E-commerce continues to be a promising growth market. Since 2019, the compound annual growth rate has been 23 percent—and the market will continue to rise in the next years, albeit at a slower pace than during the Covid-19 outbreak. In this context, we expect that marketplaces will continue to play a central role in the upcoming years, as 50 percent of online retail growth during the last five years has been generated by the marketplace business model.
Fundamentally different model with distinct advantages
Sellers joining the marketplace platform extend the catalog with their products and services while at the same time increasing the orchestrator’s virtual inventory without additional supply chain costs.
A richer catalog and a larger stock generates more traffic, attracting new customers and extending client reach.
Data collected from a growing customer pool allows to potentially identify new client profiles. Leveraging the data, the organization can decide to extend its traditional core business pushing towards new, adjacent categories to meet the recognized needs of new profiles.
Marketplaces represent a “platform” business model that differs fundamentally from traditional “linear” direct online sales. In the latter model, retailers act as operators purchasing goods, creating an assortment of offers, and finally reselling them to the end customer.
In the “platform” model, a large number of suppliers—which can be producers or retailers—meet the end customers directly, while the operator takes on the role of orchestrator leveraging capabilities offered by its eCommerce platform.
Thus, the platform model serves as an enabler for an extension of the orchestrator’s range of curated products and services.
Put simply, the marketplace empowers the orchestrator to shed the restraints immanent to the linear model and exploit new business opportunities that were previously out of reach. But this is not the only benefit.
Marketplace is a win-win-win for everybody
Compared with traditional direct online sales, a platform model has four key advantages:
All told, a marketplace constitutes a win-win-win approach for all parties involved. Customers benefit from increased access to the products and services they like from trusted brands, while third parties get the chance to expand their reach. The marketplace orchestrator in turn will, of course, earn money for operating the platform.
Matching goals and models
One-size-fits-all—this marketplace model does not exist. In fact, almost anything is possible. Depending on the products offered, the customer group, and the strategic business goals of the operator, there are very different business models. They range from B2B, B2C or even B2B2x marketplaces, which offer products and services from different manufacturers and retailers to employment platforms and auction platforms for private customers.
The monetization options are just as diverse. Besides sales commissions, platform operators can also tap into other revenue streams, for example, through targeted product recommendations, cross-selling, or advertising on the website. The orchestrator can also offer services for sellers—from delivery to inventory management. With all these diverse options available, it is fundamental for any organization intending to pursue a marketplace to thoroughly analyze the market situation within their business segment and product category and to develop a viable value proposition towards the intended end customers. The resultant exploration will ultimately yield the fitting marketplace model.
How companies can develop a marketplace model for their business
The successful development of a marketplace model can be divided into two broad areas:
Simplified, Enterprises have to start from the refence market selection. Three principles are differentiated:
- B2B: The orchestrator serves as a node between business clients and merchants. It is the usual archetype for a strong orchestrator with an established network of B2B operators.
- B2C: The marketplace is the node where all client orders and merchants congregate. In this archetype, the orchestrator already has strong traffic on its own digital platforms.
- B2B2x: In this case, intermediaries and merchants use the platform as a node. The orchestrator’s brand is strong and third-party items are intended to optimize the orchestrator’s offering. The orchestrator becomes a platform for the business ecosystem.
Following the identification of the right archetype and roadmap, e.g. starting with one archetype and adding more over time, an important strategic decision needs to be made to determine which services will be offered and executed by the organization as the marketplace orchestrator, and which processes will rest with the participating merchants.
„Marketplace models offer varying degrees of vertical integration.“"
Naturally, there is a wide range of varying degrees of externalization, and marketplace models offer varying degrees of vertical integration. A consignment model, for instance, will only differ from the traditional model insofar as the supply chain is partially or completely the responsibility of the merchant.
The e-concession and drop-ship models increasingly transfer tasks to the participants, starting with commercial and marketing and going a step further with shifting the responsibility for customer service.
