The e-commerce market has been growing significantly over the past few years worldwide. As per the data of Statista, worldwide e-commerce sales reached 4.28 trillion US dollars. It is expected that the revenue generated in e-commerce is expected to reach 5.4 trillion US by the year ended 2022. It shows that the e-commerce market is expected to face high growth soon.
The success of this market had uplifted after the period of the pandemic when people shifted their focus towards online shopping after the outbreak of COVID-19. Ecommerce was the only way social distancing could be maintained while fulfilling the basic household and personal needs. The survey conducted by Statista has also shown that 25% of respondents of US has been getting household supplies online during the COVID-19 period. Similarly, in the UK, 40% of the shoppers preferred online shopping for making purchases in 2020. It shows how the online market trends have changed drastically in the recent period.
There are majorly two forms of business models, including marketplaces and aggregators, which have been popular in the online markets. In ecommerce platforms like Amazon we call them Amazon aggregator. These platforms have hundreds of different suppliers, and they serve in the market in different ways. For making a comparative analysis of both markets, there is a need to dig deeper into their business models to understand their features. The differences between these markets can also be explored by comparing their benefits and drawbacks.
Characteristics of Marketplace Business Model
As per the definition, the marketplace business model is the one which had a website or a mobile application in which different products from different vendors are displayed. It allows different sellers to promote their brands on the platform, known as the marketplace. In simple words, the marketplace business model acts as the intermediatory for connecting the buyers and sellers on a single platform. These marketplaces do not have a product of their own to be sold on this marketplace. A typical example of a marketplace business model is Amazon which allows different sellers to make a seller account and sell their product to thousands of customers worldwide. The major features of a marketplace business model are the following.
- Selling products of other brands
As discussed previously, the marketplace is an online platform that allows different brands to create their accounts to sell their product. These marketplaces have a brand name, but they do not have their brand product to be sole. As per the data of SellerApp, Amazon has over 9.5 million sellers globally, and over 73% of the sellers have the FBA account to sell to the customers.
The revenue model of the marketplace business model is also an interesting one. Since the marketplace does not have its product, the question emerges: how do they earn their revenue. As the marketplace offers brands an opportunity to access a broad market with many customers, they also charge a fee for registering the brand in this marketplace. The commission can also be charged for each sale made by the brand in the marketplace. For example, Amazon takes a commission on selling products depending on the product type.
- Shipment and product responsibilities
Usually, the company is only responsible for acting as a mediatory between the seller and the buyer in the marketplace. The marketplace, in this case, is not responsible for the procedures like shipment and consultation related to the product details. However, in the case of the Amazon FBA account, the marketplace does offer such services based on its willingness. Still, providing such services can not be considered mandatory by the marketplace.
- Variety of products
Different varieties of products being sold in the marketplace can vary in terms of quality and pricing. A customer can evaluate different products based on their characteristics and make the best possible choices based on their needs. Customers can also evaluate product categories on Amazon, and the percentage of their sales can also be considered. The most sold product is booked in 2019, which has a percentage of 15.9% of items being sold on this platform.
Source: Edison Trends
It is also possible that different brands on the marketplace offer different prices, which might be due to the different qualities being sold. It can also depend on the cost of the product or associated brand equity. Therefore, the prices can differ considerably.
Some other examples of important marketplaces worldwide are TaoBao, Alibaba, eBay, etc., with large companies offering different products on a single platform.
Benefits of Marketplace Business Model
There can be various benefits of having the marketplace business model, and some of the most common benefits are the following.
- A simple business process that only allows vendors to register and sell on the platform
- Due to large sellers and buyers on this platform, there is a high trust of people. Over more than 50% of US consumers chose Amazon while making an online purchase. It shows their trust in the platform.
- There is also no responsibility for securing the vendors’ data selling on the platform, which saves a lot of effort.
Drawbacks of Marketplace Business Model
Along with the benefits, some drawbacks of the marketplace business model also come.
- There can be low customer satisfaction due to the low quality of products found on the platform. It is because the marketplace does not keep a check on the vendor’s product quality.
- Many terms and conditions are associated with the marketplace purchase, which sometimes frustrates the customers.
Characteristics of Aggregator Business Model
The aggregator business model is a network model that relates the unorganized service provided in one large platform under one brand umbrella. The example includes Amazon aggregators, such as Thrasio and Perch. It can also include Ola, Uber, and other aggregator business models. The common characteristics of this business model are the following.
- Selling product under aggregator’s name
Different brand names operate under a single brand name to provide the product and services to the customers. The aggregators don’t have their products like the marketplace.
Like the marketplace, the aggregators also charge commissions on sales made by the brands acquired by them.
- Quality of product
The aggregators acquire the brands based on a unified business objective, so they are likely to focus on the brands that offer the same business quality. It can also be said that these products will come from the same industry or niche.
Similar to the quality, the pricing strategy will not vary for the aggregator’s brands due to the same level of product being offered.
Benefits of Aggregator Business Model
There are several pros of owning the aggregator business, as discussed below.
- There can be satisfaction from both customers and vendors. In terms of customers, they will get the desired product quality as promised. Vendors will be provided with support and will only be charged on the sales made.
- All the vendors will be acting on the unified terms and conditions.
Drawbacks of Aggregator Business Model
The possible cons of an aggregator business model are
- There is intense rivalry and saturation in the aggregator market.
- As the brands are from the same industry, the variation of products is not seen.