What is a horizontal marketplace?

Definition of a horizontal market

A horizontal market is like a big supermarket that offers a wide variety of products that appeal to many different types of customers rather than just focusing on one specific group. Think of it as a market for the masses, where everyday items that everyone needs or uses are sold.

Companies that operate in a horizontal market, like Unilever, Amazon, or Google, sell products that are used by a broad range of people across different industries and audience groups. These products are often everyday items, such as shampoo, books, widely-used software products, and so on.

One advantage of a horizontal market is having a large customer base and constant demand for your products. However, this market can be quite competitive, with many big players vying for customers. This can lead to lower customer loyalty and thinner profit margins.

Despite the challenges, new players can still enter the market and shake things up by offering better prices or innovative alternatives. A great way to take on a big horizontal player is to identify an underserved vertical within its offering and create a more specialized solution for that vertical.

Overall, a horizontal market caters to the general public and everyday needs, making it a dynamic and diverse space to operate in.

Definition of a horizontal marketplace

A horizontal marketplace, often called a generalist or multi-category marketplace, is like a big online bazaar where you can find a wide range of products or services from many different industries and categories. These marketplaces don't focus on just one industry but instead try to meet the needs of a diverse audience with all kinds of preferences.

For example, think of a marketplace like eBay that offers a wide range of different product categories. It's a horizontal marketplace because it's not limited to serving just one type of office or industry: you can find sneakers, vintage dresses, electronics, books, art supplies, you name it.

This approach affects how the marketplace does business in various ways: how it makes money, promotes itself, and develops new products or services.

In contrast, a vertical marketplace would focus on just one of those categories: like StockX for sneakers, or Vinted for vintage clothing.

Horizontal vs vertical marketplace

Vertical marketplaces are like specialized boutiques that cater to a particular category of products rather than offering a wide range of items. For example, they may focus on just one or a couple of categories that horizontal platforms like Amazon or Cragislist have. Or even a single small sub-category.

Despite their focused approach, vertical marketplaces can still achieve great success and become unicorns, as seen with examples like Airbnb, Uber, and StockX.

It's interesting to note that many horizontal marketplaces, which serve a broad range of customers and products, actually started out as vertical marketplaces. For instance, Amazon began by focusing solely on selling books, while eBay's early success was largely driven by the sale of Beanie Babies and its appeal to toy collectors. This shows that a vertical approach can be a stepping stone to broader market success.

A vertical marketplace is the opposite of a horizontal marketplace. And there are intrinsic differences between the two. Understanding these will help you better understand how a horizontal market functions and how it differs from its vertical counterparts.

• Broad vs. narrow market focus. Platforms with a horizontal approach have a broad market focus. This means they focus on multiple verticals at once and aim to reach as many verticals as possible. In contrast, vertical marketplaces have a narrow focus. They select a particular niche to go after and develop the marketplace around that niche.
• Generalist vs. specialist. In general, horizontal marketplaces aren't specialists in any particular niche. They're considered a generalist marketplace that caters to multiple niches with, more or less, the same service. Vertical marketplaces, on the other hand, specialize in a particular niche and become market leaders in it.
• Broad vs. niche marketing. When attracting buyers and sellers onto the platform, horizontal marketplaces have a broad targeting approach. Thus, they create ads that appease the larger demographic. Consequently, such marketplaces market through multiple channels in multiple formats at once. In comparison, vertical marketplaces have a narrow marketing focus targeted at a particular niche.
• Economies of scale vs. high margins. For profitability, horizontal marketplaces rely on the economies of scale model. It states that more goods or services can be sold at lower magins once there's scale in production. Horizontal platforms typically require a large scale to generate a profit. On the other hand, vertical marketplaces charge a premium for their specialized services for profitability.

While these are the intrinsic differences between the two, they're not a given. So, there are times when a horizontal marketplace may run targeted marketing campaigns and charge a premium for some of its services. It largely depends on the strategy employed.

Examples of horizontal marketplaces

Let's inspect a few well-known horizontal marketplaces and understand their approach.

Amazon

Amazon is a classic example of a horizontal marketplace due to its broad range of offerings spanning multiple industries, categories, and verticals.

Referred to as "The Everything Store" by tech journalist Brad Stone, Amazon sells everything to everyone. You have candies costing a few cents to industrial appliances worth thousands of dollars under one roof. It even caters to businesses through its logistics arm and cloud computing infrastructure.

But it's worth noting Amazon started as a vertical marketplace selling books exclusively. After dominating that niche, Amazon expanded to other verticals and eventually became the everything store.

eBay

Another success story of the dot com boom is eBay. And it is also a horizontal marketplace.

