Niche Marketplaces - Where Small Fish Take on the Big Pond

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How niche e-commerce can let you build a space of profit

Amazons success haunts many a new arrival to the e-commerce market. The idea of making an 'all-in-one' store sounds fantastic - the problem is that this space has already been occupied by well-known players with trusted reputations and deep pockets from which seemingly unlimited marketing budgets flow. Independent newcomers have about as much chance of making a stir in this environment as a surfer does of stalling the progress of a cruise ship.

But in spite of this, the situation is not hopeless. Amazon might be the world's biggest all-purpose store, but as a 'horizontal' marketplace it has inherent weaknesses which 'vertical' marketplaces - those specializing in particular business niches - can exploit.

Sharks may be the alpha predator of the oceans, but they are outnumbered by smaller fish - whose nimbleness and fine-grained vision they cannot match. Likewise, to compete against the big predators of the online marketplace ocean, you just have to find an e-commerce niche in which the sharpness of your senses is worth more than the big teeth of the Amazons and the Alibabas - where you can outmaneuver them, either locally or globally. Just ask Airbnb, Uber, or Etsy.

Market cap of some online marketplaces

So in this article we'll make the case for niche online marketplaces - as well as looking at how to identify which e-commerce niche you should delve into.

What is an e-commerce niche?

So, down to basics. Niche online marketplaces are all about building a product that resolves the specific problems encountered in the course of buying a particular kind of product or service. These are problems that 'horizontal' marketplaces like Amazon are ill-placed to tackle, because the latter are built on the premise that all products are essentially alike and can be delivered in a similar way. Niche marketplaces, whether B2B or B2C, know that the ability to act as a 'guiding voice' for customers can trump the frictionless but sometimes lonely experience of shopping at an online mega-mall.

We're now going to look at an example that some readers might find controversial: Airbnb. Yes, by the current point in time, this is certainly no small fish. But it's a perfect example of how a seemingly small e-commerce niche can be opened up into a major business. And this certainly is a niche affair: from within the travel industry, which incorporates multiple service sectors, Airbnb identified one: accommodation. But this was a highly competitive space, so they then went further and found a narrower market segment that had so far been little developed: room rental in private homes. And from what at the time seemed like a tiny niche, a behemoth was born.

It may be a truism, but it's worth repeating that the success of your marketplace completely depends on the selection of a fertile e-commerce niche - on that niche's particular challenges, and the way your marketplace meets them.

What's also important to say is that in this game, you should never be afraid to narrow down your niche. Yes, of course at a given moment the market for (say) car tires is smaller than the whole automotive parts space. But smaller spaces have big potential to be opened up - and by concentrating your resources and your knowledge, you increase your chance of becoming a name people remember and trust.

All-in-one marketplaces and niche marketplaces

Vertical Marketplaces vs. Horizontal Marketplaces

The Internet is full of information about online marketplaces businesses - from those that take the global, 'all-in-one' approach, to local niche marketplaces. What's less easy is to find a side-by-side comparison of these two related business models.

Some companies enjoy success selling a product through a single platform - but this is the exception rather than the rule. By the current point in time, Amazon has become 'Google for shopping', with whole sections dedicated to seemingly minor product categories: whether your search is for organic cosmetics or fishing poles, it's sure to throw up countless results. And this, to be sure, is a great advantage of horizontal marketplaces: you can arrive with a mess of ideas in your head, and leave with an assortment of products that will help you to satisfy them all. There are probably very few people living in the developed world today who would be happy to live without access to a horizontal marketplace like Amazon.

But here's the strange thing: Amazon is a fine place to buy your first fishing pole. You set the price range you can afford, read some reviews, and most likely, you make a purchase that enables you to satisfy your initial curiosity. But what happens when you want to take the next step? Sure, Amazon has the products available (though not always those from smaller brands) - but it doesn't necessarily provide an environment that inspires confidence in shoppers who have specific needs but lack the experience to directly assess products for themselves. And here's where niche marketplace websites come in - offering a specialized platform where customers can feel that they're being supported by real people who know about the activity for which the products being selected are going to be used.

What's more, your marketplace can gather several niche sellers under one 'roof' - offering service and a sense of community Amazon can't match. This, then, is where 'small fish' can really use vertical business models to swim rings around e-commerce giants.

Why you need to find your niche

Still not quite sure that a niche marketplace is the right thing for you? Let's take a look at some major advantages of this business model.

Knowledge of your audiences and targeted marketing

Why you need to find your niche

When it comes to marketing, trying to reach out to a broad audience is painfully expensive - and comes with no guarantees of leaving you knowing who your customers are or what they want. But niche marketing lets you develop audiences you understand and who are much more likely to be receptive to your message.

Mass marketing campaigns are somewhat like drift-net fishing on the high seas - you get whatever fish come your way, but with a huge amount of unpredictability and waste. On the other hand, niche marketing means identifying precisely what you want to catch, choosing your bait and your rod with care, and coming back with a smaller haul - but one you know exactly what to do with.

To put it another way, marketing to narrower audiences lets you quit competing with global giants and focus on forming deeper emotional bonds with your community, getting better results with a smaller budget.

Niche marketing also has big advantages for your SEO strategy, letting you focus on search requests specific to your niche, rather than having to compete for those of highest overall frequency. Focusing on your niche will let you reach the top of results with less effort and resources, and build excitement around your brand among people who are really interested in it.

