace are directly presenting their products to the right buyers who are promptly interested in making purchases.
In addition to this, the marketplaces can target specific demographic locations based on the product characteristics and demand of products. These marketplaces gives chance to online customers to compare the prices of the products, check the stock levels and choose from various delivery options.
- International exposure: Marketplaces gives associated retailers to display their products globally. Promoting products in international markets cost much. Even if retailers don’t establish a physical store, promoting the website in any other country is a time consuming and costly process.
With the marketplaces, this problem of promoting products is easily solved as the cost involved is borne by them.
- Seal of trust and credibility: Online customers are hesitant to purchase products if the retailers are new in the online vertical. Online stores should have such features that give a sense of security to online customers for their online transactions. Online marketplaces have established customer base and the credibility among them. This helps the online retailers to sell their products as the marketplaces have their own standard and stringent norms to register any seller on their websites.
Additionally, the standard processes adopted by the online marketplaces for securing the online payment are fully reinforced.
- Utilization of existing resources: Online retailers can use the established infrastructure of online marketplaces which actually saves various additional cost involved in establishing them. Retailers can use the existing marketing and promotion campaigns that are operated by marketplaces.
Working capital requirements: Though the marketplaces offer various advantages to the online retailers, there are certain barriers also that need to be taken are while selecting the online marketplaces. Businesses have various needs for working capital to grow their business and have funds available for marketing, advertising, expansion and growth. There are multiple options for small businesses to acquire funding online including from lenders and merchant cash advance companies such as: fast merchant advance, advantagemca, and merchant funding network.
- The cost of integrating marketplaces: Cost involved in integrating marketplaces can be high. The cost involved in integrating marketplaces includes planning, procuring hardware and software, maintenance and communication charges.
- Incompatible technology: Additionally, there are chances that the technology platform that is used for designing the eCommerce store doesn’t support the technology platform of marketplaces.
- The marketplaces can be integrated with eCommerce stores via the API interface. It is possible that the technology platform of eCommerce store doesn’t support marketplace technology platform.
- Stringent rules and standard processes: There are certain rules and regulations that every marketplace uses to standardize the business processes. The stringency of the rules acts as a barrier for online retailers to integrate it with their eCommerce stores.
Global Presence of Amazon & eBay
Amazon and eBay are two main players in the online marketplace. According to Forrester Research, an independent technology and market research firm, there are 173 million active worldwide customers of Amazon and active user of eBay. In addition to this, the average spending of 10 million Amazon Prime members is $ 1224 per year.
The growth rate of Amazon is twice as of eCommerce and the growth rate of retailers registering on Amazon is twice as of Amazon itself. 68% of the retailers believe that the use of online marketplaces to grow. Moreover, 71% of the retailers believe that online marketplace revenues grow.
According to Internet Retailer, a portal for eCommerce intelligence, more than 60% of the retailers mentioned in Internet Retailer Second 500 Guide sell on one or more marketplaces.
The usage of mobile is increasing eight times faster than desktop and additionally, there are more than 1.2 billion people who are accessing the web from their mobiles. This is the main reason that eBay has 162 million downloads of its mobile app since 2008.
In such a current scenario, about one-third of the online shopper abandons the web stores because of mobile incompatibility of web stores. Additionally, the loading speed of the web store plays a major role as about 60% of the mobile shoppers abandon the web stores if it takes more than 3 seconds to load the web pages.
Cross-border trade is expected to account for one-fifth of eCommerce trade by 2017 and moreover the markets in the developing countries are growing faster than North America and Western Europe. This in turn means that marketplaces allow retailers to lower the risk associated with international expansion.
By 2016, the overall growth of online marketplaces in the European Union will reach to $ 224 billion which is approximately 12% y-o-y basis. Similarly, the overall growth in Asia-Pacific region will reach to $ 498 billion, which is approximately 43% y-o-y basis. The lowest growth rate is going to be registered by African continent that is going to be pegged at 4% which converts to $ 44 billion. The US region is going to register a growth in online marketplace by 29% till 2016 which is approximately $ 327 billion.
The above stated marketplace data states the indispensability of it. It is becoming a mandatory feature for the online retailers to integrate marketplaces with their online stores.