The company was launched in 1995 on the premise that e-commerce should be accessible to all and, hence, it caters to everyone with an internet connection.

eBay offers an extensive array of products across numerous categories, including electronics, fashion, collectibles, home goods, sporting goods, automotive parts, and much more. It serves as a comprehensive marketplace where users can buy and sell virtually anything imaginable.

Today, eBay operates as a global marketplace, connecting buyers and sellers from around the world. The platform facilitates cross-border trade and handles logistics and payments to make the process as simple as possible -- for everyone.

Alibaba

Alibaba is often referred to as the Amazon for businesses. Launched in 1999 by Jack Ma, the marketplace facilitates wholesale buying for those who purchase in bulk. Users can buy and sell a wide range of goods, accessories, and industrial equipment at discounted rates directly from manufacturers.

As of 2024, Alibaba had a 49% share in China's comprehensive retail e-commerce GMV. It has surpassed Walmart in global sales. This establishes its broad market focus both in China and the world.

Craigslist

America's go-to platform for buying and selling locally, Craigslist, is another prime example of a horizontal marketplace. Founded in 1995, the basic, archaic-looking marketplace is still the 58th most visited website in the US, ahead of X.com and theguardian.com (at the time of reviewing).

Part of Craigslist's decades-long success is its everything-under-one-roof approach. The marketplace offers a massive selection of listings across numerous categories, from apartments and used cars to furniture, jobs, and even community events. Moreover, it caters to a broad audience with diverse needs.

Due to the vastness of categories, Craigslist doesn't have the same level of deep expertise or specialization compared to vertical marketplaces. This allows for a wider range of listings but limits the ability to cater to specific needs within each category.

Offerup

OfferUp is a peer-to-peer buying and selling platform that aims to beautify Craigslist. OfferUp boasts a modern app-driven interface that's generally considered easier to navigate and use compared to Craigslist's website. It also emphasizes high-quality photos that bring it closer to Instagram in terms of visuals.

Just like Craigslist, OfferUp offers a wide range of products across numerous categories, including furniture, electronics, clothing, and even sporting goods. This variety shows some resemblance to horizontal marketplaces like Amazon or eBay, which offer a vast selection of products.

Letgo

Letgo is a prime example of how you can "clone" a working marketplace model in an unserved location and become successful.

Letgo is a similar marketplace to OfferUp and Craigslist in that it connects local buyers with sellers. However, it was initially focused on Turkey, Spain, and Norway before expanding across the globe, including North America. In 2018, it was acquired by OfferUp and got absorbed into its platform. However, it continues to operate as Letgo in Turkey and a few other regions.

You can label Letgo a horizontal marketplace, as it aims to connect buyers and sellers across multiple categories.

Small local platforms

While the examples above are of large-scale marketplaces with a global reach, there are small horizontal marketplaces that aim at offering a "one-stop-shop" in one location. Community notice boards and neighborhood Facebook Marketplace groups are an example. Very often, these platforms are community-led and generate little to no for the marketplace operator.

Key characteristics of a horizontal marketplace

Horizontal marketplaces share a few common characteristics. These are often an integral part of the marketplace. The common characteristics are:

• Wide product selection. Horizontal marketplaces usually have a large product or service catalog with a large number of sellers on the platform. While the products are largely generic, you will have variety in them. Thus, in horizontal platforms, variety is a defining feature and a core requirement.
• Diverse customer base. A horizontal marketplace caters to a diverse customer base and targets as many customers as possible. You will have users from different sectors, segments, demographics, and even locations. Thus, the diversity of customers is another defining feature of horizontal marketplaces.
• Large market share. Because of their wide product selection and diverse customer base, horizontal marketplaces can enjoy a significantly large market share. In fact, it's not uncommon for them to capture a majority of the market share in the winner-takes-all economy.
• True one-stop-shop. Horizontal marketplaces aim to serve everything under one roof. Thus, because of their diversified approach, they essentially become a one-stop shop for a majority of the population. In the B2C segment, such marketplaces may sell everything from groceries to high-end electronics.
• Cooperatives and joint partnerships. It's not uncommon to see joint partnerships with other non-competing brands in horizontal marketplaces. These brands offer their products and services on these marketplaces, often for a fee or other benefits. For example, a marketplace may partner with a financial institution for banking needs. Or, it may collaborate with local agencies to aid its logistical operations. These joint partnerships help it become a one-stop shop.
• High brand recognition. Because horizontal marketplaces target everyone, they can become household brands and enjoy high brand recognition. Almost everyone recognizes their name, their ads, their offerings, and their policies. At times, they're also well-known among non-consumers. For example, most people would recognize Amazon even if it may not be delivering in their location. (This is not exclusive to horizontal marketplaces, though---of vertical marketplaces, Airbnb and Uber arguably enjoy a similarly high recognition.)
• Low pricing. Horizontal marketplaces often compete on prices, and low pricing, by default, becomes their USP. Since they target a broader market, there's often little personalization or customization involved. So, they facilitate mass-produced goods or generic services. Consumers who frequent horizontal marketplaces also demand lower prices, and instead of being loyal to one platform, switch between services depending on where they get a better deal.
• Highly efficient logistics. Along with low prices, horizontal marketplaces also tend to have a highly efficient logistics and distribution system in place. This helps keep the costs down. With this system, they deliver goods in bulk and reach their large customer base on time. Some marketplaces have logistics in-house, while others often outsource or partner with a third-party vendor.
• Deep use of technology. Horizontal marketplaces often utilize deep technology like analytics, customer segmentation, and product recommendation systems to make their platforms competitive. The technology does the heavy lifting of creating a personalized experience for each consumer based on data. Otherwise, there's a risk of users getting overwhelmed by available options.

