What is an Online Marketplace?

An online marketplace is a digital platform that connects buyers to multiple third-party sellers. Unlike traditional brick-and-mortar or ecommerce stores, online marketplaces do not own inventory. Instead, they provide a venue for sellers to offer products and services to potential customers. The marketplace operator typically earns revenue through commissions on sales or by charging fees for using their platform.

Building a successful online marketplace requires careful planning, a solid understanding of your target market, and a commitment to providing a high-quality user experience. With the right strategy in place, however, an online marketplace can provide a lucrative opportunity for startups, mid-market businesses, and enterprise businesses alike looking to launch or expand their business.

Below, you'll find more information on:

• How an online marketplace works
• Online marketplaces vs. traditional ecommerce website
• How to make money on online marketplaces
• Types of online marketplaces
• The best examples of online marketplaces
• The benefits of an online marketplace
• The challenges of running an online marketplace
• Building an online marketplace
• Online marketplace strategy
• Online marketplace trends
• FAQs about online marketplaces

How does an online marketplace work?

Online marketplaces connect buyers and sellers on a single platform. Sellers list their products or services, and buyers browse, compare, and make purchases from multiple sellers on one platform. 

The marketplace handles transactions, security, and sometimes logistics. There are several business models marketplace merchants can use to earn revenue, including through commissions, subscriptions, ads, or fulfillment services. 

Unlike traditional ecommerce stores, marketplaces don’t own inventory—they act as a middleman, making it easier for businesses to reach customers.

Online marketplaces vs traditional ecommerce websites

If you want to better understand how online marketplaces work, it can be helpful to first go through the key differences between traditional, first-party commerce and multi-vendor marketplaces:

Product assortment 

In first-party ecommerce, the business purchases inventory, stores it in their warehouses, and fulfills orders themselves.  Unsurprisingly, this limits the amount of products you can offer to buyers. With third-party sellers, on the other hand, it’s much easier to expand product assortment, as the sellers take on the heavy load of uploading and warehousing products and fulfilling orders. So online marketplace businesses can offer more assortment with less risk.

Data management

Businesses that own first-party ecommerce sites manage, enrich, and then upload all of the necessary data onto their online store. In a marketplace, sellers manage their own product data and upload it directly onto the marketplace operator's website.

Order fulfillment and support

In both first-party ecommerce and online marketplaces, the operator takes customer orders. However, in first-party, the business fulfills the orders and provides support for the products they ship. In a marketplace, third-party sellers fulfill the orders, and there's a collaboration between the host company and the sellers to provide support to the end customer.

Returns handling

Owners of traditional ecommerce businesses typically handle returns by taking them back to their warehouse. With a multi-vendor marketplace platform, third-party sellers take returned merchandise to their own warehouse, and there's usually collaboration between the host company and sellers to optimize the process.

How to make money on online marketplaces: marketplace business models

Online marketplaces make money through several avenues including commissions, subscriptions, ads, and fulfillment services. And you don’t need to choose just one. Many platforms combine these models to generate steady revenue while supporting sellers and buyers.

Commissions on sales

Marketplaces take a cut from each sale. The fee varies by platform. Amazon, for example, charges between 8% and 15% per sale. Etsy takes 6.5%. This model allows sellers to list products with no upfront cost, but it reduces their profits.

Subscription fees

Subscription fees can be for buyers, sellers, or both. Some marketplaces charge users a monthly or yearly fee. For example, Amazon offers a professional seller plan for $39.99 per month. Walmart Marketplace is free to join, but some sellers pay for extra tools. Some marketplaces charge buyers instead. Costco Next is a good example. Only Costco members can access deals from third-party brands on the platform. This model gives the marketplace steady income, even if sellers don’t make sales.

Advertising and promotions

Advertising is another great monetization lever. Marketplaces can sell ad space to sellers who want more visibility. One popular ad format for marketplaces is sponsored listings at the top of search results. Amazon, eBay, and Etsy all offer paid promotion options. Sellers bid on keywords, similar to Google Ads. More competition means higher ad costs.

