E-commerce platforms : increase and diversify your sources of income thanks to the marketplace model!

27 January 2023

Business Insight

On July 16, 1996, Jeff Bezos launched the platform, which in a few years would become the largest online marketplace in the world, if not the best known. Since then, the marketplace model has been emulated. So much so that in 2020, even if they only represented 1.5% of e-commerce sites, marketplaces generated 50% of online sales worldwide.

Of the fifteen most visited merchant sites in France, ten are marketplaces!

So, why do so many e-commerce sites today prefer a marketplace model? What does the marketplace model offer them, and, above all, how do you get started?

All the answers are in this article!


The rise of the marketplace model

From 2000 to 2010, “single-seller” e-commerce sites were the dominant model. But very quickly, some players like Amazon or Etsy started to offer professional sellers and individuals to sell their items on their sites to expand their offer.

A marketplace is, therefore, an environment in which third-party merchants (individuals or legal entities) sell products on a website owned by another company (which is consequently the marketplace). The marketplace hosts third-party sellers in exchange for a commission on sales.

Simply put, a marketplace is a multi-vendor e-commerce site, the equivalent of a traditional marketplace, but online (this is where the term “marketplace” comes from!).

This new business model has met with great success, mainly because it allows us to better meet consumer expectations (centralised purchasing, speed, easier payment experience, security, etc.), new digital uses, and free ourselves from certain logistical constraints.

So much so that by 2022, marketplaces will account for 67% of e-commerce sales in France, according to Forrester, making them the real winners of this evolution in online purchasing behavior.


Why are e-commerce sites losing ground to marketplaces?

According to a 2020 study called The Future Shopper Report, “70% of consumers start their search directly to buy a product from a marketplace like Amazon without going through a Google-like search engine.

The Seattle giant’s strength? Understanding before anyone else that the added value for customers lies in the possibility of buying almost everything they need in one place and with fast delivery. So, is this the end of the road for e-commerce sites? Not quite, but this model has reached its limits in a world where the expectations of many consumers have evolved very quickly.

E-commerce site: a limited offer

The first dead end that e-commerce sites inevitably get into is their limited selection of items. By definition, on the e-commerce site, one can only find shoes and t-shirts of the Nike brand.

In addition to this limited number of references, there is a structural handicap inherent to e-commerce platforms : the apparent lack of diversity. No matter how many references are proposed, there will always be only one seller who can only answer some of the consumers’ needs. Nike will not start making camping tents overnight under the pretext that its customers buy shoes to go hiking. And this, Decathlon understood well. The company has launched its marketplace to cover all its customers’ sports needs.

Moreover, the e-commerce model only offers a limited impact: that of the brand. A multi-vendor offer has more reach.

Demanding consumers

Moreover, the rapid evolution of digital uses has made us hyperconnected and demanding consumers. From a single website or mobile application, we want to benefit from the broadest possible choice and compare and consult other consumers’ opinions before making our purchases, all in just a few clicks.

This explains why consumers do not go or no longer go to the Nike store to buy a pair of shoes: they go directly to Decathlon, Spartoo, Sarenza or Amazon, which offer much more extensive and informed, often at more attractive prices.

And even if e-commerce sites have quickly caught up with marketplaces in terms of ergonomics, fluidity of their user experience and speed of delivery, they can no longer compete in terms of depth of offer.

Did you know that 50% of consumer product companies plan to launch their marketplaces and offer their business partners the opportunity to become sellers? (Forrester)


6 good reasons to transform your e-commerce site into a marketplace

Faced with this observation and this generalised craze for marketplaces, traditional e-commerce players must quickly change their strategy. This is the only way they will be able to respond to the needs of their consumers and not be locked into a two-party buyer/seller model.

Here are six good reasons to switch from e-commerce to the marketplace.

1 – Expand your offer with no technical constraints

Offering Internet users everything they are looking for is nowadays the most critical success factor of your e-commerce site. However, for reasons that can be financial, logistical, or strategic, you are only sometimes able to expand your product range.

The marketplace model breaks down these barriers. It allows you to quickly expand your product catalogue by offering items you do not manufacture yourself. You reach a broader target audience by providing a richer and more complete user experience.

