Marketplace Platform: Explanation, Examples, and Use Cases

Nicole Kahansky

Contributors:

What is a marketplace platform?

A marketplace platform is the software that underpins a marketplace. Its job is to be the technical foundation on which a marketplace is built and provide operators with the infrastructure for product listings, checkout, accounting, shipping, and logistics.

While marketplace platforms refer to pre-built, configurable tools, they aren’t the only way to launch a marketplace. It’s also possible to build a marketplace from scratch or cobble together a patchwork of existing applications.

Before diving further into this article, take note of one important distinction: A marketplace in and of itself is often referred to as a platform. But this article refers to “marketplace platform” as the platform on which you build a marketplace business.

Marketplace platforms vs. ecommerce platforms: key differences

New marketplace entrepreneurs often ask if they can build a marketplace on a traditional ecommerce platform like Shopify. The short answer is yes, but it won’t be easy.

Platforms like Shopify are built for one seller. Ecommerce platforms are very efficient for single retailers with complete control over their product catalog, manufacturing, shipping, and logistics. However, they cannot coordinate multiple sellers, a critical functionality for marketplace operators. Turning a Shopify-like platform into a marketplace is like turning a motorboat into a cruise ship. It requires an incredible amount of technical development and customization.

In the Marketplace Bootcamp lesson on technology, Bhavin Shah, the CTO of Float, identified a critical distinction between ecommerce and marketplace technology:

Marketplace technology isn’t just for you, it’s also for your sellers.

Marketplace platform vs. ecommerce platform

Core features of a marketplace platform

Marketplace platforms must facilitate all interactions buyers have with the tens, hundreds, or thousands of sellers on their website. Since marketplace operators sit in the middle of the transaction, marketplace platforms must be purpose-built to support the following:

The seller experience: Seller onboarding, product catalog management, order notifications, shipping communications, a frictionless selling experience
Multi-seller accounting and fintech: Multi-seller checkout, preferred payment methods, seller payouts, commissions, taxes, bookkeeping
Multi-seller shipping and logistics: Warehouse and fulfillment triggers, shipping notifications, buyer communications, application integrations, returns

Types of marketplace platforms

Not all marketplace platforms work the same way. Now that you understand what a marketplace platform is let’s explore the differences between types of platforms.

Full marketplace platforms

A full marketplace platform orchestrates all aspects of multi-vendor buying, selling, and delivery. Think of it as a central cockpit for your marketplace's operations.

When you’re learning about full marketplace platforms, you’ll likely come across the terms “low code” solutions, “open API” architecture, and “headless” solutions.

Low code marketplace platforms

Low code refers to software that requires minimal coding to adopt. These platforms are “opinionated,” meaning they are based on best practices and contain features common to all marketplaces. They tend to be more friendly for users who don’t want the hassle of custom coding or developer intervention.

API marketplace infrastructure

Full marketplace platforms can be designed with pre-built connectors for third-party software, also known as APIs. Most marketplace platforms need to connect with software for product information management, customer relationship management, warehouse management, etc. APIs give your marketplace platform the ability and flexibility to talk to the other software.

Headless marketplace software

“Headless” solutions refer to software that separates the “head” from the “body.” The “head” is the frontend presentation layer, like a desktop website or mobile app. The “body” is the operational backend, the interface where you manage things like transactions and vendor listings.

Headless solutions allow businesses to create a custom presentation layer while taking advantage of the platform’s pre-built backend functionality. They’re a great option for deploying changes more rapidly, as you can make changes to the frontend without impacting the backend.

🔵 For more common marketplace terms, refer to Nautical’s Glossary of Terms 🔵

Partial marketplace platforms

A partial marketplace platform refers to a marketplace built on top of an existing ecommerce platform. An ecommerce platform will have functionality for single-seller businesses but can be adapted into a marketplace by bolting on multi-vendor software.

The pro of a partial platform is that if you already have an ecommerce business, you don’t need to rip everything out to try augmenting your business with a marketplace.

The cons are that:

You still need to bolt multiple applications together — resulting in a more rigid and limited marketplace infrastructure.
You have to create all integrations and update integrations as apps change

Marketplace platform cloud service models

Cloud service models provide different levels of control over marketplace infrastructure, business requirements, and IT resources. Understanding the differences between cloud service models is important because you need to know what aspects of cloud computing you’ll be responsible for vs. your marketplace platform vendor.