Fulfillment services

Some marketplaces handle shipping and storage. Amazon FBA (Fulfillment by Amazon) is the biggest example. Sellers send inventory to Amazon’s warehouses. Amazon picks, packs, and ships orders. In return, sellers pay storage and fulfillment fees. This service gets products to customers faster but adds extra costs to sellers.

Types of online marketplaces 

While the definition of an online marketplace holds true across all online marketplace businesses, there are differences in what’s being sold, by whom and to whom. 

Physical goods marketplaces

Physical goods marketplaces offer tangible products for sale to consumers or other businesses. These marketplaces typically feature a wide range of product categories, allowing customers to shop for many different items in one place.

Service marketplaces

Service marketplaces connect individuals or businesses seeking services to providers on the platform. Some service marketplaces offer a wide range of services, while some are specific to a single type of job.

Digital marketplaces

Digital marketplaces facilitate the distribution and sale of digital goods and services, including software, ebooks, music, videos, online courses, etc. These platforms enable content creators and software developers to reach a broader audience and monetize their digital products. Unlike physical goods marketplaces, digital marketplaces don’t require logistics capabilities around warehousing or returns.

Horizontal online marketplaces

Horizontal marketplaces offer a diverse range of products or services across various industries and categories. A horizontal online marketplace caters to a broad audience and aims to fulfill different consumer needs, like an online department store.

Vertical online marketplaces

Vertical marketplaces focus on a specific industry, sector, or product category, offering a curated selection of goods or services within that niche. By specializing in a particular area, vertical marketplaces can provide much more targeted products and experiences to buyers.

B2B online marketplaces

Business-to-business (B2B) marketplaces facilitate buying and selling goods or services between — you guessed it — businesses. These platforms typically cater to organizational needs, such as procurement, supply chain management, and vendor sourcing.

B2C online marketplaces

Business-to-consumer (B2C) marketplaces facilitate transactions between businesses and individual consumers. These platforms offer a wide range of products from various sellers, with a focus on convenience, selection, and personal shopping experiences.

P2P online marketplaces

Peer-to-peer (P2P) marketplaces connect individuals who want to share products or services. P2P online marketplace users can act as both consumers and providers, offering or renting out their goods or services to others within the community.

The best examples of online marketplaces in 2025

Not all marketplaces operate the same way. Some focus on businesses, others serve individual shoppers. Here are examples of different online marketplaces and some lessons that marketplace operators can take from their success.

Amazon: scaling with logistics and seller tools

Why it works

Amazon’s success comes from logistics and fulfillment. Fulfillment by Amazon (FBA) makes it easy for sellers to store and ship products without handling inventory themselves. Its seller tools (advertising, data insights, Prime eligibility) make it attractive for businesses to join and scale.

Lesson for operators

Invest in seller support and infrastructure. A strong logistics network (or partnerships with third-party providers) can reduce friction for sellers and make your marketplace more competitive.

A challenge to watch out for

High seller fees and strict policies cause frustration. Many brands now seek alternatives to avoid reliance on Amazon.

Faire: Using buyer incentives to grow a B2B marketplace

Why it works

Faire solves cash flow problems for retailers by offering Net 60 payment terms—they can order products without paying upfront. Plus, the marketplace curates sellers, making sure brands fit the audience. This quality control builds trust with buyers.

Lesson for operators

Reduce buyer friction. Can you offer deferred payments, financing, or free trials? Lowering risk for buyers drives adoption and trust.

A challenge to watch out for

Limited seller spots create exclusivity but also frustrate brands trying to join. While this works for Faire, it wouldn’t necessarily work for everyone — especially marketplaces just starting out.  Balancing supply and demand is crucial.

