Since the advent of the internet, business transactions have taken a dynamic turn, with more people making online purchases. According to research by Oberlo, more than one-third of the world’s population will make online purchases by the end of the year, which is 700 million people more than it was in the last 5 years.
Usually, the bulk of these online transactions take place in online marketplaces rather than individual online stores. Online marketplaces are a type of online e-commerce website where the products and services offered are provided by multiple third-party sellers.
Online Marketplaces in 2020
Basically, an online marketplace is a digital marketplace that connects multiple sellers with buyers, and all transactions are regulated by the online marketplace owner. Examples of online marketplaces include Amazon, Alibaba Group, eBay, Upwork, and AliExpress.
Companies (sellers) use online marketplaces to reach a wide range of people who want to purchase their goods or services because online marketplaces have a high influx of customers. For instance, Amazon gets an average of 900 million views monthly, meaning that your product is bound to get more exposure if it’s listed on Amazon.
If you are looking to create an online marketplace, profitability is a crucial concern. How do online marketplaces generate profit, or how profitable are online marketplaces? are the common questions to be asked.
How Online Marketplaces are Monetized
There are multiple ways online marketplaces can profit off the traffic, services, and exposure they drive to third party goods and services.
This a monetization model most people find familiar, as third-party users of the online marketplace pay a form of periodic payment (monthly or yearly) to access its services. Further, subscription plans usually available for different levels of benefits accessible to users. This way, e-commerce marketplace owners can be assured of a steady revenue – irrespective of sales.
In this model, the online marketplace charges a set percentage or fixed fee as their commission over every product or service sold through their platform. As the owner of a marketplace website, your revenue is dependent on the number of sales happening on your platform.
Listing Fee Model
As the name suggests, the third-sellers on the online marketplace would pay a fixed fee for every product or service listed on the website. Here the e-commerce website revenue is not dependent on the number of sales but on the number of goods and services listed on their platform.
Freemium offers certain basic features on the e-commerce website at no charge for their users; however, to access premium features on the platform, a premium fee is attached. This model incorporates the subscription as a means of generating revenue.
Generally, this model offers the services of the marketplace to its users for free. It only makes its profit through paid advertisements and promotions.
Note that these monetization models are not mutually exclusive, as different models can be used or combined to suit your business goals. So, there you have it – ways to monetize an online marketplace.
Since 2020, the online marketplace has grown significantly, especially with the advent of the COVID-19 pandemic. As people have little choice but to use the safer option of online shopping. Experts predict that global online marketplaces would make up 40% of the global online retail market. From the above, it is safe to say that online marketplaces at a profitable venture.
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