Source: Marketplace Best Practices, Tom McFadyen

Infrastructure as a service (IaaS) marketplaces

IaaS providers allow you to rent their resources, eliminating the need to manage your marketplace’s technical infrastructure. The main benefit of IaaS is that you don’t have to worry about server discs and firewalls. With IaaS, you must still manage your operating system, APIs, applications, and data.

Who's it for? Businesses that need complete control over their infrastructure.

Platform as a service (PaaS) marketplaces

PaaS providers manage everything but applications and data. This means you can still customize your applications without worrying about maintaining hardware, the operating system, or technical infrastructure.

Who’s it for? Businesses that want to streamline application development.

Software as a service (SaaS) marketplaces

SaaS is entirely plug-and-play, and is a very common model for marketplace platforms. SaaS providers manage everything, including applications and data. Customization, features, and extensibility are limited, but implementation is instant.

Who’s it for? Businesses that want ready-to-use applications with minimal management.

When to use a marketplace platform

A marketplace platform might not be the approach for every business, but it is the best approach for most. Below are some situations that call for a marketplace platform.

Testing an MVP for marketplace validation

Are you 100% confident your marketplace has legs? Getting your marketplace into the hands of users will help you validate that there’s a market for your marketplace — or send you back to the drawing board, like Olivia Mihaljevic, founder of LIVD.

In her episode of Operation Marketplace, she described the struggle of relinquishing her original vision.

“A really hard point to get to is where you see a little bit of traction, and you're like, okay, do I just need to keep grinding? It’s challenging because you spend a lot of effort and energy building something. And then you have to start again.”

The best way to test a marketplace without wasting effort, time, and expenses is to build a minimum viable product on a marketplace platform. A marketplace platform allows you to launch and validate, or pivot, quickly and without the exorbitant costs or resources of building.

How to build a marketplace MVP
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‍The marketplace you envision isn’t always the one you end up building. Before pouring extensive resources and time into your marketplace, start with a minimum viable product to validate the idea. Read more

Limited technical support

Whether or not you have a technical team will impact the marketplace technology you choose. If your technology and technical know-how are mismatched, it will result in a lot of frustration. No one knows this better than Chamfr’s founder Julie Schulte. In Julie’s episode of Operation Marketplace, she described the importance of technical help as a non-technical founder:

“[Tech] is like trying to speak the same language when you're from completely different ends. Tech is a language, and it's a communication style. The whole agile process is something to be learned in and of itself. So, bless [our marketplace developers’] souls.”

For start-up marketplaces that don’t have the budget to hire or contract technical staff, low-code marketplace platforms are a fantastic tool to get started. On top of providing a solution that doesn’t require coding expertise, they often provide technical support and a customer success contact with your purchase. These resources are not only well-versed in the platform but also in marketplace best practices.

Operation Marketplace: Taking on Technical Challenges as a Non-Technical Founder
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In this episode, Julie Schulte describes how she navigated the technical challenges as a non-technical founder. Listen to the podcast

Launching a new marketplace quickly

You could spend years building a marketplace. In that time, competitors could emerge, and the market could shift. Or, in the end, you could find out that the market isn’t responsive, and you need to start over.

A marketplace platform allows you to launch in as little as a few months. As Matthew Holder, founder of Loop Golf, said:

“Build something quickly, build it as cheaply as you can using out-of-the-box tools. Launch it, put it in people's hands, and have them tell you it sucks. Great. Why does it suck? The best position for me as a product manager and as an entrepreneur has always been either, this sucks, and it's horrible. Or this is really great.”

Pre-built marketplace platforms minimize time spent on coding, researching best practices, and mitigating bugs and glitches.

Operation Marketplace: Finding Product Market Fit
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In this episode, Matthew Holder discusses why launching — and failing — fast using off-the-shelf tools was critical to Loop Golf’s success. Listen to the podcast

Future needs are unclear

When you first set out to build a marketplace, you don’t know how the business will evolve and what functionality you need for the long term. Many founders who build vs. buy a marketplace end up needing to scrap it all and re-code as they get further along.