StockX: Using verification to build trust in a P2P marketplace

Why it works

StockX introduced a verification step, making sure buyers get authentic products. It uses a bid/ask system, creating a stock-market-like experience where demand dictates price.

Lesson for operators

Trust is everything. Can you add verification, authentication, or buyer guarantees? Extra security justifies higher fees and attracts premium sellers.

A challenge to watch out for

Scaling verification is costly. If done manually, it slows transactions. If automated, mistakes can damage trust.

Turo: Leveraging underutilized assets to disrupt an industry

Why it works

Turo turned car ownership into an income stream, competing with rental companies. It provides insurance coverage, eliminating a major friction point for renters and owners.

Lesson for operators

Look for underused assets in your industry. Can you build a marketplace around resources that people own but rarely use? (E.g., storage spaces, high-end tools, luxury fashion.)

A challenge to watch out for

Regulatory challenges — Turo has faced legal battles in different cities over rental laws.

Upwork: Balancing supply and demand in a services marketplace

Why it works

Upwork lets businesses hire talent on demand. But it also ensures freelancers stay engaged with job recommendations and ratings. It charges both parties—freelancers pay commission fees, while businesses can pay for premium job postings.

Lesson for operators

Marketplaces need seller retention, not just buyer growth. Upwork invests in seller success with tools, education, and premium memberships. After all, if your sellers leave, buyers won’t stick around.

A challenge to watch out for

High freelancer fees have pushed top talent to seek direct clients outside the platform.

Etsy: Supporting niche sellers with community & discovery

Why it works

Etsy isn’t just a marketplace—it’s a community. It fosters connections through forums, seller events, and education. It helps small businesses get discovered through a mix of organic search and paid promotion.

Lesson for operators

A strong community can drive retention. Sellers are more loyal when they feel supported, connected, and empowered. Building education tools, seller spotlights, and forums keeps them engaged.

A challenge to watch out for

Changes to fees and policies have sparked seller protests. Transparency is key.

The benefits of an online marketplace

1. Better product assortment

Online marketplaces are able to offer more product assortment, with less risk, than first-party commerce businesses. Because they don’t own the inventory, they can carry a wider range of products, appealing to more buyers. For example, a dietary supplement distributor might add an organic produce supplier to their B2B marketplace to attract organic-only buyers.

2. Reduced overhead

‍In a first-party model, you need to purchase inventory from suppliers, and hold it until it sells. In an online marketplace, third-party sellers are on the hook for warehousing. At a time when there’s an acute shortage of warehouse space in the United States, an asset-light approach is particularly significant.

3. Increased agility

‍Another benefit of operating an online marketplace is the speed with which your product assortment can respond to emerging trends. Hosting a diverse set of third-party sellers on your marketplace allows you to more easily meet the ebb and flow of consumer demands.

4. Less vulnerability to disruptions

Supply chain challenges have come to the forefront in recent years, whether it’s upheaval in the Panama Canal or escalating global conflicts. With an online marketplace, you’re cushioning yourself against the impacts of these events with third-party sellers able to pick up the slack.

5. Network effects

Network effects mean that the value of the platform increases as more buyers and sellers join. More sellers attract more buyers with greater product variety and competitive pricing. At the same time, more buyers incentivize sellers to list more inventory, creating a cycle of growth. This self-reinforcing dynamic leads to higher liquidity, stronger customer retention, and a more defensible market position over time.

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Challenges of running an online marketplace

With an online marketplace, operators must attract sellers, maintain trust, and manage operations at scale. Unlike traditional ecommerce stores, a marketplace depends on third-party sellers, creating unique challenges. Here are some of the biggest obstacles:

Attracting and retaining sellers

A marketplace is only valuable if it has enough sellers offering the right products. Convincing businesses to join requires strong incentives. Things like lower fees, better support, or a larger customer base. Once sellers join, keeping them engaged is another challenge. If they don’t get enough sales, they may leave for another platform.

