Let’s talk about platform vs marketplace: what is the difference between both popular business concepts? Most people use these terms interchangeably but IT professionals clearly distinguish one from another based on a number of business process specifics and provided functionalities.
In this article, we’ll define and compare marketplace vs. platform concepts to discuss why this distinction matters for:
- Hi-tech entrepreneurs and software developers who want to decide on building and growing their startups and projects in either one or another way.
- Potential vendors looking to choose either a platform or marketplace as the best environment for deploying and developing their online business presence.
Let’s compare platforms and marketplaces to learn more about their major features, tools, advantages, examples, and potential downsides. Embracing the difference is crucially important for all stakeholders, including potential vendors, customers, and project owners.
Why Platform vs Marketplace Comparison Is Important
Nowadays, because of fundamental changes in the international situation, economics, politics, healthcare, and other crucial fields, there exists a global expectation that the number of small and medium businesses is only going to grow as uplifted by a strong crisis of traditional corporate or state-backed employment models. Staff reductions are leading to larger numbers of newly established sole entrepreneurs and small or medium companies, including family businesses, private sellers, and boutique service providers that aspire to get represented online and meet their clients with minimum investment in costly technology behind these efforts.
Very few small businesses can afford to create their standalone e-commerce websites, applications, or other solutions in the way full-scale companies do. With moderate budgets and time limitations specific to small businesses, they cannot employ expensive IT outsourcers or invest in long-term software projects. This technology gap can be successfully covered by a specific class of web services—platforms and marketplaces where typical small businesses can represent themselves and find clients, without paying painful IT costs.
Platforms or Marketplaces: The Vital Choice for Businesses
What is a marketplace and what is the definition of a platform? From a strategic point of view, both digital marketplaces and platforms can be considered as two alternative ramifications of one business model. Essentially, it’s a web-based e-commerce hub that helps to connect buyers (customers) and sellers (vendors). Why should anyone care about the difference between platforms and marketplaces? Here are several aspects that should be considered both by owners/operators and potential users of marketplaces and platforms, which can shape totally diverse business landscapes in both models:
- Vendor and customer attraction tactics;
- Technological development nuances and strategies;
- Brand positioning, marketing methods, and business growth plan;
- International expansion prospects and regulations;
- Staffing needs and requirements;
- Digital supply chain management requirements, etc.
In other words, if we compare marketplaces vs. platforms, we also compare the goals and business methods specific to their potential vendors. Depending on the nature and size of their businesses, entrepreneurs have to choose between either landing on a platform or a marketplace, which becomes a vital choice for them.
Nowadays, we can enjoy a very wide spectrum of platforms and marketplaces for every possible market niche out there:
- Secondhand or used goods, clothes, and so on;
- Handmade, handcrafted, or vintage items;
- Private product retailers and bulk offerings;
- Farmer products: dairy, groceries, and more;
- Specific types of manufactured goods;
- IT services and applications;
- Music, tunes, and sound effects;
- Asset rentals and food deliveries;
- Different types of private services;
- Gig platforms, and so on.
The Main Difference Between a Platform and a Marketplace
Before we go further into comparing both paradigms, please note that not many projects available out there represent pure marketplaces or platforms. Most modern services have hybrid models or eventually change their type in the process of business evolution.
The essential point in platform vs. marketplace comparison is how they handle transactions between customers and vendors (and how they approach these relations in general.) A marketplace provides a wide range of services and works as a holistic environment with a consistent experience, including managed payments and delivery services. A platform helps buyers and vendors find each other but prefers to show more flexibility and less control when it comes to the finalization of the purchase.
In other words, marketplaces (that are sometimes also called managed platforms) tend to put all financial transactions under their exclusive control. Besides this, marketplaces offer end-to-end user experience and business facilitation for vendors and customers. In the offline world, you can refer to a marketplace as a grocery store where goods and products from different suppliers are exposed within a shared space and sold under shared rules on the store’s checkout.
At the same time, a platform model is ideologically closer to a farmer’s market where you move from one booth to another and deal with every vendor separately. Every seller has been surely vetted by the market administration but their sales process and other operations are executed mostly independently.
Examples of marketplaces
Etsy is a good example of a typical marketplace (working in the niche of jewelry, handcrafted goods, decorations, etc.) where millions of vendors embrace consistent business space and ideology of a branded e-commerce project that looks and feels like a consolidated online shop. The marketplace aggregates and sponsors many product offerings without giving much focus or value to private vendors behind the scene.
It comes with a common toolbox that allows buyers to look for well-categorized goods and comfortably go through every process, including payment transactions and final delivery. Etsy controls the whole shopping ecosystem and offers one-stop payment checkout as a central component, so it ensures a consistent experience for buyers that do not have to deal with every vendor individually.
One more example. eBay started its path as a platform, with buyers and sellers working on their deals and transactions directly, but later eBay developed into a marketplace.
How does a marketplace benefit from placing vendors?
Usually, the marketplace operator collects comparably high commissions on each deal and/or demands a fee from vendors for their products to be exposed and advertised (monthly or yearly). Also, marketplace admins may demand that vendors adhere to certain vetting procedures and quality control requirements, including mailing them copies of up-to-date trade licenses, industry certifications, product samples, and so on.
Examples of platforms
Shopify is a vivid example of a platform. It provides merchants and businesses with a website builder and e-commerce toolbox necessary to deploy and represent themselves online along with advanced marketing opportunities to reach their potential customers. At the same time, the platform doesn’t strictly control the offerings, customer relations, and experiences provided by a vendor. In fact, customers deal with brands directly and may have no idea about Shopify behind the scenes, while the platform stands responsible for tech matters, including back-end and front-end mechanisms. This works as a standalone website for a company with all proprietary branding, positioning, marketing messages, and visuals, but excludes tech-related heavy lifting.
