E-commerce vs Online Marketplace – What is the Difference?

May 11, 2021
E-commerce vs Online Marketplace (1)

What is the difference between an e-commerce store and an online marketplace? How to choose between the two?

Some retailers prefer to develop an e-commerce website, while others prefer an online marketplace. If you are confused about which option you must select, this blog will help you make the right decision.

What is an E-commerce Store/Website?

E-commerce websites are where a seller sells products to multiple customers/buyers. Only two parties are involved in the process – the seller and the buyer.

E-commerce vs Online Marketplace - What is the Difference 1

What is a Marketplace Website?

An online marketplace is a website where products from multiple sellers are sold in one place. Variety in products sold is one of the major attractions for customers. This is similar to a shopping mall but in an online space.

E-commerce vs Online Marketplace - What is the Difference

Image source – Webretailer

Top Differences Between an E-Commerce Store and Online Marketplace

Key Factors
E-commerce Store or Website
Online Marketplace

Investment

Apart from developing a user-friendly e-commerce website, you need to invest in digital marketing beforehand to attract buyers

Initial investment is less as vendors manage their own stock. Cost of launching an online marketplace will be high compared to an e-commerce website because you need to make it easy for multiple vendors and users to utilize the site. A well-constructed navigation system and efficient search filters are some of the must-have features

Inventory

Unlike the online marketplace, you will not have the option to disable the products that don’t sell. At some point, you need to either get rid of it or lower the price of unsold goods as it will keep you from selling the goods that are in-demand

A huge amount of inventory will allow users to find the products they like. However, more efforts will go into merchandising

Cash flow

As the investment will be higher initially, it will take a while to get a positive cash flow

Revenue is made from a percentage of the transaction so you will enjoy a better profit margin

Technology used to build the website

Platforms such as 3dcart, Shopify, BigCommerce, Magento, OpenCart, and PrestaShop can be used

Online marketplace is complex as they have to handle many third-party vendors. So, you need to use a cloud/SaaS marketplace platform like Sharetribe, Arcadier, or Marketplace. For example, you can go for a dedicated marketplace solution (MultiMerch or CS-Cart) or a multi-vendor CMS extension (WordPress + WooCommerce + Dokan).

Payment solutions

Either PayPal or other payment processors to accept payment from customers

Three different payment flows to distribute payment between vendors – aggregated, parallel or split, and direct

Shipping rules and order management

You will be managing shipping rules and delivering orders to your customers

Vendors will receive, process, and dispatch orders. The way you organize this will depend on your region, industry, or business model. You can fix this in two methods – Vendors can fix their own shipping rules and rates, and direct integration with an existing shipping provided to automatically calculate costs

If you are contemplating whether to choose between an e-commerce store or an online marketplace, it will be hard to find out a clear winner. That’s because both of them provide attractive benefits and you need to choose the attributes that are important for your business. If you are struggling to make a decision, try to find out the answers to these questions.

  • Which aspects do you value the most? – Personalization and brand-building vs ease of use and turnkey solutions
  • How do you plan to handle advertising?
  • Will you base your marketing plans on the familiarity of an existing platform or the date and information of customers?
  • Do you plan on selling products that are edgy, controversial, or highly regulated?
  • Does your company values already align with third-party sellers?
  • Do your customers already shop on third-party sites?

Based on the answers to the above questions and the comparison, you can decide on the route that will best fit your needs.

A Hybrid Approach

There is a method in which you can use both approaches, i.e. enjoy the benefits of selling in an online marketplace and maintaining your own e-commerce store. This will help you get a huge amount of traffic from your dedicated e-commerce website and increase conversions.

This type of combination is prevalent in the Shopify platform. There are various plugins such as Amazon channel, Codisto LINQ, and Sellbrite.

The tech aspect of such type integration can be easily taken care of, but you need to take care of the workforce as it can get out of hand quickly due to the immense level of workload.

Conclusion

Before entering into the e-commerce business, there are many things to consider such as logistical support management, giving a proper shopping experience, providing great customer service, etc. So, find out your needs, preferences, and target audience. When this is done properly, you will be able to choose between an online marketplace and e-commerce solution.

Selling in both an e-commerce store and online marketplace can be profitable. Both of them have their fair share of hurdles when it comes to website development and marketing. So, it is good to know the difference before you start your online business.

If you are looking for an e-commerce partner to create an online store and an online marketplace, our ColorWhistle team is here to help. Share the details of your project by either sending a message through our contact form or giving us a call at +1 (919) 234-5140.

Do you have questions related to this topic? If so, feel free to share it in the comments section below.

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About the Author - Anjana

Anjana is a full-time Copywriter at ColorWhistle managing content-related projects. She writes about website technologies, digital marketing, and industries such as travel. Plus, she has an unhealthy addiction towards online marketing, watching crime shows, and chocolates.

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