Exploring Types of Online Marketplaces for Your Startup

Marketplaces emerged as a convenient digital space that bridges sellers and buyers. However, within the past decade, they experienced a tremendous boom, acquiring myriads of forms and diversity of functions. 

In the modern realm, a marketplace can even substitute the need to create a personal website, as it allows individuals and organizations to place their goods or services on a specific trading/exchange platform where their offerings will find a relevant demand.

Numbers prove the rapid marketplace expansion and adoption:

• 35% of all online purchases were committed through marketplaces in 2023;
• Amazon boasts over 2.7 billion monthly visits;
• The U.S. marketplace ecommerce sales are promising to reach $603.20 billion in 2027. 

At the start of their journey toward a flourishing marketplace, entrepreneurs have plenty of options on where to focus their efforts. We’ll go through the fundamental online marketplace types to aid you in defining the right direction according to your business requirements.

5 Main Types of Marketplaces Explained

A digital marketplace platform is a medium where people can purchase, sell, or exchange goods or services. The sector expands as the marketplace owners discover new niches and reveal unattended demands. Before delving into custom marketplace development, you should shape a clear vision of the available opportunities.

Today, we can classify five distinct types of marketplaces to help you navigate this innovative and multifaceted sector.

Type 1: Classification by target audience 

Marketplace websites vary by stakeholders involved in the exchange.

B2B marketplaces

A business-to-business marketplace platform provides a hub for organizations to exchange/trade products, services, or information. Business clients may have different demands; therefore, the platform’s functionality includes such options as bulk purchases, wholesale pricing, and long-term contracts.

Renowned B2B digital marketplace examples comprise Alibaba, ThomasNet, Global Sources, Tundra, Gartner Digital Marketplaces, Flexport.

B2C marketplaces

This online marketplace platform type works with companies as sellers and individuals as shoppers. This is probably the most recognized marketplace type worldwide, especially those that target mass-market user segments. 

Well-known B2C marketplace platforms include Amazon, Walmart, Sephora, Fiverr, Upwork.

C2C marketplaces

Consumer-to-consumer marketplaces are digital spaces where individuals exchange commodities with other individuals. This model typically utilizes peer-reviewed systems to establish trust and transparency.

Examples of C2C marketplaces are eBay, Craigslist, Poshmark, Depop, and Etsy.

P2P marketplaces

Peer-to-peer platforms enable various kinds of exchange among their participants. Consumers can share, rent, or directly sell their commodities. This type of online marketplaces emerged as a response to the sharing economy trend. In such environments, user ratings typically serve as a trust guarantee.

Famous P2P marketplaces include Airbnb, Spinlister, TaskRabbit, BlaBlaCar, and Kickstarter.

Type 2: Classification by business model 

Online marketplace platforms can have a varying targeting focus. Some narrow down their offerings to a tiny segment while others embrace a vast scope of industries. 

Vertical marketplaces

Platforms that prioritize one specific niche belong to the category of vertical marketplaces. They can deliver a distinct proposal or address a particular pain point. Besides, they can provide extra value by adding services like analytics, tools, or consultation. 

By targeting a well-defined community, these platforms can attain an exceptional personalization level and specify their marketing activities.

Such players as StockX, Reverb, Houzz, and Chegg introduce the vertical marketplace type.

Horizontal marketplaces

As opposed to vertical platforms, horizontal marketplaces may embrace more than one segment. They meet the demands of multiple industries, offer diverse types of commodities, and target various user communities. Convenience and variety are some of their fundamental priorities.

Alibaba, Amazon, Etsy, and Facebook Marketplace are renowned horizontal marketplaces encompassing multiple categories.

Type 3: Classification by offer types 

Marketplace websites also differentiate by the type of commodity they provide. According to this criterion, we can subdivide the following categories:

Product marketplaces

As their name suggests, product marketplaces represent real or virtual goods for sale. Such platforms can embrace all kinds of vendors and buyers, including B2B, B2C, and C2C. Their functionality includes assortment administration, logistics, integration with shipping providers, etc.

Typical examples of product marketplaces comprise Etsy, Alibaba, Wayfair, and Vinted.

Service marketplaces

This type of platform focuses on delivering diverse kinds of services, from professional jobs to on-demand tasks. These digital exchange spaces have expanded the opportunities for the service sector, increasing its client reach. The platforms’ options include scheduling tools, payment processing, ratings and reviews, and more. 

This category is introduced by such players as Fiverr, Upwork, TaskRabbit, Rover, and Thumbtack.

Project marketplaces

A special group of service platforms that link clients with individual professionals or teams performing distinct projects is categorized as project marketplaces. Such collaboration spaces aid in fulfilling particular assignments requiring professional expertise or prompt results. 

Participants can post job descriptions, requirements, and budgets. Applicants can send their proposals, and both sides can interact on the project's progress.

