It's common to hear about "marketplace" and "e-commerce," but what do each of these terms really mean? Do they have the same meaning? The answer is no. Talking about a "marketplace" is not the same as talking about "e-commerce." While e-commerce encompasses electronic commercial transactions conducted on the internet, online marketplaces, though part of the e-commerce realm, distinguish themselves by not selling their own products or services. Instead, they function as intermediaries facilitating third-party exchanges of products and services on their platforms. In this blog post we explore the differences between both concepts and share examples of each of them.

What is an e-commerce platform?

An e-commerce platform is a digital space that enables businesses to showcase and sell their products or services directly to consumers. These platforms are typically owned and operated by the businesses themselves, providing a branded environment where customers can browse, make purchases, and engage with the business directly.

According to WebsiteBuilder, there are more than 26 million e-commerce sites worldwide, a figure that has increased by 204% yearly, from 9.7 million to 19.8 million. In the U.S. the number of e-commerce businesses is over 9.5 million. But it was not always like that. 

It’s said that e-Commerce was born in the United States. In 1969, CompuServe was founded, the first eCommerce company. As back then there was no Internet, the company provided computer sharing services to businesses by sending data through phone lines (known as Electronic Data Interchange, or EDI).

A decade after, the british entrepreneur Michael Aldrich introduced a multi-user transaction system using a combination of computers and telephone lines, inventing electronic shopping. However, it was not until 1994 that first-ever secure online purchase was made: a Sting CD. In August 12th, 1994, the New York Times published an article titled “Attention Shoppers: Internet is Open,” explaining how a “team of young cyberspace entrepreneurs celebrated what was apparently the first retail transaction on the Internet using a readily available version of powerful data encryption software designed to guarantee privacy.”

The following year, in 1995, the online marketplaces that would forever shape the landscape of e-commerce began to take form. This includes Jeff Bezos’ Amazon, initially designed for selling books, and Pierre Omidyar’s AuctionWeb, the first online auction site which would soon become known as eBay.

What is a marketplace?

A marketplace is a digital platform that acts as an intermediary, bringing together multiple vendors or sellers to offer their products or services in a centralized space. In a marketplace, the platform owner facilitates transactions, provides a common space for vendors, and often takes a percentage of the sales as a commission. To put it simply, online marketplaces bring together a group of e-commerce businesses in one place.

While the first e-commerce business dates back to 1969, the first online marketplace emerged in 1982 when it was founded Boston Computer Exchange, an online marketplace for people interested in selling their used computers. However, if we are talking about an online marketplace as we know them today, we must say that the first one was Book Stacks Unlimited., an online marketplace founded by Charles M. Stack.in 1992. Originally it was a dial-up bulletin board, but it was later launched as an online marketplace from the Books.com domain.

As mentioned earlier, in the mid-90s, the big and legendary online marketplaces like Amazon, eBay, PayPal, and Alibaba began to emerge. Entering the new millennium, we saw the emergence of online marketplaces like Google Adwords, Shopify, Etsy, BigCommerce, Groupon, and others.

Which are the differences between a marketplace and an e-commerce platform?

While we've mentioned the main difference in terms of the concept, below, we provide a detailed breakdown of each one.

The first difference lies in ownership and control. The e-commerce businesses have complete control over their platform, its design, and the overall customer experience, managing everything from product listings to customer interactions. In contrast, the ones that manage a marketplace control the overall design and functionality, while individual vendors have limited control over their storefront within the broader marketplace. However, what may seem like a disadvantage could turn out to be a benefit: marketplaces might provide a better interface than some e-commerce businesses, and as a result, these businesses could greatly benefit from the tools offered by the marketplace.

Another difference relates to brand visibility. The e-commerce platforms offer brands the opportunity to build and showcase their unique identity, fostering brand loyalty among customers. In a marketplace, vendors operate within the marketplace's brand umbrella, often leading to less individual brand recognition compared to standalone e-commerce platforms. This doesn't necessarily have to be the case. There are many marketplaces that offer the possibility to customize each online store to showcase the identity of each seller.

When it comes to product listing and inventory management, e-commerce platforms empower businesses to manage their product listings, inventory, and order fulfillment independently. On the other hand, in a marketplace, vendors typically follow a standardized format for product listings and may have to adapt to the marketplace's inventory management system. We believe that this feature could benefit e-commerce businesses, as the crucial goal at the end of the day is to generate more sales and acquire more customers. Product listing and inventory management can sometimes be quite tedious, and having an external third party take care of it would allow them to address other challenges and focus on other aspects of their business.

In terms of the transaction process, e-commerce platforms facilitate transactions directly between the business and the customer, with the platform serving as a facilitator. In a marketplace, transactions are facilitated by the marketplace, involving the platform in payment processing and order fulfillment.

Also, customer relationships are quite different in both of them. E-commerce platforms involve businesses having direct access to customer data, allowing them to build relationships through personalized marketing and communication. In a marketplace, the marketplace often manages customer interactions, limiting the direct relationship between vendors and buyers.

Finally, regarding fees and revenue model, e-commerce platforms typically require businesses to pay fees for using the platform, allowing them to retain the majority of their sales revenue. On the other hand, in a marketplace, vendors may pay a commission or listing fee to the marketplace, impacting their overall revenue. However, nowadays, many marketplaces offer their platform with very affordable fees, proving to be extremely beneficial for e-commerce businesses. With a very low commission, they can generate sales to a much larger group of buyers.

Food for thought... Do marketplaces exclusively sell to the private sector? Can an e-commerce business, which is part of an online marketplace, also sell to the public sector?

Currently, there is an incredible variety of e-commerce businesses and marketplaces. Almost every business has an e-commerce platform (and those who don't should consider having one) and can sell to a large number of people that, without an e-commerce presence, they wouldn't be able to reach. Similarly, marketplaces are very much in vogue, with Amazon leading the global e-commerce scene. Whether big or small, if you have an e-commerce business, it's always beneficial to join a marketplace that connects you with a larger pool of buyers, allowing you to sell your products and services to people worldwide just a click away.

The majority of marketplaces cater to the private sector. However, there are very few marketplaces (like us!) that provide a platform for buying and selling products for the public sector, connecting these small businesses looking to digitize and increase sales with the largest global consumers – governments.

If you're an e-commerce business (or know of any business) looking to start generating more sales, we invite you to join our marketplace and start selling to governments. And if you're part of the government, what are you waiting for to redirect your purchases in an easy and straightforward way to support small businesses?

This blog was written by Gisela Montes, GovTech Community Lead at Glass.