This is the situation that Hotels By Day founder, Yannis Moati, found himself in.

“We made the mistake of going custom when we didn't specifically understand what we wanted to do and what the traffic would be. […] We were limited at various places and forced to do a whole refactoring of our coding multiple times because we engineered for the most economical solution.”

Marketplace platforms help you avoid future re-coding because they don’t limit you. If you initially code the backend to do one thing, you’re also the one that needs to recode it when you want it to do another. A marketplace platform should have different options available to support you as you scale.

Pros of marketplace platforms

Easier adoption

Purchased marketplace platforms are more accessible for users than custom-built platforms. Forrester’s study showed that:

Sellers have a more challenging time using custom-built platforms: 70% of the sellers on self-built marketplaces found it challenging to adopt the platform during launch, compared to 46% of sellers on purchased marketplace platforms.
Internal marketplace teams are resistant to using custom-built platforms: 70% of respondents with self-built marketplaces found it challenging for their internal teams to adapt, compared to 47% of teams with third-party marketplace platforms.

Less expensive

At the outset, it might seem like custom building a marketplace is a cheaper option than using a marketplace platform. But in reality, the costs of software development, hosting, maintenance, and updates add up very quickly.

Forrester found respondents with self-built marketplaces were 43% more likely to spend $6 million or more on a custom build than those who purchased their marketplace platform from a vendor.

Marketplace platforms bundle these costs, minimizing unexpected expenses. When operators employ a marketplace platform, they can allocate more of their budget to the core business instead of technical infrastructure.

Built-in best practices

One of the sometimes overlooked benefits of a marketplace platform is that vendors conduct extensive market discovery to create a technology that follows best practices and market trends. Their software is built based on UX needs common to all marketplaces. They know what makes a marketplace tick and the features users want — and they’ve already developed them. So instead of spending your time on product development, you’re spending it designing an elegant website.

As a bonus, marketplace platforms often assign you a customer success manager who is well-versed in the technology.

Cons of a marketplace platform

Less customization

Marketplace platforms require you to work around an existing system, which may pose more obstacles to creating a unique experience.

As we said before, the backend of a marketplace usually doesn’t require customization because the backend requirements of all marketplaces are similar. Headless marketplace platforms give you the flexibility to customize the buying experience while providing an out-of-box operational backend.

What’s an example of a marketplace platform?

Nautical Commerce is an example of a marketplace platform. Nautical is purpose-built with functionality to support multi-vendor selling, buying, and operations.

Nautical is a full marketplace platform that uses a PaaS cloud service model, and offers both headless and non-headless options. Launching a marketplace on Nautical gives you a pre-built operational backend and allows you to control the customization level of the frontend experience without having to manage every aspect of your cloud infrastructure.

Since Nautical also has an open API, it connects to third-party software, allowing for more marketplace integrations and customizations. It can also connect with other apps to give your marketplace a custom-development feel — without custom-development problems.

Here are some examples of the functionality Nautical’s marketplace platform offers:

Seller platform

Seller dashboards: Sellers can view orders, manage products, and notify buyers of shipments all on one interface.
Seller contract management: Operators can manage seller agreements or service level agreements and keep records through Nautical’s marketplace platform.
Seller payouts: Nautical automatically calculates operator commissions and connects to reputable pay-out integrations out-of-the-box.
Seller systems: Nautical can integrate with seller systems, including product information management and shipping software using APIs.

Buyer platform

Multi-vendor checkout: Buyers can check out from multiple vendors in one transaction.
Product search: Nautical connects buyers to products via an intelligent keyword search.
Order updates: When a seller fulfills an order, Nautical automatically communicates shipment information to the buyer.

Operator platform

Product catalog management: Nautical can intelligently categorize thousands of product listings to ensure consistent product information across all sellers and integrate with product information management systems.
Accounting: Nautical can connect with fintech that manages payments, payouts, bookkeeping, and complex marketplace tax requirements.

Learn more about Nautical Commerce
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Nautical provides both the operational backend and the low-code storefront for your marketplace so you can focus your time and energy on growing your business. It’s a marketplace platform that’s best for founders looking to launch a new marketplace quickly without sacrificing the ability to scale in the future. Learn more

How to choose the best marketplace platform

Establish the type of marketplace you’re building

Are you offering digital goods? Physical goods? Services? B2B? Different marketplace platforms have different features that may fit one platform better than another.

