E-commerce

Marketplaces are e-commerce platforms where multiple sellers offer products or services to buyers. Unlike a traditional online store where a single business sells its own products, a marketplace connects various independent sellers with customers, facilitating transactions without holding inventory itself.

The marketplace allows sellers to list their products so buyers can browse and purchase. Customers can browse different sellers, compare prices, and make purchases all on one platform. Thus the e-commerce marketplace enables payments processing too. The marketplace can also provide logistics (shipping and fulfillment), customer support, and dispute resolution. 

There are four main types of marketplaces. 

• Product Marketplaces – users buy physical goods. Representative platforms: Amazon, eBay and AliExpress. 
• Service Marketplaces – freelancers (Gig workers and creators) and professionals can offer their services. Representative platforms: Upwork, Fiverr and TaskRabbit. 
• Rental Marketplaces – users can rent properties, vehicles, tools and equipment. Representative platforms: Airbnb and Turo. 
• Customer-to-customer (C2C) Marketplaces – individuals can sell to each other. Representative platforms: Facebook Marketplace or Depop.

The commercial benefits of e-commerce marketplaces are manifold. They took on heightened importance during the pandemic years when physical, brick-and-mortar stores were shut down, and they were forced to open up digital channels to sell their wares. It’s very unusual today to find any seller without an online presence, and often that’s facilitated by marketplaces. Additionally, there’s the economic efficiencies of reaching a wider audience with a lower marketing spend.

For buyers, they get more options, price and product comparisons, and streamlined purchase and payment flow.  

The e-commerce marketplace continues to experience substantial growth. The marketplace revenue model is tried and true: revenue from commissions, subscription fees and advertising. It’s simply a win, win, win value proposition connecting sellers with buyers at little cost, without the need for their own website or infrastructure.

Brand aggregators acquire, scale and manage multiple e-commerce brands, often focusing on selling through marketplaces like Amazon and Shopify. Instead of building online brands from scratch, aggregators will acquire existing e-commerce names, optimize their operations, and scale them, leveraging their prodigious marketing resources, supply chain management systems, and global footprint.

Simply put, brand aggregators work by identifying promising e-commerce brands with strong sales, positive name recognition, expansive online presence, and loyal customers. Once identified, they acquire the brand, offering sellers a premium market valuation with performance based incentives. Post-acquisition, brand aggregators apply their expertise in marketing, logistics and global distribution to improve the acquired e-commerce brand’s performance. Finally, they expose and push the brand into new channels, oftentimes this means new marketplaces, and  sometimes, even brick-and-mortar. Representative brand aggregators: Thrasio, Perch, Heroes and Heyday. 

Brand aggregators are a relatively new online commerce phenomenon, at least in terms of their proliferation. For small e-commerce brands they offer unprecedented market liquidity which can lead to lucrative exits. Brand aggregators’ very existence relies on M&A activity, thus they’re capital intensive operations that require frequent capital markets activity to raise acquisition financing. 

Conversational commerce (c-commerce) is the use of chat, messaging apps, voice assistants and AI driven conversations to assist and guide customers through online shopping. It essentially blends shopping with real-time conversations, making the buying process more personalized and interactive. 

Brands will use messaging apps and chatbots such as WhatsApp, Facebook Messenger, or Instagram DMs on their websites to help customers. Automated systems like ChatGPT powered chatbots, Siri and Google Assistant, can help answer questions, recommend products, and assist in purchases. Some businesses use human agents for personalized assistance via chat or voice. Alexa allows customers to shop using voice commands. 

There is also social commerce integration, where brands sell directly within Instagram, Facebook or TikTok chats making it easy for customers to buy without leaving the conversation. 

Examples of conversational commerce in action: 

• A chatbot on an ecommerce site helping a customer find the right sweater size

• WhatsApp business chat guiding a shopper through a custom order

• Voice assistant, like Alexa, ordering groceries with a voice commence, 

• Brand using Instagram DMs to process orders and answer product questions. 

Benefits of c-commerce are that it offers a personalized shopping experience with real time recommendations based on the customer’s needs and preferences, it allows for faster customer support (customers are more likely to buy when they get immediate help), and it is super convenient for shoppers. Shoppers can browse, ask questions and buy without switching apps or platforms.  

