Marketplaces have been with us for centuries. Around the time people started trading inside and outside of their village two models developed.

You either took your stuff on the road and sold it door to door or you showed up somewhere near the center of town and rented a stall in the market or bazaar.

Even today’s shopping center is based on the marketplace concept – lots of people go to one place where they can go to lots of stores at one time.

You could make a case for the fact that the Internet in general is little more than a really, really big marketplace – containing everything that has ever been made along with everything that’s ever been said.

Unfiltered as it is though, the Internet is a bit like going down to market and finding that if you walk through the stalls for about fifteen years you wouldn’t even make a dent in what’s there.

eBay was one of the first to crack the marketplace code online. eBay aggregated buyers and sellers of stuff, mostly stuff in the attic and garage, and took a fee on the sale.

In recent years others have entered the digital marketplace business and the model, including eBay’s model, has evolved to the point where it represents a significant distribution channel for businesses large and small, B2B and B2C and is no longer limited to physical products.

Today sellers can find viable marketplace distribution in places like Amazon, Buy.com, Newegg, Ariba as well as eBay. Even traditional retailers like Sears and BestBuy are getting into the marketplace game. And, it’s pretty obvious that Facebook has plans to fall into this category as well.

Marketplaces are not limited to sellers either. Marketplaces like Alibaba are making it easier than ever for business to find and source suppliers and manufactures of products from around the globe.

As small businesses consider digital marketplaces for additional distribution, they must weigh the advantages and disadvantages, learn best practices and specifications and tricks of the trade in order to stand out.

Advantages of digital marketplaces

• Pre-built market – some marketplaces have millions of customers visiting on a daily basis.
• Shoppers with intent – people often come to a marketplace ready to buy something if not a very specific item.
• Convenience – Shoppers love the convenience and one stop shopping approach with one login.
• Niche markets – Some marketplaces build communities interested in very specific types of items.
• Fulfillment – Marketplaces can become a fulfillment center. Amazon’s Fulfillment by Amazon program is a huge boost for some companies.
• Credibility – Smaller, lesser known brands can benefit from the trust built by a marketplace.

Disadvantages of digital marketplaces

• Competitive proximity – Sure there are lots of shoppers, but your competitor might be in the next stall, so to speak, offering a lower price or better options.
• Commoditization – Some marketplace shoppers are simply looking for the best price on a comparable product.
• Loss of brand – What makes someone want to do business with you based on an awesome experience can be lost in the matching specs of a marketplace.
• Listing idiosyncrasies – Every marketplace has its own way of getting your stuff listed, priced and highlighted.
• Order management – Some small businesses don’t have the IT infrastructure to handle order management systems required to play at a high level.
• Hard to stand out – Winning the digital marketplace game takes a lot of work – uploading your products via a data feed and calling it a day is not going to cut it.

Best practices

If you decide to test a marketplace there are a handful of musts in order to make a go of it.

• Start slow and build – Unless you’ve got a full time IT staff it’s best to pick a marketplace and try to build your chops one at a time rather than jumping in and distributing your resources in ways that will dilute your time and attention.
• Go for Gold seller status – Every marketplace has some algorithm that rewards the best sellers. Some of this is sheer volume, but things like ratings and response times play a huge role. Gold status usually affords better placement. (Yet another argument for starting slow and working out the kinks)
• Need for speed – One of the quickest ways to rise and fall in the ratings game is quickness. Get your products in the customer’s hands as fast as possible.
• Provide tracking (Holidays!) – Provide lots of communication. Let people know if they can get something by a looming Holiday date. Exceed expectations.
• Grow with automation – Once you hit any level of volume in one or more markets you’ll need to find and employ tools that help you list, track, manage and reprice your listings based on the real-time activity going in a market. Some suppliers move the price of items up and down multiple times during a day making it tough to stay on top with a spreadsheet as your only tool.

Digital marketplaces can open up a world of opportunities or they can become a fast way to discount your products. The key is to establish your distribution in other places, refine your processes and then look for additional opportunities in the growing world of online maketplaces.