User experience

Here we reach the Achilles' heel of any horizontal marketplace, whose broad variety of products disperses their audiences, making an individual approach almost impossible. Niche marketplaces, on the other hand, enable truly meaningful feedback and the development of long-term relationships with customers. And this is not just about feel-good factor: knowing your customers means you can avoid ineffective marketing clich's and hit your audience with what it really wants - and will buy. Niche marketplaces let you build a user experience strategy based on personalization and engagement.

Less competition

There are fewer competing stores and marketplaces in a given specific niche, and you can benefit from both business models at the same time. As a marketplace, you offer a diversity of choices. But at the same time, you can focus on a specific range of products, just as brand stores do - and this allows you to position yourself as an expert.

'Blue Ocean Strategy' was described by W. Chan Kim and Renée Mauborgne in their book of the same name. It's not a new idea (the book came out in 2005), but it applies neatly to the advantages offered by a segment like niche marketplaces. Creating an unchallengeable marketplace renders the competition irrelevant. So instead of fighting for survival in waters full of sharks, you can focus on business development and achieving success.

Finding the ultimate niche

The reasons

Making the right choice of the niche will save you money, make your marketing more cost-effective, and ultimately increase your chances of establishing a truly unique - and therefore profitable - brand.

People often try to focus on popular and expensive products - they start selling 60" OLED TVs, or the latest iPhones. But the fact everyone wants the latest Apple product doesn't mean this is the right thing to start off with - in fact, with so many competitors already vying for such obvious markets, they're often ones you should avoid. So how, then, to find your e-commerce niche?

Start by narrowing your target audience

The simplest way to identify good niche marketplace ideas is to start narrowing down your target audience. Canadian brand Lululemon is a good example. Its initial marketing strategy was built around a very narrow fashion segment - women's yoga clothes. Today, its value has reached $22.6 billion, and it's selling its products all over the world.

Net revenue of Lululemon worldwide from 2008 to 2018

Lululemon is living proof that building a business in a vertical market doesn't limit your company's potential - or its profits. On the contrary, it gives you endless opportunities to launch emotionally engaging marketing campaigns that will build customer loyalty and see you making a return on your investment. Simply put, it's easier to nurture your brand to success when you're working in a space that doesn't yet have fierce competition.

As soon as you understand how to find your e-commerce niche and how to position your business within it, you'll be in a position to begin welcoming customers - and you may be surprised to discover how far your appeal extends.

Evaluating your assets and resources

When choosing a niche, the best ideas are not always the most exotic - sometimes, they're right under your nose. So, if you've already patented an electronic device, a tech marketplace might be right up your street. If in the past you've scoured obscure websites looking for woodworking equipment, you might be well placed to make that search easier for others in future. When it comes to standing out from the competition, passion goes a long way.

Identifying your ideal customer

Coming up with good ideas for your online business is as crucial as choosing an e-commerce niche. This is where you'll have the chance to decide what kind of customers you want to work with. It's a good idea to draw up a blueprint of your ideal customer, from their location and the broad business they're engaged in right down to their hobbies. All of this will help guide your marketing activities later.

Peeping outside the box

Is your marketplace scalable? To what extent? Choose a niche that will bring years of success, rather than just short-term profit. Start small, but look to the future you want to achieve.

Think about your image

Niche marketplaces cannot afford to be mere intermediaries between sellers and customers. You must win users' trust and become an essential source of authority for them - as you move forward, it's the only way to scale up and become a truly popular marketplace. (Great user experience will only become more sought after in niche platforms.) To position yourself as a leading brand in your niche, you need a list of criteria that guide you towards a community of users and help you reflect its spirit and represent its values.

One good example is Rover.com. In their bid to become a pet care services leader, the platform's founders invented a strict system of criteria for selection and evaluation of dog sitters. This allowed them to sift out 80% of candidates, and meant that the 20% remaining had to stay on their toes and work hard at offering a great service. The approach won pet owners' trust, to the point where, when looking for professional dog care, they began to prefer the new marketplace over traditional kennels. Today, the company's value has reached $970 million, and its range of services covers more and more types of pet every year. (We wrote about Rover's success in an earlier article.)

Focus on content

Bringing in users for their first visit is relatively easy - the real challenge in ensuring they keep coming back for more. This is where great content comes in - and it's an absolute necessity if you want to earn money online through your marketplace. If you fill your site with engaging, useful content, then users will visit even if they're not planning to make a purchase - very often, though, they'll end up buying something anyway. In any event, they will become involved in your brand, spreading awareness of it by word of mouth.

Find ways to connect customers with sellers

Both sides of the transaction are equally important for a marketplace's business strategy - the success of a vertical marketplace depends on those who buy products and services, as well as those who sell them. Make communication between these two groups seamless and straightforward, and customers will be eager to come back to your platform.

Airbnb and Etsy offer an example of how marketplace growth greatly depends on transparency of communication between customers and sellers - this, after all, is the source of their trust, and informs their decision to use your platform again in the future. Make sure that communication between customers and sellers truly stands out in your niche.

A few figures before you start choosing a niche for your business

The world of online commerce becomes more crowded every day - but a business model based on a niche marketplace is one of the best ways to create a recognizable brand and avoid excessive competition.

Shopify claims that by 2021 global e-commerce sales will reach $4.5 trillion. Although a significant part of that amount comes from e-commerce leaders like Amazon and eBay, niche marketplaces will make an important contribution as well.

Total worldwide e-commerce sales 2014 - 2021 in trillion US dollars

Airbnb's current value is $38 billion, while Etsy's revenue in 2018 was $603.7 million. These niche marketplaces may now be big players, but they started off small - by choosing a niche.

The e-commerce market is global - and it's constantly developing. Your marketplace has the chance to find many opportunities here. So jump into the water and set your own course!

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