From airlines and retailers to auto manufacturers and pharmaceutical corporations, more and more businesses are tapping into the potential of platforms as an opportunity to increase revenue.
In particular, businesses across a wide variety of industries are choosing to add different types of marketplace platforms to their portfolio. Here a few examples that illustrate the versatility of the marketplace model:
The booming popularity of marketplaces stems from their proven success. Consider how nine of America’s 10 biggest retailers are marketplaces. Or how online marketplaces are set to account for 59% of all ecommerce within five years.
But what exactly makes marketplaces so successful? It boils down to reach and revenue.
A central pillar to the marketplace model’s success is the increased reach it gives a business. According to a recent study Nautical commissioned with Forrester Consulting, companies that launched marketplaces saw 44% year-over-year growth in customers.
There are three main ways in which marketplaces bolster reach.
Developing new products is one way to attract new customers, but it’s expensive. With a marketplace, your business can grow its catalog by depending on other vendors, who in turn bring their own customers.
Operators of service marketplaces are able to easily increase service providers — reaching more customers — and they’re able to do it without investing in physical assets. For instance, Uber has a driver network rather than a fleet of taxis it’s responsible for.
Greater product selection kicks off the flywheel effect, which plays out like this: after more products attract new customers, additional vendors are enticed to come on board, leading to even more customers — and on and on.
Plus, with a greater number of catalogs from a multi-vendor setup, users spend more time on site on average.
It’s in each of your vendors’ best interest to advertise their own products and services. This drives traffic to your marketplace — and saves you marketing spend.
Not only do vendors help build up a business’s audience, they also enable a marketplace to enter entirely new segments, since they may offer products or services that complement — but are outside of — the operator’s main focus.
With greater visibility comes higher revenue. But that’s not the only reason B2B marketplaces are able to increase revenue 7.3 times faster than traditional B2B ecommerce. While revenues are of course related to visibility, marketplaces also provide some unique revenue streams and the potential to be incredibly asset-light.
According to the Forrester Consulting study, businesses that launched marketplaces experienced 42% growth in revenue, on average. One of the respondents explains,
"In my first year at the organization], we were doing maybe a million[USD] in revenue. ... Then in year two of the site, we did $3 million. Year four, we did $10 million. Last year, we did $17 million, and this year we’re on pace to do $25 million."
Here are two ways launching a marketplace can increase revenue for your business.
As users spend more time on the marketplace platform, the operator gains valuable data. Whether through better recommendations or ad sales, better data enables businesses to improve their bottom lines.
Unlike a single-vendor e-store, where retailers are saddled with inventory costs, marketplace operators don’t have to carry any inventory. In addition, marketplace operators often charge vendors commissions or other fees, so they get the rare opportunity to directly profit on other businesses’ success. The potential is impressive: the world’s leading marketplaces boast $2 trillion in third-party sales.
Sellers — including marketplace operators themselves — gain access to a new pool of customers. In fact, that’s the number one reason for joining a marketplace.
As marketplaces expand over time, they inherently gain additional value through the network effect. That’s when the value of a platform (or product, or service) increases the more people use it.
Growth through the network effect can be astonishingly rapid. British automotive marketplace Cazoo saw its business triple between 2020 and 2022, representing the fastest revenue growth of any online marketplace. Over the same period, real estate marketplace Opendoor’s revenue exploded by 165%. There’s no shortage of success stories in the marketplace sector.
As you can see, marketplaces empower businesses to increase revenue and reach by way of added value, visibility, and more. Perhaps best of all, there’s no limit to the kinds of industries and segments in which the marketplace model can elevate an existing business.
If you want to learn more about how marketplaces can grow your business, reach out to us.
