If you’re shopping in person, you have the choice between different types of experiences: a retail store, a shopping center, a department store, or a trade show. Online shopping offers a similar variety of experiences, with two of the most common being online marketplaces and ecommerce platforms hosting independent online stores.

As an ecommerce business owner, figuring out the best way to cater to your target audience’s buying behaviors is critical. The right choice can mean healthy profit margins and brand growth, while the wrong one risks getting lost among the competition. 

Ecommerce platforms and online marketplaces both allow merchants to list products and make sales, but they use different methods and structures. In this guide, learn how these two business models work, their key differences, and how to use them to grow your business.

What is an ecommerce platform?

An ecommerce platform is a software system allowing merchants to build and run their own online stores. These platforms include tools for business tasks like marketing, inventory management, and payment processing. Popular ecommerce platforms like Shopify, WooCommerce, and Wix provide the underlying technology—from website builders to reporting and analytics tools—so entrepreneurs can create stores and sell directly to customers.

Ecommerce platforms are all-in-one systems for business owners and entrepreneurs who want control over how they sell products and services. Whether they’re using a dropshipping model, manufacturing their own goods, sourcing from a wholesaler, or scheduling service appointments, merchants can tailor the platform to fit their needs.

Here are a few of the main benefits and disadvantages of using an ecommerce platform:

Pros

• Control over your online business. When you create your own website, you are responsible for how your business and offerings are positioned to potential customers, as well as how you handle order fulfillment, marketing efforts, and customer service. You also gain direct access to customer data to inform business decisions.

• Development of brand identity. Running your own store with an ecommerce platform allows you to build and maintain a consistent brand identity, encouraging trust from customers and differentiating your business from competitors. You can design your online store to match your brand. 

• User-friendly tools for running a business. Ecommerce platforms offer easy access to tools to perform complicated tasks and automation flows. For example, Shopify Email is a built-in feature on the Shopify ecommerce platform that makes it easy to set up email marketing campaigns and custom workflows for automated email responses.

Cons

• Upfront investment. It can take an upfront investment of time and money to sign up for some ecommerce platforms, upload product or service listings, and market your offerings.

• Responsible for generating traffic. Once you create your own ecommerce store, it’s your job to bring potential customers to your site—whether through paid ads, content marketing via blogs, or partnerships with social media influencers to become brand ambassadors.

• Ongoing management demands. Running an online store requires active attention to managing inventory, running marketing campaigns, processing payments, and maintaining a high-quality user experience (UX) on your site.

What is a marketplace?

A marketplace, also known as an online marketplace or ecommerce marketplace, is a website connecting multiple sellers with a broad base of buyers and facilitates online transactions. Online marketplaces offer products and services from a selection of merchants, wholesalers, manufacturers, and service providers on the same website. This makes it easier for customers to compare prices and features across different sellers.

Marketplaces come in several forms: 

• Product-based sites like Amazon and AliExpress offer goods from hundreds of thousands of suppliers.

• Service marketplaces like TaskRabbit and Upwork connect customers with different service providers.

• Business-to-business (B2B) marketplaces sell supplies, raw materials, and bulk inventory directly to businesses.

• Consumer-to-consumer (C2C) marketplaces such as Etsy or Facebook Marketplace enable peer-to-peer sales between individual users.

Here are some of the pros and cons of listing your products or services on a marketplace platform:

Pros

• Built-in audience. Online marketplaces bring in browsers and shoppers, which can connect your business to new potential customers without the marketing efforts required to bring visitors to your own site.

• New sales channel opportunity. Ecommerce merchants can use marketplaces as additional sales channels on top of their online store. Since ecommerce platforms like Shopify allow marketplace integration, the process of synchronizing inventory and product data from your online store to third-party marketplaces is simplified.

• Easy to set up and manage. Since marketplaces handle the buying and selling process on their platforms, they’re responsible for handling payment processing. Some marketplaces even handle inventory management and order fulfillment for sellers.

Cons

• Limited control. The marketplace platform model offers merchants less control over the presentation of their business, brand, and offerings—as well as limited access to customer data—than an independent ecommerce store.

• High competition. When your product or service listings appear on marketplaces, they’re competing with other merchants on the site offering similar products or services. 

• Fees and commissions. A marketplace platform can charge a variety of fees and commissions to merchants selling on the site, including listing fees, subscription fees, and transaction fees (either a flat rate or a percentage of the sale).

