Why Are Entrepreneurs Choosing Vertical Online Marketplace Model and Not the Horizontal Model?

Horizontal or vertical which marketplace will you choose? Wondering what’s with the types? Well, that is a serious decision to make for which you must understand both well. 

The Battle of Ecommerce

eCommerce is nothing like the way it started. It has evolved and is blooming further in more and more innovative ways that are beyond our imagination. With new entrants sprouting every now and then, the competition is no less than a battlefield today; where already giants like Amazon and Walmart are ruling the eCommerce kingdom. The only way to survive in the present online market is by levelling up in some ways and continue wooing your customers than your competitors so that they stick to you rather than getting attracted to your rival. 

Ecommerce Business Models

You must indeed keep an eye on your competitors but, you should not become completely competitor-focused. Staying customer-focused is the right and smart thing to do if you want to both survive and succeed in the online business. Take, for example, Amazon, whose success is purely attributed to its customer-centric approach rather than competitor-focused despite being a horizontal marketplace. Now, what does that mean? 

Well, multivendor marketplace development is not an easy nut to crack as you will be surprised to know that there are different types of marketplaces, and your success depends on the type you choose. Horizontal and vertical are the two trending marketplaces right now but, entrepreneurs are falling for vertical more than horizontal. Why so? Let us get into the details but before that, understanding each marketplace is important so, scroll down to know more. 

Horizontal Marketplace

In simple words, a horizontal marketplace means – sell everything, focus on nothing. If your e-commerce idea is to sell multiple categories of products and reach the broadest audience possible, then the horizontal model is what you must choose. 

The horizontal model is about catering to a broad range of goods or services that are widely used and in-demand to a larger market. In short, it can be defined as a digital one-stop-shop where customers can buy anything under one roof. The best explanation is a live example, and we have one – Amazon where anyone can buy literally anything from a pin to plane (maybe soon in the future). 

Vertical Marketplace

Unlike horizontal, vertical marketplace asks you to focus on one thing and ignore everything. If you want to dominate in a specific industry, then vertical marketplace must be your choice as it allows you to cater to a niche market. 

The vertical marketplace model is all about offering the finest goods and services specific to a single market sector/category with a set targeted audience. The vertical model helps you in becoming the best in your industry at the expense of target group limitation. In short, it can be best defined as a category killer since the entire focus is upon providing the best services in one particular scope. The best live example is Etsy – one of the leading marketplaces for handcrafts & vintage items.

Also Read: 5 Key Aspects to Know Before Developing Multivendor Marketplace in 2021 

Strengths & Downsides of Both Horizontal and Vertical

Of course, before choosing a marketplace, the first and common concern that comes to mind is benefits. So, let’s breakdown the most substantial benefits and dreadful nightmares that both marketplaces can bring to your business.

The Benefits

The horizontal model means wide exposure to diverse businesses and customers. It also gives you immunity to market volatility as if one product sinks, you have others to sail through. 

While the vertical marketplace helps you become a master of a specific eCommerce market sector. You can be the king of that sector by applying excellent marketing strategies as you will be having only a product or two to focus upon. You can deliver the best purchase conditions to a small audience and rise among the crowd. 

The Nightmares

The horizontal model is like becoming the jack of all trades, but master of none as the only focus is on expansion than gaining expertise in one. 

Whereas the vertical model is the exact opposite of the horizontal; the only drawback is it adds some risks to your business. Since you have only one sector to serve and hence; a market fluctuation can make your business dull. 

Don’t miss: 7 Steps to Prepare Your Ecommerce Business for Continuity and Unexpected Future Post-COVID-19

Then, why is Vertical Becoming the Crowd-puller? 

Where marketplace giants like Amazon or eBay are dominating the eCommerce space with their horizontal marketplace models, you might wonder, why new entrants are preferring vertical model? Is there still room for niche-specific marketplaces? Well, guess what? Prominent vertical marketplaces like Airbnb, Uber have emerged and grown in the last decade or so; transforming the dynamics for the rental accommodation market and ride-sharing services entirely with their customer-centric approach.  

Therefore, the reasons behind the popularity of vertical marketplace model are as follows: 

1. Limited Targeted Audience

You don’t have to target the entire world in order to sell your wide range of products like in the horizontal marketplace model. Your target audience is set and well-defined in vertical that gives you an ample opportunity to grow and even dominate with time. As far as customers are concerned, they enjoy it even more because a specialized niche-specific marketplace simplifies their shopping process. 

2. Minimal Marketing Investment 

The time, money and resources you need to invest in the vertical marketplace are way less than you need in horizontal. Since you will have only a handful of registered sellers, single and centralized advertising will be enough. 

3. One Policy for All

The more the products, the more will be the responsibilities. Unlike in horizontal marketplaces, you won’t need to implement broader policies to cover a wide range of product categories; a single/centralized policy for all selling needs will get the job done and you can focus on the growth and development of your marketplace than wasting time behind all these. 

4. Specialization

Since a vertical marketplace allows you to dominate in a particular industry, you can focus more on perfecting it by delivering specialized solutions, better customer support, and clearer policies.  

5. Fewer Rivals

Competition is cut-throat in eCommerce for both horizontal and vertical marketplace but compared to the prior on; there is a good scope of establishing yourself as the ruler as there are still several niche-markets with no dominating leader. 

The Better Method

It is not that vertical marketplace is superior to horizontal or there is something wrong with one, as both have equal potential and are effective when implemented correctly. Their efficiency depends upon the need. Like if you want to serve a larger audience with fewer risks – horizontal is for you and if you want to prosper and dominate in a particular segment then go for vertical. The only reason why entrepreneurs are eyeing vertical is because of less dominance in it at present. Still if you are facing problem in making decision, then you can consult anmarketplace development company who provide multivendor marketplace solution for both horizontal and vertical marketplace.

Remember the success of any marketplace is not just depended upon the business model you choose, various factors like eCommerce platform development, multi-vendor marketplace software, customer service, branding, marketing, acquisition cost, e-commerce marketplace development company etc. matters and hence make sure you approach the best like MobiCommerce for your future endeavours.  

Rakesh Jain

Rakesh Jain is the co-founder and CEO of MobiCommerce. When he is not busy taking the company to newer heights, he authors detailed blog posts for leading publications, teaching eCommerce store owners different ways to manage, grow and scale their business. As a seasoned entrepreneur, he is passionate about proactively finding the “next big thing.”