For the uninitiated, a marketplace model is where a retailer simply creates the platform for sellers and buyers. This is in contrast to the standard inventory model, where the retailer owns the entire inventory that is listed on the website. Obviously, a marketplace model results in a more agile company since inventory, warehousing and fulfillment costs are borne by the seller directly.
Post mid-2013, various marketplaces have emerged in India. Amazon, Flipkart, Quikr, OLX, Snapdeal, ebay, etc are trying to create the marketplace ecosystem in India. While a marketplace strategy may be a boon for some retailers, it could be a bane for others. But how it affects a business depends on a number of variables. This includes the type of products one sells, the kind of market one is operating in, intensity of competition in a particular category, marketplace fees and restrictions, and a dozen more factors.
Many e-commerce players are slowly moving towards a marketplace model for various different reasons. Better inventory management, wide range of inventory or lower logistics support might be a few reasons for e-commerce players to shift to marketplace model.
Starting a two-sided marketplace is becoming incredibly challenging with the growing competition in India. Most marketplaces face the ‘chicken-and-egg’ problem while scaling as interactions between buyers and sellers increase. Less buyers – more sellers or more buyers – less sellers is a classic economics supply and demand mismatch problem.
Here are a few key insights we derived from our interactions with e-commerce/marketplace entrepreneurs: