Why Marketplaces and Classifieds are Shifting to a Transactional Business Model
Learn why and how classifieds are embracing the new features that online marketplaces such as Amazon and AliExpress have been thriving within the last few years.
What you will learn
- The fundamental differences between classifieds and online marketplaces;
- How subscription and transactional business models incentivize different approaches to sales;
- Reasons why the transactional business model is so popular in the modern eCommerce industry;
- How classifieds have implemented various buyer-friendly business models to incentivize sales, as opposed to the subscription-based model
- What's next for marketplaces and classifieds portals
Online Marketplaces vs. Classifieds
Online advertising platforms or classifieds (Craigslist, cars.com, etc.) function differently than your typical online marketplaces (Amazon, Etsy, Doordash). Before end-to-end online shopping was popularized, which is the process of ordering, paying for, and receiving goods all through a single online platform, classifieds were a very popular way of selling or purchasing anything from day-to-day items, to property.
Here’s a quick rundown of the differences between the two types of platforms:
On websites like Craigslist, a seller can advertise their product or property, provide potential buyers with contact information, and the rest of the process, that being payment and delivery, is done offline, through mutual agreements between the buyer and seller. This works quite well in many cases, however, is far more difficult than the end-to-end model of websites like Amazon, where you can purchase anything with only a few clicks.
Subscription vs. Transactional Business Models
One of the biggest differentiators between traditional online classifieds and marketplaces is their business models. Many modern marketplaces (not all) implement transactional business models, whereas online classifieds (not all) focus more on subscription and premium services.
|Subscription business model||Transactional business model|
Do keep in mind, that that this comparison is generally on a spectrum. There are classifieds that utilize the transactional business model. Zillow, a real estate online ad listing platform, receives a commission for the property sold on its platform. There’s also Autotrader.co.uk, a UK-based vehicle sales platform that also takes commissions from certain sales.
Why the Transactional Business Model Is So Popular Today
Modern eCommerce is all about convenience. Buyers expect to find, order, pay for, and have products delivered all on one convenient platform. This convenience of end-to-end online shopping has significantly increased the number of sales being made through online marketplaces, as users don’t have to worry about getting into contact with sellers and negotiating the price, payment, and delivery of items.
eCommerce platforms like Amazon, AliExpress, and DoorDash provide these conveniences to buyers, which means more people are likely to shop online. And since these platforms use the commission-based business model, the increased number of sales has had a very positive impact on their revenue.
|Online Marketplace||Sale Commission|
|Amazon||6% to 25% (average 13%)|
15%, 25%, or 30% for delivery
6% for pickup
|AliExpress||5% to 8%|
Advances in eCommerce technology have made it easier than ever to pair sellers with prospective buyers. This greatly increases the chance that sales will be made, as the platform will recommend and display items that buyers are most likely going to purchase.
The same can’t be said about subscription-based business models, that put less emphasis on making sales and are not as user-friendly towards buyers. By leaving the contacting, price negotiations, payment, and other aspects of trade in the hands of buyers, classifieds that function with a subscription-based model are less user-friendly and must rely on the revenue they make from buyers and sellers that subscribe to their premium plans.
How Classifieds Implemented Modern User-Friendly Features
During his presentation, Malcolm Myers, founder, and CEO of European Internet Ventures, goes into great detail about the changing landscape of the classifieds market and what directions many online listings platforms are taking. Based on his professional insight, we’ve highlighted the key changes that classified listing vendors and platform owners can expect to see in the future.
With the drastic changes that have been introduced to the eCommerce landscape, mostly thanks to advances in technology, many classifieds have been implementing tons of features that embrace the transactional business model. These include many user-friendly features that incentivize making the sale.
These advancements have been made in both the real estate and auto trading industries, implementing lots of user-friendly features for buyers, and increasing the chances of making the sale.
Real Estate Market Progress
Real estate listing portals have incorporated plenty of technology into their platforms to be more in line with customer expectations. In many ways, these platforms have made it far easier to purchase and sell real estate, taking the edge off traditional real estate dealing.
Non-Contingent Offers (NCOs)
For example, one technique they’ve introduced is non-contingent offers (NCO). Let’s say you’re a buyer still waiting for the funding to purchase a new home. The platform will let you buy the property by
signing up an NCO with the platform itself, giving you the necessary funding to make the purchase. This means you can bypass other buyers who are getting their funding from a bank.
Buy Before You Sell
Some real estate marketplaces are also introducing buy before you sell options to their buyers who are changing homes. Typically, real estate agents will set up deals in such a way that the selling of the old property and the purchase of a new one coincide to ensure a steady transition into a new home.
Real estate marketplaces that offer buy before you sell services will allow you to buy a particular property before selling the old one. So, the buyer purchases the new home through the platform and can move in, meanwhile the real estate platform guarantees that their old property is sold in a particular timeframe.
Both of these features are made possible with fintech (financial technology) present in the real estate marketplace at the time. It goes to show that real estate marketplaces that adopt more eCommerce technology into their services, as opposed to leaving the purchasing, selling, negotiations, and everything else to the buyers, sellers, or third-party intermediaries such as real estate agencies or banks.
Car Listings Market Progress
Browsing through traditional car classifieds portals, all buyers tend to find are photos of the vehicle, details about the inner workings, mileage, and the condition, but not painting an in-depth picture of the vehicle’s condition. Once the buyer picks out a vehicle to purchase, they contact the seller and handle everything, from inspections to payment on their own.
Some car marketplaces have begun introducing more eCommerce tech solutions that benefit both buyers and sellers alike.
Test Drive Option
One major advancement made by some marketplaces is offering test drives, warranties, and no-questions-asked returns for buyers. This way, buyers have more opportunities to test their vehicles before making the purchase, as well as not having to worry about negotiating for warranties or the possibility of returns.
Modern car marketplace platforms will allow you to purchase a car online, have it delivered to you within the next day, giving you ample opportunities to test drive it, and if it’s not to your liking, you can just return it without any extra questions. This is an especially important advancement for consumers less knowledgeable about the car market who need a more approachable marketplace model.
Various real estate online marketplaces have also begun using what Malcolm Myers calls an “eCommerce overlay”, in which the buyer selects a car to purchase and the platform handles everything else. This is another buyer-friendly change introduced recently that implements a similar model to those of eCommerce marketplaces, where goods can be purchased, paid for, and delivered all on the website.
The Future of Marketplaces and Classifieds Portals
According to a prediction made by Malcolm Myers, unless classifieds can introduce these kinds of eCommerce and fintech advancements to their platforms, they are going to be losing out on a lot of business. Both buyers and sellers have plenty of expectations from modern eCommerce markets, especially considering how big the eCommerce industry has gotten in recent years.
Technologically rich (both eCommerce tech and fintech) platforms require more money to create and maintain, but they ultimately create a more consistent and reliable experience for both buyers and sellers. Traditional classified portals are much cheaper to create and manage, but the experience may vary for both buyers and sellers, making it harder to control the quality of service on the platform.
In short: while there are many classifieds embracing the technological advancements and introducing them to their platforms, there are also marketplaces that are more rigid to change and are advancing at a slower pace—these risk being overtaken by the more flexible and technologically-rich competitors.
September 5, 2022