What is the Difference Between eCommerce and an Online Marketplace?

While booming e-commerce is already a generally recognized occurrence, its newest sub-trend, online marketplaces, confidently comes out on top. Even more so, companies standing in the avant-garde of the digital retail world tend to transfer from ecommerce sites to marketplaces to better adapt to the altering commercial realm.    

Statistics confirm the explosive expansion of the marketplace model. According to forecasts, the U.S. marketplace ecommerce sales will make $603.20 billion in 2027, reaching 34.8% of total retail ecommerce sales. Furthermore, the growth of marketplaces is projected to outpace overall ecommerce sales.

So, what is the difference between eCommerce and an online marketplace, and which model to choose for your business?

The article explores the marketplace vs ecommerce, studies each concept’s advantages and drawbacks, and the core factors that should guide your choice.

What is eCommerce? Examples of eCommerce Stores

To reveal the distinction between ecommerce platforms and marketplaces, we should start by defining and illustrating each term. 

An eCommerce platform is an online retail space, where a specific brand sells its products or services. Ecommerce has revolutionized conventional retail practices, offering a new level of comfort and personalization. Therefore, it has become the primary business model for many entrepreneurs. 

In a traditional eCommerce store setup, retailers sell their own products and handle all operations, from the purchase to order delivery. This also includes everything taking place behind the curtains, like storage, logistics, and payment processing. Essentially, ecommerce website owners are responsible for every stage until the order reaches the end user. 

The available eCommerce platforms in the contemporary digital landscape count by millions. Let’s explore several remarkable options.

Popular eCommerce store examples

The following online retailers target specific markets with a strong focus on brand identity, product quality, and customer delight.

• Zappos. The store specializes in online shoe and clothing retail. Known for its exceptional customer service and vast inventory, Zappos offers free shipping and a generous return policy, putting customers at the center of their activities.
• Nike. Nike is a global leader in athletic footwear, apparel, and accessories. Its extensive product line includes comfortable and appealing items for sports and recreation. Nike is an iconic brand known for its innovation in design and technology and active support among top athletes.
• Herman Miller. A renowned furniture manufacturer, Herman Miller is known for its ergonomic office chairs, including the legendary Aeron and Embody chairs. Its online store carries an abundant selection of modern furniture for homes and offices. The brand prioritizes comfort, functionality, and aesthetic appeal, underpinned by quality craftsmanship and innovative design.

What is an Online Marketplace? 

So, what’s so special about online marketplaces that makes them an ultra-trendy business model today?

A digital marketplace is a kind of mega-store that accommodates multiple sellers. Simply put, it combines a range of online stores with their own products, services, and brands. 

At some marketplaces, vendors need to pay fees to introduce their commodities, while others do not charge a commission. Conditions for vendors may vary across marketplace platforms, for instance, some owners may allow sellers to publish a certain number of products for free.

Creating a marketplace platform is an alluring endeavor for entrepreneurs as it enables them to multiply their assortment without the hassle of storing inventory and managing orders. Vendors at marketplaces run their operations individually, with the platform owner merely providing space for their ecommerce activities.

Essentially, online marketplaces are scalable, comfortable, quick, and secure - a stellar combination for entrepreneurs seeking to grow their ecommerce businesses. In 2023, online marketplaces accounted for the largest share of global online purchases. 

Popular online marketplace examples

• Amazon. Started as an online bookstore, Amazon has evolved into a global online retailer, offering a tremendous range of goods from electronics to groceries. Its distinguishing features include fast delivery, extensive product selection, and customer-focused practices like Amazon Prime.
• Sephora. An acknowledged leader in beauty retail, Sephora has become a beauty heaven for millions of its customers. The marketplace provides cosmetics, skincare, haircare, and fragrance products. Apart from an extensive selection of brands and exclusive items, the store offers services like beauty tips, tutorials, and personalized recommendations. Sephora's genuine approach lies in its curated selection, personalized practices, and interactive shopping experience.
• Etsy. This marketplace has found its exquisite allure in a narrow targeting. Specializing in handmade, vintage, and unique items, Etsy is a creative hub connecting artists with customers seeking one-of-a-kind goods.
• Fiverr. The website focuses purely on freelance services. Fiverr links various kinds of professionals with customers. The offered categories range from digital marketing to video editing.

