Unlike e-commerce sites that involve businesses selling their own products through a website, virtual marketplaces are where third-party sellers can do business. Amazon and eBay are popular examples of virtual marketplaces. Also known as e-commerce marketplaces, such sites may feature individual traders, large-scale manufacturers of goods, or anything in between.
How Virtual Marketplaces Work
Unlike conventional e-commerce websites, virtual marketplaces transfer the burden of maintaining inventories, logistics, images, product descriptions, and pricing to the seller. There is more than one operational model for marketplaces, but the most common method involves marketplaces providing a way for sellers to connect their goods to interested buyers.
Marketplaces display sellers' wares, collect orders and payments, forward orders to sellers, track deliveries, and release payment to sellers after deducting a fee.
Many sellers on virtual marketplaces sell on their own websites as well, but virtual marketplaces often benefit from higher traffic than individual business sites might. For some smaller businesses, listing on virtual marketplaces is a way to promote individual products and the overall brand.
For small operations, selling on virtual marketplaces can do away with the requirement of having a dedicated website, hosting, technology, payment gateway, accounting software, and other necessities for selling online.
Selling on a virtual marketplace isn't the best decision for every business, but it does have advantages that make it a good option for some, such as:
- Time and resources can be focused on products instead of on designing and maintaining your own virtual store. The biggest virtual marketplaces have mobile apps as well, expanding their reach, and, again, you don't have to worry about designing or maintaining an app.
- Visibility for your products and your business as a whole can improve when placed in front of the high traffic many virtual marketplaces attract. This increased visibility can help drive customers to your own website or your own brick-and-mortar location.
- Small businesses can get off the ground with relatively low startup costs by using a virtual marketplace to promote and sell goods.
The virtual marketplace is not a bed of roses. There also are some drawbacks:
- High web traffic is great, but the volume of products and brands on virtual marketplaces makes it difficult to stand out from the crowd.
- The benefits of a virtual marketplace don't come free. As of 2018, Amazon charges $40 per month for sellers who sell more than 40 items per month, and there are additional fees on top of that, depending on needs.
- Virtual marketplaces have their own rules about what can be listed and how it can be listed, and you must be able to work within those constraints, as opposed to having your own.
In 2017, Amazon bought Whole Foods and began pushing the sale and delivery of groceries. That same year, Toys R Us filed for bankruptcy, and in 2018, it announced it was closing and selling all of its locations in the U.S. and the United Kingdom. The company's struggles were blamed largely on the growth of online sales.
These two examples are representative of the impact virtual marketplaces have had on retail sales. The ability of customers to purchase even food and groceries online in addition to toys, electronics, and other big-ticket items makes it difficult for even some of the biggest businesses to survive.
These trends suggest the businesses that will be most successful moving forward are the ones that can limit overhead and effectively connect with customers through websites and mobile apps.