What's the simplest way to explain an e-commerce marketplace business model? Here is my take:
The Five Core Tenets
1. Provide merchants with an attractive channel to grow their business
Provide them with the tools and policies to do so in a simple and cost efficient manner → attract and retain sellers
2. Provide customers with wide selection, competitive price, and fast and reliable delivery speed
→ Loyal customer base
3. Make a healthy margin (cut) by enabling #1 and #2 above
4. Re-invest the margins to become better at #1 and #2 above
5. Maintain the above order of priority
→ Build trust in your marketplace
Execution at Scale
This is a simple and high ROI business model, yet extremely difficult to execute at scale.
There are a few international success stories (pure play marketplaces) that have done this successfully such as Alibaba, Etsy and MercadoLibre. They have their own niche but the basic tenets 1-5 above seem to be intact.
New Concepts Emerging
Lately, the new concepts of social commerce (top-of-mind: IG and TikTok, Pinterest) and live commerce (top-of-mind: Whatnot, Supergreat, Flip) are gaining traction. These players over-index on the entertainment and social angle of shopping.
I wonder: Will these new concepts 'truly' disrupt the pure play marketplaces? Can they succeed at scale without investing in the basic tenets 1-5 outlined above or perhaps rely on Shopify for #1 and focus on #2?
Maybe these models can co-exist and have their own respective category winners?