The third-party (3P) seller business model is denoted by an independent business or individual selling products on a marketplace such as Amazon, Walmart or eBay, rather than the marketplace itself selling the products. The third-party seller creates a product listing on the marketplace, a customer will purchase and pay for the product through the marketplace, and either the seller will ship the product directly (fulfilled by merchant, FBM) to the purchaser, or it will use the marketplace’s own logistics services. When the marketplace processes the transaction, it deducts all fees and taxes before remitting the remaining monies to the seller. The value proposition to the seller consists of access to the platform, and the marketplace’s customers, logistics, payments processing, and tax collection.

An example of a 3P seller is a private label brand, where the seller creates their own branded products and sells them exclusively online, instead of manufacturing and distributing the items themselves. Private label sellers will work with third-party manufacturers to produce custom products under their own brand name, and will primarily focus on branding, marketing and product differentiation to make their item “pop” on a competitive marketplace. A specific use case would be when a seller finds a high demand product such as a reusable water bottle, and works with a manufacturer to produce them with their custom logo and packaging. The 3P seller will then sell them under their brand name on Amazon, Shopify or Walmart Marketplace, and use influencer marketing and ads to drive sales. They could also enroll in Fulfilled by Amazon (FBA) to handle logistics and offer Prime shipping.

Another example of 3P selling is in retail arbitrage, where sellers buy discounted products from brick and mortar stores such as Walmart, Target or clearance sales, and resell them online for a profit. These sellers look for price discrepancies between physical stores and e-commerce platforms. An arbitrage seller in action would acquire an item in a clearance sale for half price, then sell the item on a different e-commerce marketplace at full price, profiting off of the price differential.

3P wholesale arbitrageurs will buy large quantities of products directly from manufacturers or distributors and resell them at a markup. This model works well for sellers who can negotiate bulk discounts and maintain high sales volume. 

The difference between the 1P (first party seller) and 3P business model is that in the 1P, the brand, or manufacturer sells directly to the marketplace and the marketplace owns the inventory and resells it. 3P is direct to the consumer, wherein the seller maintains control over pricing and inventory. 

Advantages of being a 3P seller are higher profit margins, scalability, and control over product. 

3P is a dominant sales model in e-commerce.

Headless commerce is an e-commerce architecture where the front-end (customer facing websites, mobile apps, social media or IoT devices) is separated from the back-end (commerce functionality, like payments, inventory and checkout). This allows businesses to customize the user experience without being tied to a specific platform’s limitations. Headless commerce relies on APIs to connect the front-end to the back-end.

Some major differences between traditional e-commerce and headless commerce include the user experience customization; traditional e-commerce has limited customization due to rigid front-end and back-end coupling while headless commerce is highly customizable with flexible front-end integration. Another difference is that traditional e-commerce lacks the same speed and capacity due to the “bulky” nature of a standalone platform. Headless commerce has a lightweight and decoupled architecture, allowing for speed and optimization. 

Some examples of headless commerce include Shopify, where brands will use it as their back-end while custom building a front-end with a company like React that offers open source interfaces in individual components. Another example would be a company that sells through a website, mobile app and smart device, that are all powered by the same back-end. 

Headless commerce is ideal for brands that need flexibility, speed and a highly personalized shopping experience without platform restrictions.

Omni-channel commerce is a retail strategy that provides a seamless, unified and integrated shopping experience across multiple sales channels, both online and offline. It ensures that customers can move between different platforms (website, mobile app, physical store, social media ect.) without disruptions. 

With omni-channel, customers are able to start shopping on one platform, a mobile app for example, and then complete the purchase on another, a physical store. Inventory, payments and customer data are synchronized across all channels to create an integrated system, allowing for multiple touch points where businesses can engage with customers through websites, apps, social media, email, SMS and in-store interactions.

Some examples of omni-channel commerce in action are when a customer browses a product online, they can check the reviews on a mobile app and then buy it in store. Another example is when a retailer will offer “Buy Online, Pick Up In Store” (BOPIS), or a shopper will abandon their cart on a website but will get a follow up offer via email or SMS. A popular, up-and-coming example is a clothing brand that integrates Instagram or Pinterest shopping, allowing users to buy a product directly from the posts.

Benefits of omni-channel commerce are better customer experience, a consistent and smooth interaction with customers across all platforms, increased sales, a higher likelihood of transacting because of multiple purchasing options, stronger brand loyalty, and optimized inventory management with real time tracking to reduce stock issues. 