Multiple sectors contain examples of project marketplaces, such as Upwork and Fiverr for freelance and creative projects, Toptal and Gigster for IT, Houzz and Thumbtack for construction, and more.

Type 4: Classification by selling strategy

When developing an online marketplace, entrepreneurs decide whether they will serve particular vendors or welcome a broad range of sellers. According to the seller's specification, marketplaces are categorized into online stores and multi-vendor platforms.

Online marketplaces

Such stores represent one or several vendors selling their own commodities. Under this model, the seller owns and administers the marketplace, inventory, and all associated management and marketing operations.

Prominent stores that operate as online marketplaces encompass Apple Store, Nike.com, Warby Parker, and Bonobos.

Multi-vendor marketplaces

Multi-vendor platforms accommodate numerous sellers introducing a diversity of goods. The marketplace shapes the hub for trading and enables transactions, while the assortment is owned and governed by vendors. 

The giant players in this segment include Amazon, eBay, Etsy, and Alibaba.

Type 5: Classification by location coverage

Another classification parameter is geographical reach which subdivides marketplaces into global and local. 

Local marketplaces

Local platforms focus on limited locations or particular geographic areas, like a city, a region, or a country. Their inventory is adjusted to local demands and their functionality often considers cultural and logistical nuances.

Craigslist, OLX, JustPark, and Swiggy are illustrative examples of local marketplaces.

Global marketplaces

Marketplace sites operating across countries and regions and addressing the needs of international audiences are classified as global. They link vendors and buyers in different parts of the globe, promoting cross-border trade.

Consider AliExpress, Airbnb, Wish, Zalando, Booking.com, Coursera, and CodeCanyon as noteworthy examples of global marketplaces in their respective sectors.

Marketplace Platform Development: The Core Challenges

When building an online marketplace, entrepreneurs should recognize that it’s a comprehensive hub that accommodates diverse types of users. Hence, a range of challenges they can meet when undertaking their endeavor.

Security and credibility

Reinforcing trust is paramount for online marketplaces since credibility lays the foundation of positive client rapport and future growth. Credibility, in turn, is attained through the platform's ability to guard user data, guarantee safe transactions, and prevent fraudulent activities. If consumers don’t trust the platform or vendors, the marketplace’s growth can be compromised.

Addressing the challenge:

• Establish encryption and privacy policies to safeguard user information;
• Implement reliable payment gateways to eliminate unauthorized transactions;
• Integrate advanced verification systems and AI-backed detection mechanisms to counter fraud.

Matching supply and demand

The law of balancing supply and demand is one of the pillars of economics and trade. The challenge here lies in the execution: 

How to attract enough vendors and buyers? Who goes first? And how can you keep the platform attractive and functional for all participants?

Addressing the challenge:

• Start with engaging sellers. This will help create a delightful journey for incoming buyers and additionally promote your platform since vendors may come with their buyer communities. However, your site’s specifics can dictate inviting buyers first (like Creative Market offering rewards for early buyer registration) or working with both parties simultaneously (like Etsy, encouraging sellers to act as buyers and vice versa).
• Initiate user acquisition activities, such as pre-registration and exclusive shopper communities.
• Implement encouraging and reasonable monetization strategies that would help motivate and retain sellers.
• Think of the special conditions you can offer to participants, including advertising opportunities, seller support, and bonuses. 

Cutting through the competition

Entrepreneurs delving into online marketplace development should understand that they are stepping on a fiercely competitive terrain. Startups and established businesses are struggling for consumer attention in an attempt to conquer their market share. Therefore, platform owners may find it challenging to differentiate themselves in such a crowded environment.

Addressing the challenge:

• Explore your competitors and their strengths and weaknesses to reveal any gaps you could fill.
• Assess the competitors’ activities, including marketing efforts and consumer service.
• Be creative and craft unique offerings. This will help you set your site apart and capture users seeking something exclusive.

Establishing a delightful user journey

A consistent user path is something a modern consumer already expects from a digital trading space. Therefore, when building online marketplaces, you should keep users engaged by exceeding their average expectations. Maintaining superb user service and flawless website operation can pose challenges, especially under the increasing workloads.

Addressing the challenge:

• Establish clear guidelines for both buyers and vendors on how the platform operates;
• Design convenient interfaces friendly to all devices;
• Ensure minimum download speeds and eliminate bugs and issues;
• Simplify navigation and streamline the core procedures for sellers and buyers (i.e. listing products or checking out).

Administering payments and queries

A significant challenge in creating a marketplace platform is the capability to arrange secure transactions and handle disputes. These, however, are also the characteristics of a reliable online marketplace. Establishing safe payments, resolving arising disputes, and dealing with refunds require a consistent approach and dedicated efforts.

Addressing the challenge:

• Implement reliable payment systems by partnering with trustworthy providers;
• Ensure the availability of various payment options;
• Set up procedures to handle refunds, chargebacks, and disputes efficiently.

