Convertible Notes and Startup Funding
February 12, 2025
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In the previous article, we have studied about how modern start-ups have created a new form of a business model called the aggregator business model. There are several companies such as Uber and Airbnb which have been using the aggregator model successfully.
However, there is another business model which has been successfully used by even bigger firms. This model is known as the marketplace business model. It has been used by multi-billion-dollar companies such as Amazon and eBay.
In this article, we will understand what the marketplace business model is and what are the pros and cons of this business model.
Modern-day consumers use the internet extensively. They also use the internet to shop for a lot of products. This is because the internet allows them to make purchases from the convenience of their homes. This trend has been exacerbated by the recent coronavirus pandemic wherein people did not feel safe while visiting enclosed public spaces for shopping.
The marketplace business model is a virtual space where buyers and sellers can connect in order to buy and sell goods and services. The marketplace is the intermediary which adds value by facilitating this connection using a proprietary platform.
Generally, the marketplace does not own any inventories or play any role in the actual fulfillment of the order. Even though the marketplace does not participate in order fulfillment, it sets the ground rules which need to be followed while fulfilling the orders. For instance, the modes of payment, the delivery times, the refund policies, and other such important factors are decided by the online marketplace.
Marketplaces can be of several types.
The success of Amazon, eBay, and Walmart has attracted many competitors. As a result, the online market today is filled with marketplaces that do not offer much value to the customers. However, the future is going to be difficult for such a marketplace. As the current market is already saturated with several marketplaces, the future is likely to see some form of consolidation. Many marketplaces will be merged into bigger and more efficient marketplaces while several others will be simply shut down.
This is the reason that every marketplace startup must ensure that it is not a “me-too” company. If the start-up is serving a specific market niche and can provide unique value to the customers, it will continue to survive and thrive despite the high degree of external competition.
The bottom line is that the marketplace business model has been very successful in the past. However, due to its past success, this model has now become extremely common and hence has lost its competitive edge.
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