The most far-reaching model is the pure marketplace, where the orchestrator will only provide the sales platform and a minimum of tech and analytics support.
To select the best suited model, the organization first needs to define which products are to be traded on the platform and which volumes can reasonably be expected, thereby establishing the necessary operational and organizational resources. Comparing which capabilities exist within the organization and which are lacking, with the different levels of process ownership across the models, will normally determine the one best suited. Just to make sure, a scenario analysis should evaluate the viable models regarding profitability.
After the marketplace archetype and the specific model have been determined, the implementation process starts with defining the technological stack.
Capabilities—there’s work to be done
Some e-commerce capabilities should be extended to ensure a functioning sales process on the new platform. One important capacity is the support function for external providers. Ideally, a dedicated department should manage the seller journey.
For example, this includes targeting new merchants, acquiring and onboarding functions as well as farming capabilities to attract traffic to the marketplace. Examples of other capabilities are ensuring the necessary degree of transparency or monitoring fulfillment so that the end customer’s expectations are meet.
Technology is the nucleus of every marketplace
To execute marketplace business models successfully, technology takes center stage. The target architecture of a marketplace consists of nine key components:
- Store front: a decoupled shopfront for online selling, containing lending page, product listing/details and the like.
- Headless Commerce core: provides core commerce functionalities like catalog, pricing & promo and order management, for example.
- Marketplace: the functional integration component, managing the processes shared with the sellers. Examples are seller onboarding, product harmonization, vendor monitoring and financial reconciliation.
- Supporting Systems: they include Product Information Management (PIM), a customer data platform and the Identity and Access-Management (IAM).
- CRM: the customer relationship management platform supports customer services and digital marketing.
- 3P Back-Office: provides the required integration into the merchants’ systems.
- ERP: the enterprise resource system
- WMS: the organization’s warehouse management system.
- Data & Analytics: provides data to all components and for commerce analytics.
Finally, there are three different technical approaches to enable this marketplace architecture:
Obviously, a platform setup is more complex. And while the process is certainly more far-reaching than just purchasing a new software, ultimately a decision needs to be made to determine which software is best. There are many vendors on the market, and—again—there is no one-size-fits-all solution. Companies must therefore address fundamental questions:
- Does the company want to replace or evolve its e-commerce platform?
- Which platform fits the targeted business model archetype best—i.e., B2B, B2C or B2B2x?
- Which platform offers the best support for the features and processes the company wants to offer to merchants?
Marketplace enablement is complex—BCG Platinion can help
Launching a marketplace business can provide relevant, incremental contribution to online and omnichannel businesses in both, B2B and B2C models. It requires some very detailed and complex analyses of one’s own business, the enabling technology, and the relevant market as a whole. And there are numerous points where a missed cue or some neglected aspect can derail the entire project.
Furthermore, marketplace implementation requires to address some typical challenges: how to integrate the new product catalog with current systems? How to incorporate payments? Also, ongoing digital evolutions need to be aligned with the platform. Besides all that, how to optimize tech costs over time to avoid profit erosion and, at the same time, speed-up value creation? Experience and prior knowledge make a significant difference—and can also speed up the whole process.
In this context, BCG can help companies from initial business case, category P&L analysis and target marketplace model design to commercial launch, including technology and operations setup. Through BCG Platinion, our dedicated tech & digital transformation unit, we help clients define the right technological solution, depending on their respective starting points, that will help them achieve their business goals. We can support organizations in tackling the e-commerce challenge by designing a tailor-made IT architecture, while assisting the company’s own teams in developing the essential skills to successfully build and run the necessary systems. But we do not stop there.
We support clients to make things happen, working closely together in a highly collaborative manner to achieve the common goal of launching a very successful marketplace business.
The “everything” time started yesterday
The future of e-commerce rests in marketplaces, and organizations understanding that early on and implementing this knowledge into their sales and marketing strategy have a decisive head start. The world is moving, and competitors are not asleep. The “everything commerce”-time has already begun.