Often the economic contribution from marketplaces and wholesalers (as a subcategory of marketplaces who act as middleman taking control and often even ownership of the products: e.g. eBay is a marketplace, Amazon is a wholesaler) is not recognized in full by its users/clients/customers. To ship a mixture of products from say 1000 suppliers to 10.000 professional clients via a middleman is much more efficient for every single party involved than shipping only the suppliers goods to a subset of these clients. This not only involves logistics. But also the possibility, amongst many others, to have a structured relationship with one party to deal with 1.000 or 10.000 counter-parties respectively.
Often the demand side of the marketplace is seen as the “customer”, the supply side as the “supplier”. But for the marketplace and especially the wholesaler they represent two sides of the same coin. Successful marketplaces work them both. But it can only work them both when a certain threshold is reached – critical mass or liquidity – so the marketplace can truly make its network benefits work for both sides of its business model simultaneously:
(How To Structure A Marketplace)
Marketplaces are endemic to the consumer web: Largely popularized by eBay, we’ve recently seen quite a few variations on the theme, like young guns Etsy, oDesk, Airbnb, and Kickstarter. Old or new, the two elements that bind all marketplaces are network effects (a good thing) and the chicken-and-egg problem (not such a good thing).
Obviously, marketplaces are tough to build. But they’re even harder to kill — And they can be incredibly durable and profitable once they reach liquidity. But that’s the hard part.
(Marketplaces businesses are tough to build/)
Achieving liquidity is akin to nailing low-cost customer acquisition on both sides of the marketplace. Most companies only have to worry about customer acquisition cost in one dimension, e.g. if you are selling hard drives, the hard drives have a fixed cost associated with production + distribution. Marketplaces are effectively fighting a two-front battle.