It’s obvious that selling products online can bring numerous benefits for e-merchants. Furthermore, thanks to the development of the internet, it has made an online store more advantageous than brick and mortar stores in reaching potential customers. However, choosing the best place for your business can be daunting, as a result, bringing the eCommerce vs online marketplace comparison to the table is necessary now.
In this article, you will know everything about the strengths and weaknesses between eCommerce vs online marketplace. Furthermore, I will break down how each option is strategically positioned to help you expand your business.
Let’s get started!
What is an eCommerce platform?
First and foremost, eCommerce is purchasing and selling activities happening over the Internet. And, an eCommerce platform is an end-to-end software application where both parties, sellers and consumers come and play their roles. This type of service encompasses eCommerce website builders, accounting and inventory management systems, as well as customer service infrastructure. Most importantly, a consumer should be able to use an eCommerce platform to discover products, shop around using a cart, and then check out.
For merchants, an eCommerce platform is a lifesaver if they decide to launch an online store from scratch or as an addition to a physical store.
Some of the most popular eCommerce platforms available in the market today are Shopify, BigCommerce, Magento, WooCommerce, Wix and so on. Shopify, Squarespace or WooCommerce are ideal for small businesses that need a platform quick to set up. On the other hand, Magento and BigCommerce are better suited for larger firms with huge order volumes. Moreover, some website builders like Wix or Squarespace provide drag-and-drop functionality for store owners with little to no coding experience, while other platforms have more complex back ends.
What is an online marketplace?
An online marketplace is an eCommerce site or app that facilitates shopping from many different sources. The marketplace’s operator does not own any inventory. Instead, their job is to show other people’s products to customers and enable transactions.
Today’s marketplaces are expanding at a breakneck speed. According to analysts, global marketplaces will account for 40% of the global online retail market in 2020. Furthermore, 75% of marketing professionals in the United States admit that putting your business where your customers want to buy from can increase your revenue from selling on online marketplaces.
What is the difference between Marketplace and eCommerce?
eCommerce or online marketplace has the same goal in mind: to sell products to customers. We’ll help you analyze the pros and cons of eCommerce vs online marketplace to determine which option is right for your business.
Traffic and audience engagement
In every online business, whether it’s an eCommerce site or online marketplace, traffic and audience engagement are vital.
Marketplaces have always been transactional-oriented, with the objective of bringing buyers and sellers together. Thanks to the marketplace nature, the target audience is bigger as it offers a huge choice of product categories, and thus, more traffic to the site. Basically, online marketplaces are frequently focused solely on encouraging customers to make purchases, while urging store owners to add more products or services to their listings. Therefore, online marketplaces bring more opportunities in engaging customers to buy the products. Indeed, marketplaces benefit from network effects: more buyers attract more sellers, and vice versa.
In the eCommerce business, on the other hand, engaging the audience is more difficult. It takes a longer time and costs a lot of money to attract traffic to the website. Even if you have a lot of experiences, you can still be focusing on the wrong target customers. However, a social media platform like Facebook can considerably aid in audience engagement.
Marketing and brand recognition
It is a big perk for businesses to have a clear concept about the marketing approach and targeting in the comparison of eCommerce vs online marketplace.
Unfortunately, sellers on marketplaces have limited to no access to their customers. Accordingly, it’s tough to sell your items or generate brand awareness and loyalty. If you can’t get in touch with your prior customers to let them know about sales or new product releases, you will have to rely on the fresh sales instead of leveraging the strength of previous purchases. Also, a key disadvantage of marketplace platforms is the lack of direct access to customer analytics and communications.
When it comes to brand competition, even if your products are unique, there are a lot of identical products out there vying for the attention of your potential customers. As a result, your product may or may not stand out in a competitive marketplace. Additionally, many consumers who purchase on marketplaces assume they are buying from that marketplace, even though they are purchasing your products. Therefore, the buyers tend to remember the marketplace rather than the brand the next time they come back. In most marketplaces, the focus is not on the sellers, but rather the products. This makes it extremely difficult to develop brand awareness and recognition, and ultimately differentiate your business.
Meanwhile, eCommerce websites have complete access to all customer analytics and can reach out directly to customers to inform them about sales promotion, new releases. Also, direct access to your customers allows you to deliver better customer service, obtain more detailed information and input on product development. You can analyze customer behaviors for a better understanding and optimizing your website’s user experience.
Also, one of the greatest advantages of managing your own eCommerce website is that you can target people who visit your site with ads, market to those who have already purchased from you, and stay connected in the future. Email list building helps you build awareness, bring in steady revenue, and run promotions to get rid of inventory.
Luckily, your website will exclusively sell your products, and you’ll never have to pay for advertising to get your listings to show above identical items offered by your competitors or to rank higher on your own site.
