With 59% of global online sales expected to be made through online marketplaces by 2027 and countless more interactions facilitated by platforms, it's clear that both models have solidified their roles in modern commerce. While both marketplaces and platforms offer unique opportunities for growth and revenue generation, choosing between them can fundamentally shape a business's strategy, user interactions and long-term trajectory.

However, the decision between adopting a marketplace model or a platform model isn't completely clear cut. Both models hold their own set of advantages and challenges. Understanding these differences isn't just about choosing a path – it's about obtaining a full picture of the capabilities and expectations of your business and the needs of your user base, and aligning these insights with the most suitable infrastructure for your business.

We'll cover the core characteristics of marketplaces and platforms, their operational dynamics and how to decide which model is best suited to serve your business.

What's in this article?

• What is a marketplace?
  
• Key characteristics of a marketplace
  
• What is a platform?
  
• Key characteristics of a platform
  
• What's the difference between a marketplace and a platform?
  
• How to choose between building a marketplace or a platform
  

What is a marketplace?

A marketplace is a digital platform or e-commerce hub where a diverse array of goods, services or digital content is bought, sold and exchanged. These platforms function as intermediary facilitators, bridging the gap between buyers and sellers. They allow for streamlined transaction processing and can provide a variety of tools to help manage and optimise these transactions.

Modern marketplaces can serve different types of commerce models depending on their design and target audience. This includes B2C (Business-to-Consumer), B2B (Business-to-Business), C2C (Consumer-to-Consumer) and P2P (Peer-to-Peer) models, each catering to the unique needs of their respective participants.

In a B2C model, businesses sell their products or services directly to the end consumer. On the other hand, a B2B model facilitates transactions between two businesses, such as manufacturers, wholesalers and retailers. The C2C model provides a platform for consumers to sell to other consumers, and is often used for second-hand or handmade goods. The P2P model allows individuals to exchange goods and services directly, which is usually facilitated through a decentralised platform.

Examples of such marketplace platforms include Amazon and eBay, which cater to both the B2C and C2C models. They offer a vast selection of products from a wide variety of sellers, giving consumers the freedom to choose based on their preferences. Alibaba is another marketplace platform, but it primarily focuses on the B2B model, providing a space for businesses around the globe to connect and trade with each other. Etsy is a unique marketplace in that it caters mainly to the C2C and B2B models, specialising in handmade and vintage items, as well as craft supplies.

Key characteristics of a marketplace

There are a number of traits that shape the ways in which buyers and sellers interact within marketplaces:

• Large variety of sellers and buyers
  This highlights the diversity inherent in a marketplace. Unlike a traditional online shop, which features products or services from a single provider, a marketplace is a digital meeting ground for numerous independent sellers and buyers. This variety allows for a wide selection of products and services, enabling buyers to compare and choose based on factors such as price, quality and seller ratings.

• Trust and transparency
  Marketplaces typically incorporate features to ensure trust and transparency between buyers and sellers. These might include systems for seller ratings and reviews, clear and comprehensive product information, and secure processes for transactions.

• Regulation and mediation
  The operator of the marketplace manages the platform, ensuring that transactions are completed effectively, mediating disputes between buyers and sellers, managing payments and often taking a commission on sales as remuneration for these services.

• Ease of use and accessibility
  Modern technology has made online marketplaces highly accessible and user-friendly. Buyers can browse and purchase goods from different sellers all in one place, while sellers can reach a wider customer base than they would be able to through a traditional brick-and-mortar shop.

• Data-driven insights
  Online marketplaces can gather large amounts of data on consumer behaviour, which can provide sellers with valuable insights and analytics to help them optimise their offerings and improve their sales strategies.

Each of these characteristics contributes to a marketplace's effectiveness and appeal, making it a significant component of the modern commercial landscape.

What is a platform?

A platform is a digital infrastructure or ecosystem that facilitates the interaction between multiple parties, often for the purpose of conducting business transactions. This could include the exchange of goods, services or information. The platform operator provides the underlying technology and sets the rules for how these interactions occur.

Platforms can take many forms and span various industries, but they are common in the retail, finance and technology sectors. Examples include e-commerce platforms such as Amazon, ride-sharing platforms such as Uber, or social media platforms such as Facebook. Each provides a digital environment where users – whether businesses or individuals – can interact, make transactions or both.

Unlike traditional business models that focus on delivering a specific product or service to the customer, platform businesses create value primarily by facilitating connections and interactions. For example, Uber doesn't own cars or employ drivers in the way that traditional taxi companies do. Instead, Uber connects independent drivers with people who need rides and takes a fee for facilitating the transaction.

At their core, platforms are multi-sided, meaning that they involve two or more user groups which provide each other with network benefits. The value of a platform increases as more users join – a phenomenon known as network effects. For instance, the more sellers there are on Amazon, the greater the variety of products, which attracts more buyers, which in turn attracts even more sellers.

Platforms have become a significant force in the global economy due to the scalability of their business model and their ability to tap into a vast digital user base. By reducing transaction costs and increasing efficiency, they have reshaped numerous markets and continue to drive innovation.

Key characteristics of a platform

When discussing platforms within the modern commerce environment, there are several key characteristics to consider:

• Network effects
  This term refers to the phenomenon in which the value of a service increases as more people use it. On a platform, as more users join, the benefits for all users increase. For instance, the more sellers there are on a platform, the more choices buyers have, which in turn attracts more sellers due to the increased buyer activity.

• Multi-sidedness
  Platforms are inherently multi-sided, meaning that they cater to two or more distinct user groups which contribute to and benefit from the network. For example, a ride-sharing platform caters to both drivers and riders, each providing value to the other.

