Horizontal vs vertical marketplace: which idea is better?

The article was initially published in Codica blog.

Nowadays, the concept of the marketplace is commonly known. Various success stories of AliExpress, Amazon, Etsy and other marketplaces inspire startuppers to build their own e-commerce platform.

This article will help you to find out what marketplace type suits you the best - vertical vs horizontal, and how they differ.

Online marketplaces gain momentum

Marketplaces are online platforms for selling and buying services or products. These platforms support interaction between shoppers and vendors.

Using marketplaces, consumers can quickly find the necessary product or service and compare prices. In turn, vendors save on driving traffic to their trading platform. The online marketplace owner gets a profit from the web solution through different revenue strategies, including their combinations.

But to define the revenue model that will bring you money, you should choose a marketplace type. Except for general B2B, B2C, and C2C classification, marketplaces are divided into two main types: horizontal and vertical. Let’s consider them to decide which one is better.

Horizontal marketplace

The horizontal marketplace is a model that allows consumers to buy everything they need in the same place.

Pros of horizontal marketplaces

The horizontal marketplace has such perks:

• Large market share
  It is the most evident advantage of the horizontal model. These marketplaces can attract more merchants from multiple industries.

• Wide customer base
  The horizontal marketplace is attractive to a wide audience with a big range of products under a single name. A huge number of customers leads to raising profit.

• Smaller risk of demand shortage
  Products and services in a horizontal platform are manifold. Indeed, it affects user involvement. Thus, there is a smaller risk of the lack of demand in the marketplace.

However, a horizontal model has its cons. When you offer a wide range of products on the platform, your marketplace can’t dominate in a certain industry.

Example of the horizontal marketplace

Amazon is a wonderful example of a horizontal platform. It offers nearly all, from books to web cloud services.

This platform is very money-making. Here is a diagram that shows Amazon’s annual revenue from 2006 to 2021.

Source: Statista.com

Vertical marketplace

The vertical marketplace focuses on offering the best services in one certain category. It is easier for the vertical model due to the target group limitation.

Pros of vertical marketplaces

This vertical marketplace model has the following pros:

• Possibility to focus on one certain industry
  This business model means your marketplace competes for a specific market segment. Therefore, you can dominate in your domain.

• More personalized approach
  Surely, it is easier to provide a limited number of customers with a personalized experience than a mixed and vast audience.

• Quicker sales
  A decreased competition can lead to faster sales on the website.

Still, despite all its pluses, the vertical model has its flaws: a platform created vertically has no impact on other domains.

Example of the vertical marketplace

For example, such a lucrative handicraft platform as Etsy is a vertical platform.

Etsy is a two-sided e-commerce marketplace that aims to trade handmade or vintage items from individuals. Currently, this website has more than 5 million users and over 60 million goods.

It is worth emphasizing that it is the vertical model that has brought Etsy such success.

Which marketplace type is a winner?

Let's consider the main differences between horizontal and vertical marketplace models.

• Horizontal marketplaces have much more services or products in range than vertical ones.
• Horizontal marketplaces help businesses enter to market to a large audience.
• Vertical marketplaces are focused on a specific user category that is found in the vertical website.
• Vertical marketplaces offer narrowly specialized products and services. In turn, horizontal platforms offer plenty of services and goods.

But the question is, which model is better? In short, both vertical and horizontal marketplaces are effective when implemented correctly.

Conclusion

There is no clear answer to whether a horizontal or vertical marketplace is better for your future web solution. The choice depends on your requirements and possibilities.

If you have sufficient knowledge of a certain market segment and are sure of your idea's profitability, build your marketplace vertically. If you want to cover a larger audience and know how to beat the competition, choose the horizontal model.
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