Difference between Aggregator and Marketplace Business Models

In the previous articles, we have already studied the aggregator as well as the marketplace business models. These two types of business models have taken the start-up community by storm in recent years. Many start-ups which have become successful and have gone on to become unicorns are using some variants of this model in different industries.

From a student’s point of view, it is very important to understand the difference between these two models as well. They may appear to be quite similar to the average person. However, there are some subtle differences that make these models markedly distinct from each other. These important distinctions have been explained in the article below:

1. Branding: In the case of an aggregator, all the goods and services being sold on the website belong to the same brand. This means that if a customer books any property from Airbnb, they are still dealing with the Airbnb brand itself. This is not the case with an online marketplace.

   An online marketplace can be considered to be a representation of a real-life marketplace. Hence, just like a real-life marketplace, there are lots of brands that sell their products on the website. Even if the marketplace is a vertical marketplace i.e. it deals with only one category of goods, the marketplace will generally provide multiple brand options to the customer. It has been observed that aggregator websites generally specialize in a single industry whereas on the other hand marketplaces sell goods and services which cut across several industries.

2. Quality: The job of an aggregator is to provide a standardized quality experience to the user. The standardized quality of goods and services is the main reason why consumers choose aggregators in the first place. This may not be the case with an online marketplace. It is common for online marketplaces to have some quality standards in place. However, online marketplaces do not claim to sell products that have homogenous quality.

   By definition, the marketplace provides different types of sellers to sell products on the site. Hence, the quality levels maintained by each of these sellers can be quite different. Customers are aware of the fact that the product quality can vary drastically if they choose to buy different products from the same website.

3. Terms and Conditions: Consumers choose aggregators in order to get a uniform product experience. This means that they expect the terms and conditions to be similar across the entire website.

   For instance, if a customer books a cab from Uber, they expect the terms and conditions to be seen regardless of which individual cab driver provides the service to them.

   On the other hand, if the customer deals with a marketplace, they know that different types of sellers are selling products on the marketplace. Hence, the terms and conditions can be very different.

   For example, the terms and conditions for sale may be different when the customer purchases a laptop from Amazon than when the same customer purchases a book from Amazon. In some cases, the terms can conditions can vary even if the customer chooses different brands.

4. Price: Just like quality, the prices of all products being sold by the aggregator have to be the same. For instance, if a customer books an Uber Premium, they will be expected to pay the same price irrespective of which make and model car they actually get.

   The aggregator is the one that sets the price in an aggregator model. The prices set are binding upon the service providers in case they want to provide the service.

   On the other hand, marketplaces allow the service providers to select their prices within a certain price range. For instance, if a person wants to buy a laptop from Amazon, they could get multiple price quotes from different sellers for the same product. They can then choose a service provider depending upon other factors.

5. Revenue Models: The revenue models of aggregators can be very different from that of online marketplaces. Aggregators generally enter into an agreement with sellers wherein the price of the product or service is fixed beforehand. The aggregators then add their own mark-up on top of the fixed price in order to derive the final price. Hence, aggregators make money using a markup model.

   However, in the case of an online marketplace, the marketplace may charge a listing fee to the seller. Once the seller posts the product on the website, the marketplace may charge a commission. This commission is generally a fixed percentage of the selling price. The service provider has complete freedom to choose their selling price. However, they have to pay a commission based on that selling price.

The bottom line is that even though both online marketplaces and aggregators appear to be quite similar, the business models are very different. The key factors which make an online aggregator successful are very different from the ones which make an online marketplace more successful.

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