Better still, you free yourself from the constraints of traditional e-commerce. You act as a trusted third party, and the sellers you have selected manage the relationship with the end customer themselves.

2 – Increase your sources of revenue

An expanded offering is about more than just keeping your customers happy. It’s also a significant growth driver because you’ll be taking commissions on products you have yet to sell, which means more monthly revenue.

The marketplace model also allows :

  • Increase sales of own products, thanks to the attractiveness of complementary products of other brands (the customer can buy everything in one place).
  • To set up a subscription system for sellers (in addition to the traditional commissions), either to be listed on the marketplace or promoted.

3 – Innovate and test new ideas at low cost

In a logic of development and innovation at the customer’s service, the marketplace model allows you to test product or service ideas at a lower cost.

  • An online store that manufactures and sells gardening tools might want to diversify by offering garden sheds to its customers. But how do you know if this costly investment will pay off?
  • The marketplace model is ideal for a “real life” test by letting other sellers offer at least temporarily new products on your site. And all this before perhaps designing your models.

4 – Build customer loyalty

Did you know that a 5% increase in your customer retention rate can increase your company’s profits by 25%? The more comprehensive, complete, and diversified your offer, the more satisfied your customers are and the more they return to your site because they find what they need.

In e-commerce, retention is much more profitable than acquiring volatile new customers. In addition, the average shopping cart of a loyal customer is 23% higher than that of a new customer because they have more trust.

5 – Stand out from the competition

We live in an economic environment that places a premium on innovation, quality and risk-taking. The marketplace is the ideal model to counter your existing competitors’ initiatives or slow down the enthusiasm of potential new entrants in your market segment.

The dazzling success of ManoMano (an online marketplace for DIY and gardening products) is partly due to its ability to constantly offer new products to stand out from the competition. Today, more than 1,800 sellers operate the marketplace to satisfy the 2.5 million customers who shop there each month.

6 – Go international faster

The marketplace model opens the doors to international markets with minimal effort. Multi-language, multi-currency, multi-country, the web knows no borders. Neither does your marketplace. All you need to do is localise your website and integrate foreign sellers to get enough traffic to test the appeal of your offer in another country.

Did you know that? A study published by Scallium shows that the transition of an e-commerce site to the marketplace model leads to an average increase in the average basket of 14.9% per year.


Switching from e-commerce to marketplace: how to do it?

The transformation of an e-commerce site into a marketplace involves many changes.

  • We go from a bipartite operation (buyer/seller) to a tripartite You become a marketplace operator who sells products on behalf of third parties. By switching to the marketplace model, the management of your financial flows is modified, which requires you to be accredited as a payment agent.
  • Specific parameters such as legal information or orders also differ. You are then subject to a duty of care known as KYC and KYB. These mandatory procedures are designed to prevent the risk of fraud, money laundering and terrorist financing (AML-TF).
  • Finally, new components and actors, such as vendors or payment service providers, are appearing, and you must learn to manage them.

This paradigm shift creates new issues for which it is essential to be accompanied by a PSP marketplace like Lemonway, which will focus its efforts on legal and regulatory aspects and pay-out management.


Opt for modularity with Lemonway

A pan-European payment institution, Lemonway offers a solution dedicated to e-commerce sites that want to turn to the marketplace model. What does it offer? A payment processing and collection system for third parties in a secure and regulated framework (KYC/KYB, anti-fraud) but, above all: a modular solution.

In concrete terms, Lemonway keeps the Pay-in module (managing payment acceptance) of your e-commerce site and provides you with specific bricks for the marketplace model (KYC/KYB, Payment Account Management and Pay-out). This approach allows Lemonway to seamlessly integrate with an existing information system without disrupting workflows or degrading the shopping experience.

Lemonway ensures that transactions are not fraudulent and that the payout is completed within this modular offering.

If you, too, wish to move from an e-commerce model to a marketplace, trust Lemonway’s experts to offer you end-to-end support and a solution that can be easily integrated into your existing information system. Contact us to discover our modular offer!