Amazon may rule the roost when it comes to online marketplaces and with net revenue of $143 billion in the first quarter of 2024 alone , there is little evidence to dispute that fact. However, Amazon and similar marketplaces such as Ebay and Alibaba take in big business because they cast a wide net. Such horizontal marketplaces cater to a very large number of people because they have an astronomical selection of products on offer.

What about going against this status quo and off this well traded track?

Source: RISMEDIA’S housecall

At this juncture, we can ask ourselves “Is it possible to focus on a narrow set of products or a niche and still run a viable and profitable business?” Here is where the idea of niche marketplaces comes into play.

Technically speaking, a niche marketplace can be categorized as a vertical marketplace; organizing businesses based on their industry or specialized needs. They are very different from horizontal marketplaces like Amazon in that they offer a very specific set of products or services. Since these marketplaces cater to a narrow set of consumers, it makes them an ideal business model when it comes to achieving liquidity more relatively easily.

Why Put Your Money on Niche Marketplaces?

The problem with Horizontal marketplaces is that winners have already emerged and it is an odious task to disrupt the established ecosystem. Niche marketplaces focus on the inherent weaknesses of horizontal marketplaces and intensely focus on a product or service and deliver a vastly improved customer experience.

To put it rather simply, vertical or Niche marketplaces focus on doing a few things right instead of multi-tasking a hundred things barely like horizontal marketplaces, thereby improving customer satisfaction. For example, Airbnb saw a 13.9% increase in bookings in 2023, reaching 448 million bookings compared to the previous year​ . This demonstrates the significant growth and demand within specialized marketplaces, emphasizing their potential for customer satisfaction and business success.

So what does it mean to build a niche around your marketplace?

Increased Trust

The number of people willing to buy from an online marketplace has grown exponentially.  The global eCommerce market is projected to reach $5.14 trillion, marking a 10.4% increase from the previous year​ ​,which means that with the increasing customer pool verticals that were once too small to be standalone marketplaces have a customer base that is meaningful.

Moreover, with the advent and adoption of better and more accessible security technology, these marketplaces have become more reliable and safe – an issue which has been plaguing its growth over the years.

Targeted Marketing

Social media strategies and marketing communications for aggregator sites and niche sites continue to evolve in 2024. Aggregator sites, which aim to attract a broad audience, emphasize brand building and mass engagement. In contrast, niche sites are leveraging advanced data analytics and AI to drive personalization and deep engagement. For example, niche marketplaces are increasingly using AI-driven tools to tailor marketing messages and ads based on highly specific consumer behaviors and preferences. Recent advancements include enhanced targeting capabilities on platforms like Facebook and Instagram, allowing advertisers to zero in on users based on detailed interests, purchase history, and even real-time location data. This shift towards hyper-personalization is helping niche marketers deliver more relevant and impactful content to their audiences.

Improved Customer Experience

Source: cxtoday.com

Customers now want a better overall customer experience, from content curation to better products/services etc. Niche marketplaces are able to cash in on this aspect as they provide a more personalized experience on their products compared to a horizontal marketplace. Customer experience is the Achilles heel of broad horizontals and this is where niche marketplaces step in.

This example by Matthew Faustman, CEO of UpCounsel puts things in perspective. Scripted, a written-content platform for businesses, is a classic example of this shift. A user of Scripted merely needs to pick the type of written piece they are looking for (i.e. blog post, tweets, white paper, etc.), and Scripted does the rest by setting pricing, a defined scope of work and an assigned writer for the project.

As of 2024, the process of initiating a project through an RFP (Request for Proposal) on platforms like Upwork (formerly known as oDesk) can still be time-consuming, typically taking several days to get a project started due to the need for thorough documentation, pre-bid meetings, and proposal evaluations​​.

On the other hand, platforms like Scripted streamline this process significantly. Scripted allows projects to be started much more quickly, often in just one sitting and typically within 15 minutes, by leveraging predefined templates and automation tools to expedite the proposal and hiring processes​​.

Observations and Ideas for Optimization

Any eCommerce business needs a certain degree of optimization to scale and function properly.

