Lately, there is a sudden increase in the number of marketplaces strategy developed with an intent to cater to two distinct value propositions. It has often been recognized that the dichotomy among these is usually defined by the number of buyers participating in the marketplace vis-à-vis sellers.
There are a lot of articles available on internet which talk about the potential benefits/pitfalls when it comes to eCommerce models. However, what they miss out on discussing is how one can strategize themselves when it comes to deciding between selling their product in an offline-to-online model or vice versa?
Some Examples of B2B Successful Marketplace Strategy
It all boils down to whether you have enough buyers entering your system or not. Let us understand this through some examples:
- If you have a marketplace for car buyers and car sellers, you need to build a sufficient number of cars so that your marketplace looks good. And if you don’t have enough cars on road, no matter how many meltblown buyers enter your system, you won’t be able to sell them anything!
- Similarly, if we look at the real estate business model, no matter how much marketing and promotion is done, it all comes down to whether they would buy or not. Other than marketing and promotions (which ensures visibility), they can’t do much else as people come back once in a few months or years to make those life-changing decisions. It’s the same case with the pure online travel marketplaces like MakeMyTrip etc…
It is a well-known fact that the offline models are difficult to scale due to the limited supply of products. This is where online models score big time. Therefore, before you decide on your model it’s important to do a quick analysis of the existing marketplace and make a strategy on how you can make money quickly. For example, if you have an offline car business in Bangalore or Delhi and want to take your business online then key things would be:
- How many cars do you have in your city?
- Can you add more? If yes, how much will it cost?
- Will customers buy such cars for xxx amount?
If so, what does this mean in terms of revenue per month/year? Also, there may be a scenario where it is not feasible to have enough cars in the city. In this case, you may have to choose an online car rental model with the intent of selling the car later.
Similarly, if you are selling your products on Amazon, Flipkart, etc… you need to find out how they are doing so well. How much do they spend per customer? What percentage of sales can be attributed to that advertisement or marketing cost?
It’s important that before starting up any marketplace business one should analyze these points and come out with a strategy that helps them build marketplaces quickly without burning a lot of money.
Main Functional Differences
The main functional differences between the two are that in offline-to-online models, users can search through an inventory of products that are available in the company’s territory. These are typically the company’s own products or products that they create partnerships with to sell their goods. Online-to-offline models, on the other hand, are composed of listings of products being sold by sellers who offer them for sale in an online environment.
The online b2b marketplace platform then serves as a means to connect the products with potential buyers.
In the Offline Model
Users can search through an inventory of products that are available in the company’s territory. These are typically the company’s own products or products that they create partnerships with to sell their goods. In this model, online platforms serve as a means to connect sellers and buyers together. This model is called a “platform business,” and it has been done quite successfully by companies like Alibaba and Etsy. For example, when you type in Google what you’re looking to buy, there will be multiple options for both online-only retailers like Amazon and eBay, but also offline retailers like Walmart who expand themselves through an online aspect of their business (although usually not to the extent of Amazon and eBay).
Online-to-offline Models
on the other hand, are composed of listings of products being sold by sellers who offer them for sale in an online environment. The online platform then serves as a means to connect the products with potential buyers. This model is called “peer-to-peer business,” and it has been done quite successfully by companies like Uber and Airbnb. For example, when you open up Google Maps, there will be multiple ridesharing or home renting options for both offline businesses like Taxi’s or hotels down the street, but also for online-only businesses like Lyft or Airbnb that provide their services through platforms (although usually not to the extent of Uber).
1) Online marketplace where you sell your own products
2) Online marketplace where you act as an affiliate selling other’s products
3) Online marketplace where you sell the product of someone else. For example, if you are selling mobile phones on Amazon India then that would be ‘online-to-offline model because Amazon is not making any mobile phones, but only providing a platform to connect seller and buyer together.
4) Online-to-Offline (O2O): Companies like Uber & Airbnb create peer 3 peer markets by connecting sellers directly with buyers. The major benefit for companies in O2O model is control over end-to-end customer experience which helps them maintain high standards of user experience. These companies also face intense competition from other companies in their industry like Uber (Taxi industry) and Airbnb (Accommodation industry).
5) Offline-to-Online (O2O): Companies like Alibaba & Tencent create peer 2 peer markets by connecting offline sellers with buyers directly. The major benefit for companies in O2O model is cost efficiency especially when the company only has a limited network of physical stores that it can use to sell its products. These companies also face intense competition from other companies in their industry like Alipay & WeChat (eCommerce Industry).
6) Online-to-Offline: Companies like Amazon, Flipkart, etc… create peer 1 peer markets by connecting online buyers with sellers directly. The major benefit for companies in this business model is passive income generated through commissions without having to invest in infrastructure. These companies also face intense competition from other online-only retailers like eBay, Walmart, etc…
7) Products are sold by the company itself using this model
8) This is an affiliate program where 3rd party seller sells products on the platform and gets a commission for every sale they make on the platform. The main advantage of this business model is cost efficiency with the very less initial investment required to generate sales since customers come already pre-qualified through the affiliate’s marketing efforts. The disadvantage of this business model is that these companies don’t have control over their customer base who may ultimately start transacting with other sellers on the same platform which eventually results in attrition.
9) This is an affiliate program where 3rd party seller sells products on the platform and gets a commission for every sale they make on the platform. The main advantage of this business model is cost efficiency with the very less initial investment required to generate sales since customers come already pre-qualified through the affiliate’s marketing efforts.
10) The disadvantage of this business model is that these companies don’t have control over their customer base who may ultimately start transacting with other sellers on the same platform which eventually results in attrition.
