The internet changed virtually every industry as well as business concepts. Early internet pioneers took offline concepts and created superior solutions through bringing them online. This is how normal trade and commerce evolved to e-commerce.

E-commerce can be found in many types. In this article I want to show the different forms of e-commerce and outline the differences.

Web shops

Web shops are the usual way to sell products or services online. A company owns products that are sold through their own website to customers. There are only two parties involved: seller & buyer. Examples are BestBuy.com, apple.com.

Marketplace

Marketplaces do not sell products/services themselves but provide a platform where sellers & buyers conduct transactions online. Examples for marketplaces are ebay, uber, fiverr, Airbnb. So when you buy a product through ebay.com you do not buy the product from ebay but from a seller on ebay. Similarly for uber: if you request a car, you do not buy the service from uber but from the driver. The sales agreement is formed between the seller and the buyer (not the marketplace), from a legal point of view. It is still the same concept as offline markets where you buy flowers or vegetables.

Marketplaces have multiple revenue streams. The most important one is commission (sellers or buyers pay a commission if a transaction is successful). Other revenue streams are listing fees (sellers pay for listing a service/product), promotion fees (seller runs a promotion on the platform) and advertising (banner or pop-up advertising).

The marketplace concept is attractive for nearly all industries. Prerequisites for a marketplace are standardized services / products that do not require a physical examination before the purchase and do not represent major investments (prices below a few thousand dollars). Not suitable for marketplaces are e.g. real estate or used cars.

Classifieds portals

Classifieds portals are the modern version of the classifieds section in newspapers and are very popular for real estate and used products as well as C2C. The big difference to marketplaces is that the transaction is offline. The sellers list their products/services on the portal and prospective buyers contact the seller. They conduct the transaction offline, e.g. after an examination of the product. Examples for classifieds portals are, Craigslist, OLX, Ebay Kleinanzeigen (Germany), Immobilienscout (Germany).

Classifieds portals create value for the sellers by generating leads – buyers find sellers and contact them. The portals business model is based on listing fees (sellers pay to list products) promotion fees (sellers promote their listings to be more prominent on the portal) and charging on a lead basis (e.g. sellers pay 1€ per lead – leads are counted as soon as a user clicks on the email or phone button).

Aggregators

In order to make it easier to compare prices across web shops and marketplaces a new e-commerce form was created, so called aggregators. These portals crawl the web and collect information on the same product from different web shops (e.g. the price for a new iPhone 6s on Amazon, ebay and bestbuy), hence, they aggregate information. These portals help users find the best price across different providers and link to the offerings directly from their website. When a user clicks on the provided link he/she is referred to the web shop where he/she can conduct the transaction. An example for an aggregator is e.g. idealo.de

Aggregators generate revenue through ‘affiliate’ deals. They charge web shops either for every click (cost per click) or for every purchase from a user that came through the aggregator (cost per conversion).

If you are interested in creating a marketplace or classifieds portal, read my step-by-step guide on how to start a marketplace.