Platforms and Marketplaces

The words ‘platform’ and ‘marketplace’ get thrown around a whole lot by people in the business world and especially in the payments industry. We at Revenew have contributed our fair share to this on our rather short (but consistent, dare we say) content spree. Our products have been particularly geared towards these kinds of businesses and so it’s about time we demystify the terminology with the aim of bringing to light what they really mean and where their distinctions lie. There surely has been some amount of debating online about what these terms mean:

What are Platforms and Marketplaces?

Let’s start with platforms. The term ‘platform’ is often used as an umbrella term for any website or service that offers products to consumers. This likely comes from the very generic nature of the word ‘platform’ itself. So, let’s start there: What do the two words actually mean?

Platform (as defined by Merriam Webster)

• a flat horizontal surface that is usually higher than the adjoining area
• a device or structure incorporating or providing a platform
• a declaration of the principles on which a group of persons stands
• a means or opportunity to communicate ideas or information to a group of people
• the grounds or basis for further action

Etymology: Middle French plate-forme diagram, map, literally, flat form. The ultra generic nature of the term helps explain some of the ambiguity regarding its use especially in the internet-bound global community we’ve become. The fitting definitions seem to be number 3: a declaration of the principles on which a group of persons stands and 4: a means or opportunity to communicate ideas […]. These describe a platform in its barest form: as centrally managed, closed network, where information can be shared.

Let’s see what we can find on marketplaces.

Marketplace (as defined by Merriam Webster):

• an open square or place in a town where markets or public sales are held
• the world of trade or economic activity : the everyday world
• a sphere in which intangible values compete for acceptance

Etymology (Wikipedia literally quotes a marketing agency LaFleur’s quite solid etymology here): The term market comes from the Latin mercatus ("market place"). The earliest recorded use of the term market in English is in the Anglo-Saxon Chronicle of 963, a work that was created during the reign of Alfred the Great (r. 871–899) and subsequently distributed, copied throughout English monasteries. The exact phrase was "Ic wille þæt markete beo in þe selue tun", meaning "I desire that there be a market in the same town."

The definition of a marketplace seems much clearer and deterministic: a place where buyers and sellers transact. In aiming to contrast it from a platform though, things become hairy. Isn’t a marketplace then also a platform? A platform provided to sellers to sell their goods and services to buyers?

Are they Mutually Exclusive?

The short answer is no. But let’s work our way there.

If defining the terms by seeking out their differences doesn’t give us clear answers, let’s take a look at their common denominators instead. We’ll aim to do this in the most stripped back form:

Marketplaces and platforms are both centrally managed, closed networks, inviting its users to transact.

This transaction can be a monetary and/or non-monetary one, ie. by merely sharing content, eg. via blogging or direct messaging between members of the closed network. Once the transaction between users involves a monetary transaction, a platform has acquired marketplace dynamics and some users have established themselves as sellers while others become buyers. So that’s where the distinction lies: in whether the users of the closed network trade among each other. It also explains why some platforms can contain marketplaces.

A good example of this is Facebook (a platform), having established Facebook Marketplace (well, a marketplace), or more recently in Meta’s universe, Instagram (platform) with Instagram payments, allowing sellers to offer products directly to buyers, thus having acquired marketplace dynamics. The members of these networks can just remain members, messaging and creating or viewing content, but they can also start selling products or buying from others.

And then there is a third breed of platforms that adds another dimension to the mix. These are the Squarespaces, the Shopifys. They allow their users to create their own platforms, making them in turn platforms of platforms. They can build marketplaces on these platforms too. If it sounds complex, that’s because it is.

Usually a platform such as Squarespace will offer their users a service, such as creating a website and allowing them to take payments for products or services. The platforms will usually take a cut of the payment processed on their user’s creations and then also charge them a subscription fee for using the service (see Squarespace pricing here). That doesn’t make Squarespace a marketplace but a platform - with which one can create a website, a marketplace or even a platform itself. To make things even more exciting, Squarespace alongside their platform, also operates a talent marketplace, allowing Squarespace customers to hire Squarespace designers to create or enhance their sites.

So let’s get back to our definitions:

Marketplaces and platforms are both centrally managed, closed networks, inviting its users to transact.

• Platforms are closed networks that allow their members to create [websites, videos, content, literally anything] and share them with other users.
• Marketplaces are closed networks with the distinct focus of bringing buyers and sellers of certain products or services together.

That makes a marketplace a kind of platform, one in which the transaction between users is monetary. Typically, you know that it’s a marketplace when roles of users can be either that of buyer or seller. On platforms that distinction isn’t always that clear.

There are some businesses that challenge this definition: If you’ve ever used a P2P marketplace, such as Facebook Marketplace you might be aware that the payment will often not be handled by the marketplace but is mostly carried out between the buyer and seller directly. In these cases the revenue streams will have the characteristics of a platform. Does that make it a platform? That’s up to debate and we welcome it (so please drop us a comment if you disagree). From a payments perspective, it will indeed be easier to classify this kind of business as a platform, due to their revenue/payment streams, as we’re more likely going to handle subscription or advertising payments, rather than split payments or multi-seller baskets. It’s important to point out that industries work with these kinds of frameworks to simplify complexity. So it’s important to point them out when they exist in our practice, rather than impose our simplified/efficient view onto the rest of the world. Because fundamentally, Facebook Marketplace is of course, a marketplace, aiming to bring buyers and sellers together.

The beauty of a grey zone.

Why does it matter?

If understanding the different terms and their meaning presents us with such complexity, can you imagine how payments in the world of platforms and marketplaces work? How Squarespace charges subscriptions to its users, as well as payment fees and on top of that takes a cut on payments on their talent marketplace? How to manage such a centrally managed, closed network? Add ever changing card processing rules and IC++ pricing to the mix, and you start to realise why running a platform has been likened to operating an entire economy.

How does a marketplace make ensure their payments are profitable when a buyer with a corporate card in the US buys a product from a seller in Sweden and another product from a seller in Australia, in a multi-seller basket?

That’s exactly the kind of nitty gritty we’re getting into. That’s why it matters. As the world of commerce is increasingly standing on the shoulders of platforms and marketplaces, it’s about time we make sure we’re building on solid ground and have all the levers, switches and dials at hand, that we need to be in control.