Other examples of platforms are Wix and Weebly. Also, PayPal initially appeared as a marketplace but eventually decided to become a platform allowing for direct payments between people and organizations. Also, most social media represent platforms as they let companies place business pages without verifications unless you want to get a verified account status with a blue checkmark and other options. Some social media conglomerates, like Meta, Facebook, and Instagram, have integrated powerful marketplace functionalities, however, their use is not obligatory for all vendors.
How does a platform benefit from placing vendors?
It can provide merchants with different business plans and packages allowing different premium features, like:
- Alternative page templates and layouts;
- Additional users/administrators for business pages;
- Removal of certain limitations, like limited traffic;
- Advanced advertising options;
- Advanced customization options;
- Improved tech toolbox, and more.
A platform can additionally charge commissions on deals, too (or remove/minimize them, if you acquire a certain premium plan or membership.) Also, platforms can monetize advertising and a wide range of additional services they offer.
Marketplace vs. Platform: Key Features of Each Model
Streamlined business methods — mostly marketplaces
When you deal with a marketplace, you as a vendor do not have to invent anything from scratch but you get a well-tuned solution ready to work for you at its best. You can be sure that a powerful team of UI/UX designers, marketing specialists, and top-notch programmers is continuously working to identify the best paradigms in online sales processes and refine user experiences through many iterations, including finding optimal positioning and parameters of interface details, color schemes, efficient button titles, convincing marketing messages, and so on.
Checkout process optimization — platforms and marketplaces
When your products or business offerings are exposed on a marketplace, you don’t have to work with user experience research alone. For example, an average e-commerce shop fails to convert up to 75% of its potential sales because of digital cart abandonment. Popular marketplaces invest millions in decreasing this number through endless experimentation with checkout web design, leveraging web cookies in user browsers, re-marketing tools, email marketing, reminders, pop-ups, and other methods. An average online shop team cannot afford to spend so much time and effort until they achieve desired results.
Reduced technical efforts — platforms and marketplaces
Both models provide their vendors with the ultimate technical solutions that require minimum tech skills paving the path for non-techies, which means the elimination of barriers for millions of potential vendors. Suppose you want to establish your business presence online without hiring a costly IT partner or in-house specialists.
In that case, you must use either e-commerce platforms or marketplaces. Thanks to their streamlined tools, a vendor’s time-to-market can be reduced to several minutes. Usually, you can start a basic web page or vendor account with just a couple of clicks. Sometimes, more sophisticated tech capabilities for deeper customization can be offered under conditions of advanced paid plans.
Matching tools — mostly marketplaces
On the one hand, marketplace platforms offer an efficient avenue for vendors to acquire leads and convert them into customers. On the other hand, a marketplace works as a sophisticated engine enabling multiple tools for customers to help them find necessary products and offerings through the manual or automatic configuration of filters, search capabilities, advertising, bundle offers, and many more persuasive options.
The whole pipeline can be automated starting with an SEO-sponsored marketplace or product discovery and ending up with email marketing tactics for loyal customers or brand advocacy programs. If your products are adopted by a marketplace, you may steadily benefit from a wide range of managed channels and methods that efficiently work without your direct involvement and efforts.
Additional services — marketplaces
Typically a marketplace, depending on its specific market niche, can offer a variety of important services including:
- Product quality verification;
- 24/7 customer support;
- IT Infrastructure/services for hi-tech businesses;
- Refunding and product return procedures, and more.
For small or young businesses, this approach can be of great help—you don’t need to invest additional time and effort in organizing all auxiliary operations but can fully focus on your prime tasks and services. Marketplaces usually offer helpful functionalities, like delivery tracking tools for vendors and customers that can be accessed via their user dashboards or mobile applications.
Payments — platforms and marketplaces
As we mentioned before, marketplaces prefer to manage vendors’ transactions through specific modules organically integrated into their hermetic ecosystems, while platforms can offer more options, including direct transacting between vendors and customers. Some platforms can provide native payment capabilities and maintain secure banking operations while others allow vendors to use payment solutions of their choice through API integrations or linking visitors to a vendor’s website. In this context, we can say that most of the business directories also belong to platforms.
Platform vs. Marketplace: Pros and Cons
After we explained the most vivid capabilities and named several platforms and marketplaces examples, let’s delve into a head-to-head examination and comparison of specific advantages/disadvantages points.
Platform model pros and cons
Conclusion on a platform paradigm
This type of project better works for well-established brands and businesses with mature processes, which want to keep their IT expenses low. Some platforms will still require sufficient IT skills and expertise for deeper customization but will provide more space for creativity, individuality, and special touch in services.
Marketplace pros and cons
Conclusion on a marketplace paradigm
Marketplaces are the best choice for private producers or service providers that prefer rather focusing on their primal activities and tasks than supporting auxiliary services and keeping additional departments. At the same time, marketplaces leave little room for unique brand communications, customizations, and marketing tactics.
If you are a vendor who wants to develop a distinctive business presence online on a platform and needs IT consulting, we are here to help. We can help you build a compelling e-commerce website with a variety of professional B2B and B2C functionalities and features that will help you efficiently attract new leads and convert them into customers.
If you are a developer or startup owner who wants to create a new platform or marketplace, we can also assist with full-cycle development. Our team of skilled developers can provide you with all the necessary expertise and services to help you build a robust, well-debugged platform or marketplace for any industry. Please contact us for a consultation today.