Ecommerce platform vs. marketplace: Elements to consider

• Pricing structure
• Workload
• Level of control
• Marketing strategies

Marketplaces and ecommerce platforms are not mutually exclusive; many small businesses use both by running their own online stores while also listing products on marketplaces. However, if you’re deciding between a marketplace or ecommerce platform, it helps to understand their key differences:

Pricing structure

Marketplaces typically charge sellers a variety of fees and commissions, including listing fees, referral fees, and transaction percentages, at different points in the sales process. By contrast, many ecommerce platforms use a simple subscription model with users paying monthly fees to keep their online store operating and retain access to the platform’s tools. For example, Shopify’s basic monthly plan costs $29.

Ecommerce platforms also take a small percentage of financial transactions made by third-party payment providers. For example, Shopify charges a 2% fee on third-party transactions, but those fees disappear for merchants who opt for the Shopify Payments built-in payment processor. Compare this with the commissions a marketplace operator like Amazon charges, which include fees to sellers based on a percentage of the product price. For example, Amazon charges a 15% fee on footwear sales and 17% on clothing products over $20.

Although setting up an ecommerce store requires an investment of time upfront, it can pay off in the long run. For example, the difference between a 2% fee on sales and a 15% fee for a footwear merchant can make a huge impact on a company’s profitability.

Workload

An ecommerce merchant selling products online on their own site will have more tasks and ongoing duties to manage than simply listing products on a marketplace. Ecommerce sites offer tools to make it easy to build websites and run online stores. However, it still requires marketing efforts, customer support, and managing the order fulfillment processes. Sellers can choose whether the continual work of running an online store is worthwhile based on their business plans, product offerings, and overall business goals.

On the other hand, listing your products or services on a marketplace reduces workload on some tasks, as it has a built-in audience.

Level of control

Running an online store using an ecommerce platform requires more work, but it gives you control over nearly every aspect of your business. For example, you can develop a product page on your ecommerce site that presents your product offerings exactly how you want. Whereas, marketplace listings are limited by word counts and formatting rules.

Ecommerce platforms also provide direct access to customer data. When a customer purchases a product directly from your ecommerce site, you gain important information that you can use for retargeting campaigns, inventory management, and better customer service. If you list offerings on a marketplace, the marketplace itself controls the customer data.

Marketing strategies

The purpose of marketing campaigns changes based on whether you sell through a marketplace or your own ecommerce site. On marketplaces, the goal is to maximize product visibility within the platform. This often means investing in paid ads to drive traffic and boost listings, optimizing product descriptions, and using high-quality product photos. 

By contrast, marketing goals for an ecommerce platform are broader and more focused on enhancing your own brand awareness through a holistic brand strategy. You can use content marketing strategies on an ecommerce website that you own, directing organic traffic to your ecommerce site by crafting a blog, creating infographics, or recording a podcast that offers useful information related to your industry.

How to choose a platform

• Research the buying patterns of your customers
• Evaluate your overall business goals
• Weigh upfront investment requirements against profit margins
• Consider multichannel selling opportunities

When choosing between a marketplace and an ecommerce platform, consider the following factors:

Research the buying patterns of your customers

Identify the buying patterns and preferred platforms of your target market through customer behavior analysis. Prioritize marketing your product or service offerings on sales channels where your customers spend time, whether that’s a social media platform or a marketplace platform.

Evaluate your overall business goals

Write a business plan that establishes your company’s purpose and short- and long-term goals. Use the SMART goals framework to set specific, measurable, attainable, relevant, and time-bound goals for your company.

If reaching more customers as quickly as possible is your priority, a marketplace may be best. If brand-building and control over the customer experience are more important, then an ecommerce site is the stronger choice. Can your product or service offerings stand out against the direct competitors on a shared marketplace platform or do you need to create a more personalized shopping experience with a visually compelling website design?

Weigh upfront investment requirements against profit margins

Evaluate the cash flow requirements for your company—meaning the amount of money your specific business needs to continue operating and meeting financial obligations. How much time and money do you have to invest in setting up your own ecommerce site and promoting it to potential customers? What profit margin do you need to make with your products or services in the future to maintain profitability with your business?

Consider multichannel selling opportunities 

Develop a multichannel selling strategy that allows your business to sell products or services through more than one sales channel. Although an ecommerce platform and online marketplace involve different strategies, you can use both at the same time. A marketplace will help you expand your customer base, while an ecommerce website will help you develop your brand. Diversifying your sales across multiple channels is a great way to mitigate business risk should one channel fail to meet your business goals.

Shopify offers integration with third-party marketplaces for its merchants through apps like Shopify Marketplace Connect. It also created the Shop app, a mobile marketplace where customers can browse offerings and buy products from a variety of eligible Shopify merchants.