What is a Multi Vendor Marketplace? (And How to Launch One)

What do you think of when you hear "multi-vendor marketplace"? Maybe it's the horizontal marketplace giant, Amazon. You might think of Etsy, the marketplace for handcrafted goods. Your go-to marketplace is possibly Uber. Even though these companies target different customers and use cases, all of these examples are multi-vendor marketplaces.

In this blog, we are going to:

• Define a multi-vendor marketplace
• Explain why multi-vendor marketplaces are so popular
• Share different types of multi-vendor marketplaces
• And walk through how to build a marketplace yourself

What is a multi vendor marketplace?

A multi-vendor marketplace is not a new phenomenon. In fact, it may be one of the oldest forms of commerce, dating back to the bazaars of 3000 BC where vendors and sellers from all over came to one central location to sell their goods. They did this because by pulling many vendors together, marketplaces could aggregate much more demand than any single vendor was able to capture.

The online multi-vendor platforms of today serve the same purpose. Multi-vendor marketplaces allow multiple vendors to offer their products or services from the same storefront. The function of the marketplace is to aggregate demand for the sellers, curate the right products for the buyers, and ensure an exceptional marketplace shopping experience.

Why are multi vendor marketplaces so popular?

If it seems like everyone has some sort of marketplace, well, it's because most of them do. The biggest companies in the world have augmented their product catalogs with additional sellers or insulated their products with digital or service marketplaces. Likewise, the fastest-growing startups are using the platform model to scale rapidly.

Why are all types of companies, big and small, using the marketplace model? Because it works.

Some of the top reasons why the multi-seller model is so popular are:

• Multi-seller marketplaces allow you to be asset-light, which means you do not have to own inventory yourself
• Marketplaces require fewer employees since the marketplace sellers usually handle tasks like shipping and fulfillment
• As the marketplace grows, it finds a flywheel effect which is hard to slow down
• Ultimately, increased product depth increases traffic to your site, which increases sales and revenues
  

How is a multi vendor marketplace different than an ecommerce store?

Multi-vendor marketplaces may look like a traditional ecommerce storefront to the buyer (and much of that is by design), but behind the scenes, they are wildly different.

Here are some of the significant differences between a multi-vendor marketplace and a traditional ecommerce store.

Buying Experience: Marketplaces have to offer the same exceptional buying experience expected of a traditional ecommerce store but have a lot more logistical and communications requirements to get there.

Customer Service: While both marketplaces and traditional ecommerce stores handle customer service, marketplaces have to handle customer service for items that they do fulfill or hold inventory for themselves. This requires a lot more communication than a traditional ecommerce store.

Seller Experience: The marketplace seller experience is one glaring difference between a marketplace and an ecommerce store. An ecommerce store does not have a seller portal or vendor integrations because they are the sole vendor.

Payouts: Not only does a marketplace platform need to accept money from buyers, they also need to send money out to vendors. This payouts requirement adds additional regulations and tax implications around marketplace operations.

Seller SLAs: Marketplaces need to ensure sellers have everything they need to succeed on their multi-vendor platform, but they must also ensure sellers meet their SLAs. Ultimately, the reputation of the marketplace is on the line if a seller doesn't meet the marketplace standards.

Promotes Transactions Between Parties: A multi-vendor marketplace is an aggregator of supply and demand. They promote transactions between multiple parties on their sites. An ecommerce store solely promotes transactions between themselves and their buyers.

Fulfillment of Products/Services: A multi-vendor marketplace does not typically fulfill products or services themselves; instead, the marketplace sellers complete that task. A traditional ecommerce store does its own fulfillment.

Holding Inventory: Marketplaces rely on their sellers to warehouse their own inventory and do not typically store the products listed on their site. Many ecommerce stores do hold their own inventory, although some use a dropshipping model.

The differences between an ecommerce store and a multi-vendor marketplace are important to note if you are looking to build your own multi-vendor marketplace website.

Multi vendor marketplace examples

As mentioned at the beginning of this article, multi-vendor marketplaces take many forms. When you think of multi-vendor marketplaces, you may think of some of the biggest players in the space: Amazon, Uber, Etsy. But the fact is that marketplaces are all around us, focusing on different buying experiences and curated products/services.

Here is a rundown of some types of multi-vendor marketplaces with examples:

Product Marketplace

Product marketplaces aggregate vendors to sell physical goods on their site. Shipping and logistics are critical in product marketplaces. Some examples of product marketplaces are Amazon, StockX, and Faire.

Service Marketplace

A service marketplace connects a buyer to professional service offerings. Reviews are essential in service marketplaces. Some examples of service marketplaces are Upwork, Rover, and Taskrabbit.  

Digital Marketplace

Digital marketplaces offer digital products instead of physical ones. These products are often "shipped" via email, direct download, or saved to your application. Some examples of digital product marketplaces are Apple's App Store, the Google Play store, and NFT marketplaces.

Rental Marketplace

There are multitudes of rental marketplaces. You can rent anything from homes to cars to yachts. In rental marketplaces, communications tools that connect renters and rentees are often paramount. Some examples of rental marketplaces include Airbnb, Turo, and RVshare.

Hyperlocal Marketplace

A hyperlocal marketplace is one that only focuses on a small area. They may only be available in a local market or can also be geographically constrained versions of larger platforms like DoorDash or Yelp.

How do you create a multi vendor marketplace?

There are a few common approaches businesses consider when looking to launch a marketplace. The first question one typically needs to answer is the buy vs build analysis. Meaning, should they build the marketplace software from scratch, bolt together various solutions, or buy a pre-built marketplace platform 

Build a custom multi-vendor marketplace

While this option may seem like a simple solution, there are numerous considerations to building a custom multi-vendor marketplace. First, you’ll need to hire staff or contractors to build the system to launch the marketplace. And then, once built, you’ll need personnel to maintain it and train your vendors on how to use the system. As a solution, it’s expensive (we're talking millions of dollars), slow to create, and cumbersome to maintain.

Add multi-vendor apps to an ecommerce platform

Many online sellers use an ecommerce system to sell products, so it would make sense to build a multi-vendor platform there. However, it’s not that straightforward. As we mentioned earlier, ecommerce platforms were not built for multi-vendor transactions. If you build on top of an ecommerce platform, you will hit scaling limits even with bolt-on multi-vendor apps.  

Scale on a multi-vendor marketplace platform

The final option to launch a multi-vendor marketplace is to invest in a platform designed specifically for this purpose. Launching with a multi-vendor marketplace platform will allow you more flexibility, security, and scalability than the other two options. Multi-vendor marketplace platforms were designed for businesses working with multiple sellers and include marketplace features like multi-vendor checkout, unlimited warehouses, and payouts out-of-the-box. Instead of reinventing the wheel with a custom build or backing into a marketplace on top of an ecommerce platform, use a multi-vendor marketplace platform like Nautical Commerce to get your multi-seller platform up and running in days.

Conclusion

The multi-vendor marketplace model will only grow as ecommerce becomes more distributed. If you’re considering launching a multi-vendor marketplace or simply evolving your current selling strategy to include additional vendors, weigh your marketplace building options. Ensure your marketplace technology can scale with you as you grow.

Interested in learning more about how to launch a marketplace? Check out Marketplace Bootcamp — a free course to help you launch your marketplace dreams into reality.