Retail 101: An Intro to Online Marketplaces

The numbers don’t lie: it’s a good time to start a marketplace. In 2017, Amazon accounted for nearly 44% of all US online retail, up six percent from the year before. That number comes as no surprise, considering how 97% of all online consumers have shopped before on a marketplace, according to a recent study by UPS and comScore.

These are strong insights to consider, and retailers like ASOS and Barnes & Noble have already been making moves. But what does it take to actually start your own online marketplace? And what’s the difference between a marketplace like Etsy vs. Amazon? At Reaction, we receive inquiries like these on a near-daily basis.

In this blog post, we’ll explore some of the basic terms we use to define an online marketplace. We'll touch on some of our most frequently asked questions about marketplace, and we'll take a brief look at how marketplace functionality operates on our platform.

So what is a marketplace, anyway?

A marketplace is a venue where marketplace owners, third-party merchants, and shoppers make transactions. Marketplaces differ from B2B sites in that marketplaces typically do not hold their own product inventory, although this varies more and more these days based on the type of marketplace.

In a traditional marketplace, merchants manage the logistics of inventory and fulfillment, while the platform takes care of the payment processing, the taxes, and the overall user experience. The marketplace doesn’t participate in the buying or selling of goods, nor does it hold any inventory. Rather, through filters, the marketplace provides its players with quick and convenient ways to find each other. Etsy and eBay are great examples of a traditional marketplace.

Curated marketplaces, such as ASOS Marketplace, only feature third-party sellers that comply with the brand’s set guidelines, which may include regulations on branding, product, customer response time, and the number of returns the seller receives. In this scenario, the marketplace owner has much greater control over the seller, as well as the shopper’s overall user experience.

Then there are hybrid marketplaces, which blend elements of both traditional retail and the marketplace model. Amazon is the best example of this model: third-party vendors sell on their platform, but Amazon sells its own branded merchandise on the platform as well. The marketplace owner is selling alongside his or her own tenants. And for an additional cost, those very same tenants can opt to hand off shipping and fulfillment to Amazon’s warehouse team. The lines are blurred indeed.

What’s the difference between a multi-tenant shop and a marketplace?

A single-tenant shop is a regular ol’ ecommerce store: one vendor, one app, one catalog, one database. All instances support a single shop, like our swag shop. Pretty straightforward, right?

When you start comparing multi-tenant shops and marketplaces on Reaction, it gets a little tricker. Essentially, both models support several stores on a single install, with multiple users sharing the same application. So what’s the difference? It's all in the front-end.

Multi-tenant shop users may be using the same admin for their multiple shops, but their shops still operate as disparate entities to the shopper: separate catalogs, separate checkout processes, separate databases. A multi-tenant shop is ideal for a single retailer with multiple brands under its umbrella, such as Carter’s or Crate & Barrel.

By contrast, marketplaces feature a single catalog for all its tenants, a single, shared database, and a unified checkout that consolidates multiple orders from multiple merchants into one flow.

What’s split order checkout?

Split order checkout means just that: splitting a single unified checkout order into multiple sub-orders and shipments. When you’re running an online marketplace, this matters a great deal, because each order within an order will have its own seller, its own currency, its own taxes and shipping rules. You’ll need the ability to include multiple shipments and payments in a single order.

In Reaction, marketplace owners are able to see, cancel, and refund the entire order and any of its suborders. Marketplace merchants are only able to review and fulfill their specific partial order.

What other factors I should consider if I'm launching an online marketplace?

If you’re thinking of creating and running a marketplace, here are some questions you might want to ask yourself:

  • Will your marketplace be traditional, curated, or hybrid?
  • What features will you provide shoppers in order to help them find the product they’re looking for?
  • How will you manage currency, taxes, payment methods, and shipping across countries?
  • As a marketplace owner, what are some of the permissions you might offer your tenants?
  • Will tenants be able to view other tenants’ catalog, or only their own? Will your tenants have the ability to create promotions, make changes to the admin UI, or brand their own storefront? What guidelines will you expect your merchants to follow in your marketplace?
  • How will you incentivize other third-party merchants to sell on your platform, and not your competitor’s? How will you incentivize shoppers to shop there?

Conclusion

Plenty of retailers underestimate how hard it is to set up an online marketplace, even when it possesses the most basic functionality. Hopefully, this post sheds some light into some cursory definitions. For more info on how to set up marketplace functionality in Reaction, visit our Docs. Or, watch our step-by-step tutorial video and get set up in 20 minutes or less.

If you have any additional questions about marketplace functionality, feel free to ask away in our developer chat or community calls. We can't wait to see what you're building.

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