Balancing supply and demand

Too many sellers and not enough buyers lead to frustration. Too many buyers and not enough sellers limit product selection. A successful marketplace must grow both sides in tandem. This requires strategic marketing, pricing incentives, and data-driven decision-making.

Managing trust and preventing fraud

Buyers need to trust that they’ll receive high-quality products and reliable service. Sellers need to trust that they’ll get paid on time. Marketplaces must prevent fraud, fake reviews, and counterfeit products to build trust among buyers. To build trust with sellers, some marketplaces process payouts immediately after an order is fulfilled. Others set clear payout schedules, ensuring sellers receive their earnings on time. Features like fraud detection and chargeback protection also help prevent losses for sellers. Without strong policies and enforcement, trust erodes, and buyers and sellers leave.

Handling disputes and customer support

Who handles complaints when things go wrong? Buyers expect refunds, and sellers want protection against unfair claims. Marketplaces must create fair dispute resolution policies and invest in customer support teams. Failing to do this can lead to negative reviews and lost users.

🔵 For more on how to deal with marketplace disputes, check out Marketplace Bootcamp 🔵 

Managing payment and compliance risks

Processing transactions for multiple sellers adds financial and legal complexity. Marketplaces must handle taxes, payment delays, and chargebacks. You also need to consider the financial regulations required for your respective industry and region of operation. Failing to meet these standards can result in penalties or loss of payment processing capabilities.

Scaling logistics and fulfillment

Some marketplaces, like Amazon, offer fulfillment services to sellers. While this can ease the burden for sellers and give you more control over the process, it adds operational challenges—warehousing, shipping, and returns management. That being said, marketplaces that don’t handle fulfillment need to make sure that sellers meet shipping standards.

Competing with large platforms

Amazon, Walmart, and eBay dominate the marketplace space through both direct and third-party sales. Competing against them requires a clear value proposition. Operators must differentiate their marketplace through pricing, niche focus, seller support, or customer experience.

Building an online marketplace

Starting an online marketplace takes planning, technology, and a clear strategy. One of the biggest decisions is whether to build a custom platform or buy online marketplace software.

Some businesses choose to build from scratch. This gives full control but requires marketplace developers, ongoing maintenance, and high upfront costs. A custom build can take months or years before launch. Even after launch, updates, security, and scaling add complexity.

Using online marketplace software is a faster, more cost-effective option. An online marketplace builder provides the core features needed to run a marketplace. Seller onboarding, product listings, payments, and order management are all built out for you. Instead of spending time on development, founders can focus on growth.

Using online marketplace software to launch

Online marketplace software like Nautical Commerce gives founders the technology they need to launch their marketplace. It removes the need for complex development and allows businesses to expedite their launch.

Here’s what an online marketplace builder supports:

• Seller onboarding: Makes it easy for businesses to sign up, list products, and start selling.
• Multi-vendor management: Helps operators manage multiple sellers.
• Payments and payouts: Facilitates transactions, splitting payments between sellers and the platform.
• Order and inventory management: Provides tools to track orders, stock levels, and fulfillment.
• Customization: Lets businesses to brand their marketplace while using a proven backend.

With Nautical Commerce, founders don’t need to worry about building complex technology. They get a marketplace platform that’s ready to scale from day one. That lets them focus on growing their marketplace and attracting sellers and buyers.

Online marketplace strategy

A successful online marketplace needs a clear strategy to attract sellers, engage buyers, and drive growth. The best marketplaces remove friction, create trust, and provide value to both sides. Below are some things to consider as you develop your marketplace strategy. 

Define your niche and value proposition

Marketplaces succeed when they solve a real problem. Identify a niche or underserved market. Make it clear why sellers and buyers should choose your platform over competitors. That could be better pricing, stronger seller support, or industry-specific features. Whatever it is, your value proposition should be obvious.