For example, a B2B marketplace may require custom payment functions for credit checks, whereas a digital goods marketplace might only require basic payment methods. Let's dive deeper:

B2B marketplaces

B2B marketplaces often require more complex features like bulk ordering, tiered pricing, custom catalogs, and negotiated contracts to accommodate complex transactions.

Payment options such as invoicing, net terms, and multi-currency support are also often essential for business buyers to align with standard corporate accounting. Advanced vendor management tools, including performance tracking and compliance checks, are critical for maintaining trust and ensuring compliance.

Additionally, B2B platforms often need integrations with ERP, CRM, and supply chain systems to streamline operations.

B2C marketplaces

For those launching a B2C marketplace, you need to prioritize features that enhance the buyer experience to meet today’s buyers’ high expectations for ease of use and convenience.

Essential tools include user-friendly interfaces, personalized recommendations, and robust search and filtering to help consumers find products quickly. Integrated payment gateways for instant transactions and support for promotions, discounts, and loyalty programs are key for driving sales. B2C platforms also require efficient inventory and order management to handle large product catalogs.

Compared to B2B, B2C platforms focus more on convenience, speed, and consumer engagement.

Service marketplaces

Service marketplaces require platforms tailored to facilitating bookings and managing service providers.

Scheduling tools, real-time availability, and calendar integrations are important capabilities for a service marketplace platform. Flexible pricing models, such as hourly rates or tiered packages, accommodate various service types.

Unlike product marketplaces, service platforms need tools for managing provider qualifications, certifications, and compliance. Lastly, communication features, like in-app messaging or video calls, support buyer-provider interactions.

Digital goods marketplaces

Digital goods marketplaces call for platform features designed for the distribution of non-physical products. Secure digital delivery systems, such as instant downloads or license key generation, are essential. Flexible pricing options, including subscriptions, pay-per-download, and bundling, accommodate diverse monetization models. Digital rights management (DRM) tools protect intellectual property, while version control and updates ensure buyers receive the latest content.

In digital marketplaces, inventory management focuses on file storage and bandwidth rather than stock levels. Advanced search, categorization, and preview capabilities (e.g., demos or sample files) enhance discovery.

Identify your customization requirements

How flexible is the platform vs. how flexible are you? If you think you'll need a lot of customizations down the road, keep this in mind as you evaluate your marketplace platform options. As you review marketplace platforms, you want to ensure you’re launching with technology that can support the first version of your marketplace and future versions as it grows.

Consider what tools you need to integrate with

Your platform won’t be the only software you use. What other marketplace software will make up your technology stack? Determine if the platform can integrate with apps and third-party software or if you must develop custom integrations.

Keep in mind that many marketplaces need third-party integrations for:

Email marketing software
Payment software
Tax software
Fulfillment software
Customer support software
Product information management software
Inventory management software

Determine your marketplace software budget

Different platforms come with different price tags. Often, more expensive marketplace platforms come with more support and customization options.

Remember that building exposes you to hidden costs: integrations, bugs, and fixes, to name a few. A marketplace platform will give you a better picture of your financial commitment, helping you reduce the cost creep of building from scratch.

Keep your vision in mind

Is the vision for your marketplace aligned with what the marketplace platform offers? A marketplace might have all the bells and whistles, but what if it lacks the ad functionality your marketplace needs? Always refer back to your marketplace business plan to avoid losing sight of your priorities. This will help you stay clear on your needs and avoid the perils of keeping up with the Amazons.

The Ultimate Guide to Choosing the Best Multi-Vendor Marketplace Platform
Dive deeper into platform considerations. Read more →

Launching on a marketplace platform: Where to begin

When starting a marketplace, you don’t need to reinvent the wheel. Pre-built marketplace platforms come out-of-the-box with the technology to jump-start the launch of new marketplaces.

As the heart of a marketplace business, a marketplace platform supports a marketplace’s operating, buying, and selling experiences. Understanding the differences between full and partial platforms, cloud service models, and the costs and time of building vs. buying is critical to determining which software strategy is best for a business.

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