Focus on your product

You are building a niche marketplace, so narrow your product range to focus on quality, not quantity. Simplify the user’s choice and make sure your sellers meet the full criteria of the marketplace to provide high quality user experience. According to Tx Zhu, Managing partner at Karlin Ventures,

“You may be tempted to provide users with a broad set of options, to drive customer satisfaction or capture a larger audience. But all those choices will only overwhelm them. Instead, you earn trust and loyalty by specializing in one area“

The classic example is Uber, it captured a niche market of travel by providing high quality service with a limited focus to time-poor but quality driven audiences. Another example would be Threadless, which is a user-generated T-Shirt and apparel website that determines its product line based on the results of online design competitions. Winning artists receive recognition, cash prizes and their designs sold on Threadless gear. The company has united a niche marketplace of trendsetting hipsters, artists and design aficionados seeking wearable art. Result: In 2024, Threadless generated between $25 million and $50 million in annual revenue and had around 1.5 million sessions per month, with a conversion rate of 1.5-2.0% and an average order value of $100-12.5​

Proactive vendors

Selling on niche sites actually requires more effort on the part of vendors when compared to a horizontal marketplace. According to Auctionbyte.com’s Steiner “Sellers need to be more proactive when selling on niche sites, employing marketing techniques such as email marketing, cross-selling and search engine optimization.”

In fact, selling on niche sites can put out a seller’s identity much easier than selling in a large marketplace. Phillip Davies, president of Tias.com, a site that sells antiques and collectibles, says about vendors selling in niche sites, ” Sellers must take more responsibility for their store when selling on a smaller niche site.It’s your own store, your own brand.”

Communication

Source: liquidplanner.com

In niche marketplaces, both the audience and sellers fall in a particular segment. So in order to deliver a superior customer experience, you have to make sure that the communication between the two sides is personalized and transparent. A transparent channel will foment loyalty and trust, and retain customers, as seen in the case of Chewy, an online pet supplies retailer. Chewy has built a loyal customer base by understanding the needs of pet owners and offering trustworthy products. By providing excellent customer service, including a direct line of communication with pet experts, Chewy ensures a seamless and personalized experience, enhancing customer loyalty and retention​ ​ .

Compared to a horizontal marketplace, traffic is less. Therefore, retaining customers is a must so shape a direct and personal interaction medium. You must engage the buyer and seller communities and strike a balance to build a successful niche marketplace.

Content

In a niche marketplace, you already know your audience and what they expect, so stay ahead of your competition by offering distinctive and relevant content. Your customers must find a reason to come back which will in turn build an active consumer pool. A good example of this is the trend in the gaming industry, where companies like “Glorious PC Gaming Race” cater to dedicated gamers by offering high-quality, competitively priced gaming hardware that meets specific gaming needs. This approach not only attracts a loyal customer base but also fosters a community around specialized products​ ​​​.

In 2024, enhancing the user experience in niche markets is paramount. According to recent insights, incorporating AI for personalization and leveraging social commerce are critical strategies. AI-driven personalization helps in offering tailored recommendations and marketing, thus improving customer satisfaction and loyalty. Moreover, social commerce on platforms like Instagram and Facebook engages consumers directly, turning social interactions into sales opportunities​ .

For more detailed strategies on designing for niche market growth, you can refer to this article​​.

Succeeding in a niche site depends on –

• Niche community,
• Viable existing niche site for these products
• Rigorous marketing to find, reach, convince and convert that niche community

It also involves, potentially, managing inventory separately from an existing online store and other sales channels.

Uber is currently valued at approximately $82 billion, showcasing its significant presence and growth in the market​ ​. On the other hand, Etsy reported an annual revenue of $2.77 billion in 2024, reflecting a steady year-over-year growth of 3.78%.​ ​These niche marketplaces are leaders in their own right but even they started small. So, work hard and there is absolutely no reason why you can’t be the next big thing in the world of niche marketplaces.

What’s your take on the niche marketplace? Are they viable for your business goal or will you take the big leap to catch the larger buyers? Share your thoughts with us.