Top 10 Reasons Why Online Marketplaces Fail

There are many examples of successful online marketplaces in a wide range of variants that show the opportunities and potential of these business models. In view of these successful "proof-of-concepts" in the market and the advantages associated with marketplace models, it is tempting to set up your own marketplace.

But: If you look at the e-commerce and founder scene of the past few years, you will also find a whole range of marketplaces that have not managed to establish themselves in the long run. The question arises: what are the most common mistakes and the challenges that cause online marketplaces to fail?

Top 10 Reasons Why Online Marketplaces Fail - enlarge

Online marketplaces are more complex than you think - and why that is.

The answer to this question can be summarized in one sentence:
The complexity of online marketplace business models is often underestimated at the beginning.

Also, from where this complexity results quickly becomes clear when having the main difference to a "normal" online store in mind. While there are only two parties in an online store, namely the customers and the shop owner, in a online marketplace there are three parties, namely the customers, the merchants / sellers and the marketplace (- Operator) itself.

What exactly this means and which topics are often given too little attention in online marketplace projects, are the following top 10 reasons why online marketplaces fail:

  1. No Marketplace Is Like The Other

    The term marketplace is often used in online business as a synonym for "real" marketplaces, drop-shipping or even shop-in-shop models. However, the specific decision as to how you ultimately want to design your marketplace business is an important base, from which, among others, legal conditions as well as procedural issues depend. If you realize later in the project that you are galloping in the wrong direction, it will take unnecessary time, effort and money to make the necessary corrections.

  2. Total Control vs. „Laissez-faire“

    In addition to the decision for a specific business model, also for almost each process a decision has to be taken individually as to how far you want to take influence as a marketplace operator itself and want to keep control and how much freedom you leave to vendors / sellers. Simplified, more control usually means more effort for the marketplace operator, but less control means some risk for product and service quality. The importance of these considerations can hardly be underestimated, since the success of the marketplace project depends directly on it.

  3. The Vendors will do it...

    Experience has shown, it is not a problem to win vendors / sellers for a new online marketplace, after all, new distribution channels are always interesting for them. However, the willingness to invest time and resources in a new distribution channel will be limited, as long as there are no noteworthy sales. Especially at newcomer marketplaces, this is usually not to be expected in the first time. As a result, in the beginning you will have to expect to make compromises by supporting vendors and helping them.

  4. Product Data and Catalog Structure

    A well-thought catalog structure and high quality and complete product data are crucial. For SEO, search-ability and presentation of products in the marketplace. Established marketplaces provide clear rules for this. Vendors / sellers who do not stick to it, either can not take part at all or will simply be found less well. In the case of new and small marketplaces, it may be rather questionable how far vendors are willing to adapt their product data to specific requirements. It's important to remember that having a solid Product Information Management (PIM) strategy and the right quality of product data is important right from the beginning. Subsequent corrections on this matter quickly become costly and resource-intensive at a later point of time.

  5. Simply Putting A Marketplace Online Does Not Work

    Simply putting a platform online, sitting back and watching how one earns money when others offer and sell their products - sounds pretty nice such a marketplace business, right? Unfortunately the reality is a bit different! Just like a normal online store, the start of an online marketplace will require a lot of time, energy and perseverance to promote it and boost the business.

  6. In-House Development vs. Flexible Standard Software

    There is plenty of choice of store software, however, when it comes to marketplace software, the choice is much smaller. It may be tempting, rather than relying on existing solutions, to develop a completely custom system from the ground up. But beware, due to the complexity, the requirements are difficult to estimate at the beginning. Quickly you are trapped in a vicious circle of permanent adjustments and rework. At the latest when further adjustments become necessary due to new requirements and growth, the path of in-house development quickly becomes a bottomless pit and the profitability of the project is gone. Especially if you did not pay attention to a flexible and easily adaptable architecture from the beginning. Incidentally, the same applies to 08/15 Standard Marketplace Software.

  7. Lack Of Focus

    Marketplace business models are, among other reasons, so exciting because they offer a whole range of possibilities to expand their own business through additional areas and services. However, there is of course the danger of getting bogged down. If you want to, perhaps even from the beginning, in addition to the operation of the platform as the actual core business, get active also as a dealer on the platform, provide fullfillment services for dealers, etc., the project may quickly get out of hand. At the latest when you have to scale everything at once because of initial success and growth.

  8. Simplification In The Wrong Place

    One obvious consequence of the complexity described here is that one may try to simplify things during the project. The risk here is that at the end, for example, the shopping experience suffers too much, dealers are not satisfied with the services and you can possibly correct made mistakes later only with high cost. Not striving for a 100% solution to begin with, but starting with a minimum viable product (MVP) solution is certainly a good idea. However, it is important not to lose sight of the essentials and to set up a product that sufficiently serves both customer groups (end customers and vendors). In addition, of course, should be taken into account, to ensure that one manages with decisions on simplifications, if possible, not to end up in a "dead end", from which you come out only expensivly later.

  9. Unique Selling Point (USP)

    It should actually be a no-brainer: Starting a new marketplace project only makes sense if you have a suitable industry or niche in view. An online marketplace for consumer electronics is expected e. g. have few chances. Trying to prevail against established players without real differentiation and added value will also have little chance of success without a corresponding budget. But even if the necessary conditions for USP and added value for the customers is given, one must make sure to focus on this and not watering down and market the own USP also successfully in the target group.

  10. Underestimated Budget Requirements

    Lack of budget is probably the most common reason for the failure of marketplace projects. For example, the development of a reasonably ordinary online marketplace system from the ground up should hardly be feasible under a significantly 6-digit amount. Then there would be expenses for marketing, vendor acquisition, etc.
    The assumption that one could directly generate revenue with Go-Live in order to be able to fund the marketing and the further growth organically, is a frequently made mistake. As with the normal online shop, this approach will only work in the rarest cases.

There are a lot of things to keep in mind when setting up or founding an online marketplace and the complexity is certainly not small.
Nevertheless, given the opportunities and potential with marketplace business models, one should be aware of the issues mentioned at all times, but not be deterred by these. It is also clear that solutions and approaches exist for each of the listed challenges.

If you imagine the 10 points, one thing becomes clear:
As a marketplace operator, you are always in the position to provide your customers, and above all also vendors, with a service in the form of a technical platform. A solid marketplace software, which is powerful enough to meet the broad requirements of a multi-vendor business and flexible enough to meet future or changing needs, is in any case a critical success factor for any Online Marketplace.

With the Marketplace Software JaJuMa-Market , there is an option to do this, while being in any case definitely on the safe side when it comes to IT. Despite manageable budget requirements regarding initial investment and operation, hardly any wish for functionalities should be left open. You are spared the risk of losing yourself in costly and endless adaptations and extensions of your own development or proprietary systems.
By choosing JaJuMa-Market you will also gain a strong partner and a true JaJuMa "Marketplace Expert" by your side. With our experience from numerous marketplace projects, we are of course available to you at any time with help, support and advice.
Read the top 5 reasons why JaJuMa-Market is the easiest, fastest and best option,
if you're about to start or found a professional Online Marketplace.

If you have any questions, suggestions or interest in JaJuMa-Market, please contact us!