In fact, owners of marketplaces take less financial risk than eCommerce website’s owners. When selling on marketplaces, store owners don’t buy or sell anything which greatly increases the business’ scalability. As a result, marketplaces gain economies of scale more easily; and it allows them to expand faster than eCommerce websites. When traffic even grows very fast, it may be necessary to seek new vendors to meet the demand, but you won’t need to worry about spending large sums of money on new inventory or storing facilities.
Whereas, if an eCommerce website wants to scale up, it takes more time to do so. In fact, they have to get more product stock and find more storage space for it. Therefore, you will need to hire extra staff to manage, classify, store and ship all of their new products which can extremely foot over your bill. In fact, eCommerce websites should invest more time and resources into website and app development to improve the user experience, instead of spending time and money on employees.
Keep in mind that the larger the inventory is, the more likely buyers will find what they’re looking for in your online store. Even if your visitors are interested in the eCommerce or online marketplace, large inventory sometimes means the extra effort for marketing which can grab the customers attention.
Because online marketplaces are essentially a space for e-merchants to display their products and connect with buyers, they have no inventory. Also, there’s no risk if products don’t sell either. It’s actually the seller’s obligation when a product receives no traffic, and you do not have to suffer the financial burden of holding onto a product that is not selling and taking up storage space.
In contrast, if you use an eCommerce website, you may face problems when keeping inventory unless using drop shipping to meet the customer demand. Or else, you need to necessitate the acquisition or upgrades of warehouse space without affecting the profit margins. This way, you can keep products that are not selling. Besides, there is more financial risk when you purchase and hold the inventory, as a store owner, which can bring damages, loss to your inventory. All of these scenarios could have a negative impact on the company’s profit margins.
In fact, online marketplaces have lower profit margins than eCommerce websites. Listing and commission fees are how marketplaces make money. These businesses require a huge amount of listings and transactions on their website in order to remain profitable.
On the other hand, eCommerce platforms have a higher profit margin on each individual sale. Therefore they don’t have to worry as much about volume as they do about quality sales. For instance, if your company sells high-priced items, one or two sales a month could generate a significant profit margin. Plus, commission fees on expensive products will undoubtedly bring in more money than on cheaper ones.
Time and money
In the comparison of eCommerce vs online marketplace, building an online store on the marketplace can save more time and money initially. For example, creating a seller profile and retailer shop on marketplace platforms like Amazon or Etsy will take a very little amount of time and technical skill. In addition, you can easily start selling and reach out to potential customers who already shopped on the online marketplace. Saving time on building your store allows you to focus on product development and sales which can quickly increase sales and profits.
Developing an eCommerce website, on the other hand, will almost certainly be more expensive upfront. To design and maintain your website, you’ll need to build on your own or hire a web developer. However, store owners can easily establish and set up eCommerce websites using some platforms like Shopify, Wix, or WooCommerce. Custom designs, functions, integrations and features, on the other hand, will certainly require the service of a technical expert. Also, other costs to think about while building an eCommerce website are domain name, HTTPS certificate, payment gateways and so on.
While creating an eCommerce website takes longer time and costs more money, the long-term profit margins will be higher. When merchants advertise products on the marketplaces, they need to pay a commission on each sale, and depending on the platforms you choose, you also need to pay for other fees. Over time the commission and listing fees might add up to a significant amount. Therefore, in the long term, if your business model succeeds, eCommerce sales produce higher profit margins as there are less fees.
Selling on an eCommerce platform: Pros & Cons
Sell on online marketplaces: Pros & Cons
Final Thoughts on eCommerce vs Online Marketplace
In the comparison of eCommerce vs online marketplace, I’ve pointed out the key differences and discussed their features. Depending on the product niches, needs and goals, the greatest place to sell online will differ from retailer to retailer.
Online marketplaces are an excellent place to start for eCommerce beginners since they allow you to cut down on the costs, risks, and time to set up a business up front. Or else, if you’re already a well-known brand and don’t want to share your profits with a marketplace, or if you need a custom-made solution, setting up your own eCommerce website can be a way to go.
eCommerce or online marketplace is a great place for selling, but it’s not the only option when you can use both to make your business thrive. If you’re interested in multichannel selling, check out LitCommerce to prepare for your first step! The tool allows you to import products from your eCommerce website, then list and sell products on the world’s largest online marketplaces such as Amazon, Etsy, eBay,… and make the management work more efficient and simple than ever before.
You might also be interested in reading:
- Sell on Amazon vs eBay in 2021: What is the Updated Differences?
- Amazon vs Amazon Marketplace: The Differences You Need to Know in 2021
- Etsy vs eBay (2021): Which One Is The Best Place To Start Making Money?
- Shopify Vs Etsy: An Ultimate Comparison 
- eBay Product Review: Everything You Need to Know