• Facilitation of interactions
  Platforms don't just sell products or services; they also facilitate interactions between different user groups. These interactions could consist of transactions, communications or exchanges of information. The platform operator's role is to make these interactions as seamless and beneficial as possible for all parties involved.

• Value creation and capture
  Platforms create value through the connections that they facilitate. This could be economic value through transaction fees or social value through building communities. Platforms also capture value by charging for access to the network or by monetising the data generated on the platform.

• Scalability
  Due to their digital nature, platforms can scale quickly and efficiently. Generally, as the platform's user base grows, the cost of serving additional users decreases. This scalability is a key advantage of platform business models because it allows them to reach a global audience and, potentially, achieve rapid growth.

• Governance
  Platforms require rules and regulations to ensure that interactions are fair and beneficial for all user groups. These rules are set and enforced by the platform operator, who must balance the needs of all parties to maintain a healthy and thriving platform ecosystem.

What's the difference between a marketplace and a platform?

While the terms "marketplace" and "platform" are often used interchangeably in the context of modern commerce, they are not exactly the same. Both play integral roles in digital commerce, but their operational models, primary functions and objectives can vary.

Marketplace

A marketplace facilitates the buying and selling of goods or services. It serves as a digital venue where multiple independent sellers can list and sell their offerings to a diverse range of buyers. This model focuses on facilitating transactions, with the marketplace operator taking a commission from each sale. Essentially, a marketplace is the digital equivalent of a traditional in-person market.

One classic representation of a marketplace is eBay. Individual sellers and businesses list their products for sale on the marketplace, allowing buyers to browse these listings, compare prices and purchase goods. eBay facilitates these transactions and ensures a level of trust and security between buyers and sellers.

Platform

A platform, on the other hand, is a broader concept that goes beyond facilitating transactions. While it can also host transactions, a platform's primary function is to create an infrastructure or ecosystem that enables diverse forms of interactions and exchanges of value between multiple parties. These interactions can include the exchange of goods and services, but they can also involve sharing information, creating and sharing content, or any form of engagement that brings value to its users.

Facebook, for instance, is a platform that allows users to create profiles, share posts, like and comment on each other's posts, join groups and even sell goods via Facebook Marketplace. The range of interactions goes beyond only buying and selling, making Facebook more than just a marketplace.

Key differences

• Type of interaction
  The most significant difference lies in the type of interaction that they facilitate. Marketplaces are primarily transactional, facilitating buying and selling. Platforms, however, enable a wider range of interactions, from transactions to content-sharing, networking and more.

• Value creation
  Marketplaces create value by facilitating transactions between buyers and sellers. In contrast, platforms create value by enabling diverse forms of interaction and the exchange of value between users.

• Revenue model
  Marketplaces usually earn revenue through transaction fees or commissions. Meanwhile, although platforms can earn revenue from transaction fees (e.g. app stores), they often have diversified revenue streams which include advertising (e.g. Facebook), subscription fees (e.g. LinkedIn Premium) or in-app purchases (e.g. gaming platforms).

While marketplaces and platforms share similarities in facilitating online interactions, they are distinguished by their primary functions, the breadth of the interactions that they facilitate, and how they create and capture value. As digital commerce continues to evolve, these models may overlap and integrate even further, leading to hybrid forms that combine the best aspects of both.

How to choose whether to build a marketplace or a platform

Choosing between building a marketplace or a platform depends on the nature of the business, your goals for the business, the specific industry and the type of value that you want to provide. Here's a quick step-by-step guide to help businesses make this decision:

• Define your business model
  The first step is to clearly define your business model. What value do you provide and to whom? If your primary value lies in facilitating transactions between buyers and sellers, a marketplace model might be a better fit. If, on the other hand, your business aims to enable a wide range of interactions that go beyond transactions – such as content creation, social networking or data sharing – a platform model might be more suitable.

• Understand your target users
  Consider who your users are and what they want. What kind of interactions are they looking for? Are they primarily looking to buy or sell products or services? Or do they want a space to share content, learn, connect or collaborate? Understanding user needs can guide the choice between a marketplace and platform model.

• Analyse the competitive landscape
  Look at other businesses in your industry. What models are they using? Is there a gap in the market that your business can fill? For instance, if your industry is saturated with marketplaces but lacks platforms that offer broader functionality, building a platform might help you to differentiate your business.

• Consider your revenue model
  Marketplaces typically generate revenue by charging commissions on transactions, whereas platforms might have more diverse revenue streams, such as advertising, subscriptions or premium services. Consider what revenue model aligns best with your business strategy.

• Evaluate your resources
  Building a platform can often be more complex and resource-intensive than creating a marketplace due to the wider range of interactions and features involved. Evaluate your technical and financial resources, and consider whether you have the capabilities to build and manage a marketplace or a platform.

• Scalability and growth
  Platforms often have high scalability due to network effects, where each additional user adds value to the rest of the network. However, they may also require a critical mass of users in order to be effective. Marketplaces can be easier to start and monetise early on, but they may face more competition. Consider your growth strategy and which model aligns best with it.

It's important to remember that these models are not mutually exclusive. Many successful businesses employ a hybrid model, beginning as a marketplace and gradually adding platform features, or vice versa. For instance, Amazon started as an online marketplace but now also offers platform features, such as Amazon Web Services and Prime Video.

In the end, the choice between building a marketplace or a platform depends on your specific business strategy, resources and the value that you aim to provide to your users. It's a significant decision that can shape your business's trajectory, so it's crucial to consider it carefully.