Balance supply and demand

A marketplace needs both sellers and buyers. Too many sellers and not enough buyers lead to poor sales. Too many buyers and not enough products create frustration. Focus on growing both sides together through targeted outreach, incentives, and marketing.

Remove barriers for sellers and buyers

The easier it is to join and use your marketplace, the faster it will grow. Reduce onboarding friction for sellers with clear processes and automation. Make it easy for buyers to find, purchase, and receive products. Offer secure payments, strong policies, and support when needed.

Drive engagement and retention

Getting users to your marketplace is one thing—keeping them is another. Create seller tools, offer advertising opportunities, and provide insights to help them succeed. For buyers, personalized recommendations, loyalty programs, and fast shipping can improve retention.

Monetize and scale

Choose a revenue model that aligns with your marketplace’s value. Like we discussed earlier in this article. commissions, subscription fees, and advertising are common strategies. As the marketplace grows, continuously reinvest in marketing and customer experience.

Online marketplace trends

Online marketplace trends in 2025 reflect shifting buyer and seller expectations. Shoppers want seamless experiences, faster delivery, and more payment options. Here are the biggest online marketplace trends we see shaping 2025.

Focus on experience, not just transactions

The best marketplaces don’t just list products. They curate, personalize, and guide buyers. AI-powered recommendations, dynamic pricing, and loyalty programs create a better shopping experience. In fact, 45% of millennials prefer personalized product recommendations when shopping online. But, buyers aren’t the only user that merchants need to consider. Sellers also need easy onboarding, clear insights, and flexible fulfillment options for a better marketplace experience.

Omnichannel selling is the standard

Marketplaces can’t rely on one channel. Buyers shop through social media, search engines, and even in-store experiences. A strong marketplace strategy connects all these touchpoints so customers can discover and buy from anywhere. Notably, omnichannel retailers retain 90% more customers than single-channel stores. 

Trust and transparency win customers

Buyers want to know who they’re buying from. The proof is in the numbers — 87% of consumers say they would pay more for something from a trusted brand. Verified sellers, authenticated products, and clear return policies build confidence. Marketplaces that prioritize trust and seller accountability will stand out.

Flexible payments and financing attract more buyers

Buy now, pay later (BNPL) and instant payouts for sellers are becoming standard. Offering flexible payment options helps marketplaces compete and increases conversions. As of 2022, 20% of online merchants already had BNPL options. 

Sustainability and ethical commerce matter

Buyers care about where products come from and how they’re made. According to a study by Nielsen, 73%  of consumers would change their consumption habits to reduce impact on the environment. Marketplaces that highlight eco-friendly options, fair trade sourcing, and resale models will attract a growing audience.

Frequently asked questions about online marketplaces

How long does it take to launch an online marketplace?

It depends on whether you build or buy. A custom-built online marketplace can take months or even years. An online marketplace builder like Nautical Commerce lets you launch in weeks.

Do I need technical experience to run an online marketplace?

No. Online marketplace software handles the complex parts—payments, seller onboarding, and order management. You focus on strategy, growth, and operations. Podcast: Taking on Technical Challenges as a Non-Technical Founder with Julie Schulte

How do I attract sellers to my online marketplace?

Sellers want traffic, sales, and easy tools to manage their business. Offer competitive fees, strong marketing, and seller-friendly policies. Read more: How to Get Vendors to Join Your Multi-Vendor Marketplace

What’s the biggest challenge when scaling an online marketplace?

Balancing supply and demand. If there are too many sellers and not enough buyers, sellers leave. If there aren’t enough products, buyers go elsewhere. Growth requires managing both sides. Read more: The Top Challenge for Multi-Brand Businesses (and How to Solve it)

How do I prevent fraud and bad actors on my online marketplace?

Set clear policies. Verify sellers before they list products. Use fraud detection tools to monitor transactions. Strong customer support also helps resolve disputes before they become problems. Read more: 5 Ways to Vet Your Marketplace Vendors