The Difference Between a Marketplace and eCommerce

In a nutshell, both business models introduce online shops. So, what is the difference between an ecommerce store and a marketplace?

The core distinguishing feature is that an ecommerce website supports only one seller (the store owner), while a marketplace combines multiple vendors offering diverse products, product categories, and services. In a marketplace, the website is operated by sellers and platform owners alike.

From a customer standpoint, there’s no significant difference in shopping experience. The fundamental discrepancies lie at the owner’s side. The choice between an online marketplace vs ecommerce will hugely affect business operations, marketing, and overall growth strategy.

While in an online store, a seller handles all processes, from website setup to order delivery, the marketplace owner provides a platform for other sellers, taking care of its appropriate performance and functionality.

The part below showcases the differences between eCommerce and marketplace in more detail.

Branding and store ownership

• eCommerce shop: With an eCommerce store, a seller owns the brand, governs all operations, and performs strategic decision-making.
• Online marketplace: With an online marketplace, the platform is owned by a single entity, while the contributing vendors introduce their specific products and brands. The marketplace owner sets up a unified brand identity for the platform and provides hosting.

Products and services on offer

• eCommerce shop: The business owner shapes the product/service line and composes product listings on the website.
• Online marketplace: The marketplace owner allows multiple vendors to list their goods or services for sale.

Transaction process

• eCommerce shop: The business owner conducts transactions, providing direct communication with consumers.
• Online marketplace: The marketplace owner facilitates transactions between sellers and buyers while taking a fee for these services.

Assortment management

• eCommerce shop: A seller retains complete control over product or service inventory, including relationships with suppliers.
• Online marketplace: Assortment control is typically shared among sellers, providing a diversity of options for consumers.

Client interactions

• eCommerce shop: Seller’s activities encompass direct consumer interactions, reinforcing personalized engagement.
• Online marketplace: A marketplace serves as an intermediary platform, through which sellers and customers can contact each other.

Investment

• eCommerce shop: The owner must invest in building an ecommerce platform and in all other aspects of running an online retail business.
• Online marketplace: The marketplace owner invests only in establishing and maintaining the platform and doesn’t deal with product/service assortment, storage, logistics, and other related aspects.

Marketing

• eCommerce shop: Business owners undertake efforts to promote their brand and expand customer audiences.
• Online marketplace: Marketplace owners basically promote their platforms, while offering certain advertising opportunities for individual vendors.

Monetization model

• eCommerce shop: eCommerce businesses typically earn revenue directly from sales.
• Online marketplace: Marketplaces may charge fees, offer paid services, take commissions from the seller transactions, or earn from advertising.

Competition

• eCommerce shop: eCommerce sellers compete with other retailers within their product or service category.
• Online marketplace: At the marketplace, sellers compete with each other, which generally benefits the platform. The multi-seller site itself competes with the other marketplaces in the niche and with the brands in particular categories.

Comparing eCommerce vs Marketplace: The Upsides and Downsides of Each Concept

Once we have discussed the features and differences of each online retail model, let’s proceed to assess their pros and cons. This would lead us further to answer the ultimate question – ecommerce or marketplace?

Online marketplace

Advantages of marketplaces:

• Ample product offering. Numerous vendors offer a tremendous variety of products and services, appealing to a broader audience.
• Scalability. The platform is easy to scale as the marketplace grows with new joining sellers. Moreover, this expansion doesn’t inflict the hassle of managing increased inventory.
• Sources of revenue. The marketplace owner has a wealth of potential revenue streams, like commissions on sales, listing fees, membership fees, and advertising.
• Inventory control. The owner doesn’t need to administer products, which minimizes overheads and risks.
• Brand awareness. The marketplace’s value and recognition increase as more buyers and sellers join, creating a snowball effect.