Omni-channel commerce ensures convenience, flexibility and personalization for customers and increases sales capture for merchants. It’s a fairly standard model these days, largely cemented by the need for multiple channels during the pandemic-period lock down of brick-and-mortar. An “all channel” marketing and point-of-sale solution has become the baseline set-up for SMBSs.

Cross-border pay-ins refer to international payment transactions where customers from one country pay businesses in another country. These transactions involve multiple currencies, payment methods and regulatory considerations, and of course, represent another facet of e-commerce.

The business model is relatively simple, but there are a few moving pieces. Consumers will make a payment to purchase goods or services from an international business through an online channel. The payment processor will then convert the payment amount at the current exchange rate. The payment is then processed through a bank, payment gateway or fintech service, ensuring base-level compliance like anti-money laundering (AML) and know your customer (KYC). After deductions for processing fees and currency exchange, the funds are then settled into the merchant’s account.

A major challenge for cross-border pay-ins is the FX conversion, whose volatility can impact both the buyer and seller. Payment method preferences are another issue: different countries favor different methods of payment (e.g., Alipay in China, PayPal in the US, UPI in India). Each country also has their own financial rules that require businesses to adhere to local and international regulations, which can create friction in regulatory compliance. There may also be payment processing delays, since international transactions sometimes take longer due to multiple intermediaries. 

Solutions for cross-border pay-ins include payment gateways, where providers like Stripe, PayPal, Adyen and Checkout.com support multi-currency payments. There is also local payment processing, where some businesses set up local bank accounts in different countries to reduce fees. Additionally, there are options for blockchain and crypto payments, especially stablecoins, that offer faster and cheaper international transactions.

For merchants with international buyers, e-commerce platforms with pay-in integration facilitate expansion into new geographic markets, help attract more customers, and can provide a localized shopping experience without major friction.

Fulfillment is the process of storing, picking, packing and shipping products when a customer places an order through an e-commerce platform or marketplace. It ensures that the product moves from the seller’s inventory to the buyer’s hands efficiently.

Steps in the fulfillment process:

• Order placement: customer places an order online
• Order processing: the platform verifies payment and stock availability
• Picking: product is retrieved from storage in a warehouse or fulfillment center
• Packing: item is securely packaged, often with branding or protective packaging
• Shipping: package is handed to a carrier (FedEx, UPS, DHL, etc.) for delivery
• Delivery & tracking: customer receives the order and tracking updates
• Returns: if a return is initiated, the product is sent back and restocked

Different types of fulfillment methods/models:

• Self-fulfillment: the merchant handles storage, packing and shipping itself
• Third-party fulfillment (3PL): a fulfillment company like ShipBob, Amazon FBA, or DHL Fulfillment manages logistics
• Dropshipping: the merchant doesn’t store inventory so the supplier ships directly to the customer
• Hybrid fulfillment: a mix of self-fulfillment and outsourcing for flexibility

Well organized fulfillment is important for scalability, especially when it involves automation. The ability to outsource logistics creates efficiencies and cost savings for merchants. Fulfillment is a critical part of the e-commerce customer journey, ensuring smooth order processing, fast deliveries and a seamless shopping experience.

Negative fulfillment is the reverse logistics process which occurs when a customer needs to return a product. Merchants must manage the incoming returns, process refunds, and restock items when possible. 

Process of a return:

• Customer will initiate a return: the buyer requests a return through the website, marketplace or customer service
• Return authorization: the merchant approves the return, and generates a return shipping label
• Product is shipped back: the customer will send the item back using a carrier (UPS, FedEx, etc.) 
• Inspection and processing: the returned item is checked for damage, restocked or discarded if unsellable
• Refund or exchange issues: the customer receives a refund, store credit or replacement product

Major challenges of negative fulfillment are return shipping costs (merchants often have to cover the return shipping which adds expenses), restocking and waste management (some items can’t be resold leading to  inventory losses), fraudulent returns (buyers misuse return policies e.g., “wardrobing – buying, using then returning an item), and slow processing. Delays in successfully managing returns can frustrate customers and affect brand reputation.

Some solutions to combat these challenges include clear return policies (merchants will set fair but strict guidelines to reduce misuse), automated returns management tools (like Returnly, Loop Returns or Happy Returns) to simplify processing. Merchants can also use localized return centers, where they can partner with regional warehouses to speed up handling, and reduce shipping costs. There are also resale and refurbishing programs, where brands can resell returned items at discounts, or refurbish them for resale.

Efficient returns matter. A smooth negative fulfillment process improves customer trust, brand reputation and long term loyalty.