Scaling your marketplace

Every business endeavor aims to grow and expand. What helps a marketplace thrive? 
Continual scaling is attained through relentless planning, introducing new features, improving offerings, keeping users satisfied, and maintaining superior website operation, which can be rather complicated with increasing task volumes.

Addressing the challenge:

• Apply advanced methodologies and technologies. An agile approach backed by handy automations will save time and raise efficiency.
• Continually track performance parameters. This will allow you to identify bottlenecks and address them to remove delays.
• Interact with your users to reveal changes in consumer sentiment and demands.
• Reinforce your offers based on the accumulated feedback. Plan updates in advance.

Controlling vendors

When creating an online marketplace, entrepreneurs should admit that meticulous quality control helps reinforce trust and attract both sellers and buyers to their platforms. 

According to Forrester Consulting, 23% of consumers will immediately switch to another marketplace if the seller on the current one provides poor goods or services. Therefore, another challenge in building a marketplace platform is guaranteeing superior quality.

Addressing the challenge:

• Establish robust quality requirements and check vendors before onboarding;
• Continually track vendor performance based on the parameters including goods/services quality, delivery timelines, and user content;
• Envisage contract termination with those participants who do not meet the quality standards.  

Retaining customers

Motivating the existing users to stay with the platform is equally important to acquiring new ones. Any brand can face an issue of consumer churn. This may witness troubles somewhere throughout the customer path. How to prevent users from leaving your marketplace?

Addressing the challenge:

• Craft a loyalty program to encourage repeat purchases;
• Refine consumer service;
• Prioritize tailored experience by revealing individual demands and aspirations;
• Leverage gamification as a powerful tool to retain users. Like achievement badges by Airbnb, leaderboards by Upwork, daily challenges by Amazon, and progress bars by Uber Eats.

Case Studies of Successful Online Marketplaces

When asking yourself how to build a marketplace platform, you can get inspired by other companies’ experiences. Let’s discover the remarkable online marketplace case studies.

Etsy: An exclusive C2C product marketplace

Etsy is a space where individuals can buy and sell unique vintage goods and handmade items. The platform links sellers who design, create, or own unique pieces to buyers interested in such products.

Etsy emerged as a tiny online place gathering a community of artists and vintage enthusiasts. The idea resonated with the audience, and now the website has transformed into a huge marketplace utilizing a C2C business model. It earns revenues by charging listing fees and transaction fees.

Fundamental success factors

• Niche targeting. Etsy attained a clear differentiation by focusing on handmade, vintage, and unique items.
• Community building. The marketplace shapes a loyal user base by supporting sellers with resources, events, and training programs.
• Customization opportunities. Etsy grants tools for sellers to implement brand identity and tailor buyer experiences.

Outcomes

Etsy became a renowned platform within its niche and beyond, with over 91 million active buyers and over 6.6 million active sellers. The marketplace’s revenue for Q2 2024 reached $647.8 million.

TaskRabbit: A local P2P service marketplace

The initial concept behind the TaskRabbit marketplace was “neighbors helping neighbors.” It was conceived as an environment for people seeking help to do work they cannot perform themselves. 

The platform matches the demand and supply for various everyday jobs, including cleaning, fixing, installation, furniture assembly, etc. Those in need of such services can find skilled individuals or groups to fulfill the task. 

The platform utilizes a P2P business model and earns revenue by taking a fee for every completed job.

Fundamental success factors

• A narrow geographical focus. The marketplace matches consumers and service providers within a specific region.
• Addressing the actual needs of all participants. Customers can quickly get the job done, while service providers obtain the opportunities to earn money.
• Straightforward in use. Simple service booking, clear pricing, and instant payment.
• Credibility. Background checks and reviews for all service providers.

Outcomes

TaskRabbit now works in more than 40 cities and has over 2.2 million monthly visits. Its revenue is evaluated within the range of $50 - $75 million.

Types of Online Marketplaces: Final Word

Marketplace platforms are a booming trend and an alluring business opportunity. Today, they are acquiring diverse forms and types to address the rising demands. Many emerging marketplaces focus on tiny niches, while others find the underserved areas within mass market segments. 

Apart from the target audience, marketplace platforms also vary by numerous other parameters, including business model, offer types, selling strategy, and location coverage. 

By understanding the different types of platforms and the primary challenges of marketplace development, entrepreneurs gain the tools to navigate the dynamic environment of online exchange and trade. How to make an online marketplace, minimizing the execution pitfalls? 

There is a confident way to ensure the flawless technical part. An experienced software development provider like SDA will help you construct a product with a flexible architecture, innovative features, a user-oriented approach, and countless opportunities for expansion.

Book a consultation for online marketplace development services and let’s build a successful marketplace platform that captivates users and boosts revenues.