Disadvantages of marketplaces:

• Complexity. Administering a multi-vendor platform is complex, requiring robust systems for onboarding, payments, disputes, and consumer service.
• Substantial investment. Development and operational costs to build and maintain the platform can be high.
• Quality control. Ensuring consistent service quality across multiple sellers requires effort.
  Brand control. A platform owner has less control over the consumer experience since it is affected by multiple independent sellers.

eCommerce website

Advantages of an ecommerce site:

• Branding and customization. With their own ecommerce sites, merchants can craft consumer experiences and showcase their brand identity.
• Control. Retailers have complete autonomy in product/service selection, pricing, marketing, consumer communication, and more.
• Access to consumer information. Businesses can painlessly collect customer data through ecommerce sites and utilize it for strategic decisions.
• Scalability. Ecommerce platforms are typically flexible and scalable, allowing merchants to extend their offerings and increase target communities as long as their manufacturing/sourcing capabilities allow.

Disadvantages of an ecommerce site:

• Marketing investments. Owners of e-commerce websites need to invest substantial time and resources in marketing activities, such as consumer engagement, elevating traffic, and building brand awareness.
• Inventory administration. Ecommerce merchants continually deal with managing, storing, and shipping products, which involves a significant investment.
• Limited product line. The range of goods or services in an ecommerce shop is restricted to those the seller can produce or provide. Therefore, the potential market reach is limited.
• Inventory-related risks. If the demand unpredictably drops, unsold goods may remain.
• Bounded revenue sources. The e-store’s profits depend on the owner’s ability to source or produce products, drive traffic, and sell their commodity.

Things to Consider When Choosing Between Building a Marketplace or eCommerce

The advantages and disadvantages of developing online marketplaces or ecommerce stores should be assessed through the prism of your particular business, its goals, and needs. There is no ideal model that would equally benefit all merchants.

When choosing between ecommerce and the marketplace, consider several factors.

1. Your business model and strategy

What is the product/service range you are planning to provide? Do you expect to diversify your revenue sources? Are you a manufacturer or a service provider? Do you plan to expand your product range beyond your manufacturing/sourcing capabilities? 

If you plan to combine various product or service categories and seek to diversify revenue streams, building a marketplace will be appropriate. If you have a specific, limited product line, with your income primarily relying on sales, an eCommerce site will be favorable.

2. Initial and ongoing costs

Establishing a marketplace can generally require higher initial investment because of the platform’s complexity. However, you can minimize expenses by utilizing SaaS solutions. 

Further investments in a marketplace operation encompass managing multiple sellers, maintaining transactions and interactions, and ensuring quality control. While the initial costs with eCommerce sites can be lower, the store’s operation requires continual investment in inventory management, warehousing, and shipping.

3. Growth potential

If you are planning a quick market expansion, you should prioritize a marketplace, since such platforms can scale by merely adding sellers. Unlike eCommerce sites that require more inventory and storage as they grow.

4. Control

Do you wish to retain full control over the customer experience, branding, and quality of products/services? You’ll have it with an e-store, while a marketplace grants less control and individual brand identity.

5. Marketing and customer acquisition

Are you ready to split your marketing strategy between sellers and buyers? With a marketplace, you’ll need to attract both categories, while ecommerce sites target solely consumers. 

On the other hand, a marketplace may benefit from diverse product listings and higher traffic volume, boosting SEO. Ecommerce stores need to construct SEO around specific products or a niche.

6. Technical infrastructure and maintenance

Can you build your platform with advanced technology for handling multiple vendors, payments, and customer interactions? Tech requirements can be higher for a marketplace. 

However, a partnership with a professional software developer will significantly ease implementation and maintenance by providing ongoing technical support.

In Conclusion: Choosing Between eCommerce and Marketplace

In a fiercely competitive online retail landscape, it is crucial to pave your way with the appropriate digital presence. Online marketplaces are thriving, while experts make alluring forecasts for this business model.

When comparing eCommerce vs marketplace with regard to your specific business, you should carefully evaluate the advantages and drawbacks of each concept, understand the difference between marketplaces and ecommerce sites, and identify which model will benefit you most. 

A flawlessly arranged technical part can help you establish a successful online retail space. SDA is a team of qualified developers that provides solutions for various industry sectors. 

We can seamlessly launch your marketplace with minimized expenses and enhanced value. If you believe that constructing a marketplace is the right strategy in your case yet fear potential pitfalls, let our team bring their experience, technical prowess, and exhaustive domain expertise to your service.

Contact us, and we’ll help you reap the maximum benefits from the online marketplace business model.