In a previous post, we explained the different types of marketplace business models. Another way of viewing marketplaces is by looking at them by type. Taking a structural perspective, here are 8 more ways to think about marketplaces:
- Generalist (also known as full-line) marketplaces offer a variety of goods and services. In essence they are shopping centers where consumers can find everything they need, be it cleaning supplies, sporting goods, furniture, or most other items that come to mind.
For examples of these marketplaces, just look at Alibaba, Amazon or eBay which are three of the largest global marketplaces.
- Vertical marketplaces, as the name implies, are focused on a specific area or niche. Unlike generalist marketplaces that need to cater to a variety of industries, vertical marketplaces are able to offer a greater depth of product as their sellers often have greater expertise. An example would be a seller of automotive parts for antique cars. A fun example of a company that functions this way is StockX; it focuses on selling authentic sneakers and, one would assume, its buyers are more sophisticated than the average Foot Locker sneaker buyer.
- Horizontal marketplaces are similar to generalist marketplaces in that they also offer a wide variety of goods and services. However, they differ because they have a secondary characteristic in common. In the case of Swap.com, the inventory is all second hand. The same could be said of sites like Poshmark that sells used women’s clothes.
- Homogeneous marketplaces are matching platforms where the supply is functionally the same regardless of the provider. The main benefit of this structure is that it reduces the cognitive load on buyers by streamlining the matchmaking process. Just look at Uber and Lyft—when you hail a ride, you’re getting a driver to take you from point A to B (there’s no functional difference between one driver/car and another … at least in theory!). In this case the make or model of the vehicle doesn’t matter as long as it fits your group and gets you to your destination.
- Heterogeneous marketplaces are platforms where each listing is unique. Unlike homogeneous marketplaces where supply is the same, heterogeneous marketplaces put a higher cognitive load on users because they require the user to evaluate multiple listings in order to find what works best for them. An example of this marketplace type is Airbnb, where users need to sift through listings and compare them in order to find the precise item that meets their needs.
- Root density marketplaces are characterized by the fact that each geographic market exists and grows independent of others and, consequently, benefits little from the success of other markets. For example, marketplaces such as DoorDash and TaskRabbit might be popular in metropolitan areas such as New York City and San Francisco, but that doesn’t help their success in San Diego or Houston. In order to be successful, these marketplaces need to have root density in each geography in order to survive in a given area.
- Global marketplaces are platforms where buyers and sellers are spread across long distances. Regardless of where a provider or listing is located, buyers and sellers can benefit from the freedom of choice and an expanded inventory. Airbnb, for example, falls under this category because travel is a global experience, and you can book a room in Nepal from Berkeley. Other marketplaces such as Upwork also fall under this umbrella because there’s plenty of work that can be done remotely in this day and age. By contrast, a dating site could never be a global marketplace because of the obvious logistics (unless you’re looking for a Russian bride).
- Hybrid marketplaces are properties owned by retailers that also host listings from third-party sellers. Take Amazon.com and Walmart, although they sell products directly to consumers, they’re also embracing the marketplace business model as it enables them to expand inventory and offer buyers more options. This model also benefits sellers because they can reach significantly larger audiences. In some cases, smaller sellers might already be competing against the marketplace operator, so it’s a “if you can’t be ‘em, join ‘em” kind of situation.
The visual below provides a sampling of marketplaces grouped by this taxonomy:
To learn more about how the marketplace business model can help improve your profitability, check out The Kahuna Blog. Simply click the button below!