Benefits and challenges of horizontal marketplaces

Amazon and its founder, Jeff Bezos, continue to inspire millions of entrepreneurs around the world, with everyone wanting to build the next horizontal marketplace like Amazon.

And there are several benefits to building such a marketplace. Let's look at some benefits of horizontal marketplaces.

Benefits

Massive market potential

Horizontal marketplaces aren't limited by niche interests. They can attract a vast and diverse customer base seeking a wide range of products and services, potentially leading to significant growth opportunities.

Economies of scale

With a larger user base, horizontal marketplaces can leverage economies of scale. This translates to potentially lower operational costs, competitive pricing for both buyers and sellers, and a more attractive platform for all.

Brand recognition

By offering a one-stop shop for diverse needs, horizontal marketplaces can build strong brand recognition. Think of Amazon's dominance---it's become synonymous with online shopping for countless consumers.

Data-driven personalization

The vast amount of user data collected by horizontal marketplaces allows for sophisticated personalization strategies. This can lead to highly targeted recommendations, improved user experiences, and, ultimately, increased sales and customer satisfaction.

Resistance against competition

In cut-throat competition, a well-structured horizontal marketplace can create a moat and keep competitors at bay.

When there's a large number of customers interacting on the marketplace, it creates something called "network effects." It essentially states that a product gets better and stronger as more people start using it. So, a platform that has the highest number of users essentially becomes the best or the most valuable. This can reduce competition and allow you to focus on innovation and monetization.

While there are certain proven benefits, building a horizontal marketplace comes with its own set of challenges.

Challenges

Longer time to liquidity and product-market fit

For marketplaces going the horizontal way, founders need something else besides skill and business acumen: patience. It takes a long time before you can achieve marketplace liquidity and product-market fit, and you would have to work towards it year after year continually.

Horizontal marketplaces rely on economies of scale to generate profit. Thus, till there are enough customers and enough volume transactions, horizontal marketplaces are usually loss-making enterprises. Most of today's successful horizontal platforms have been able to reach significant funding before turning a profit. In today's economic landscape, investors are much more cautious and interested in seeing indicators of profitability, such as liquidity and product-market-fit, before investing.

It's also important to note that economies of scale are limited, and there's a point after which the returns start to diminish. For example, in the retail industry, the effects of economies of scale start to reduce after stores qualify as supermarkets. One explanation is that as operations grow, so does the cost of management. Thus, there's a sweet spot.

For these reasons, the best way to start any kind of marketplace---even one that aspire's to compete against Amazon as a global horizontal unicorn---is to start with a vertical focus and expand gradually after reaching product-market fit in the first vertical.

Massive upfront investment

Horizontal marketplaces tend to require significantly more investment before they become viable businesses.

For instance, Amazon raised $8 million in Series A funding before its 1997 IPO. Likewise, Thumbtack has so far raised $699 million in 9 rounds of funding. The massive investment is used to develop new features and capture large market share via advertising and referral programs. Because horizontal platforms sell something for everyone, they need a huge number of initial users to reach liquidity. If you don't constrain your verticals, usually the only way to reach liquidity is to spend large amounts of money on customer acquisition.

Horizontal marketplaces often run incentive programs for new users, which burn cash initially. So, depending on the scope, you'd need significant investment for your marketplace.

Tough fight

Horizontal marketplaces also face challenges when competing against industry giants like Amazon or eBay. These giants have deep pockets, allowing them to establish strong network effects that are hard to disrupt. Additionally, the profit margins in horizontal markets tend to be small, making it challenging to compete with these giants on pricing. This can further intensify the competition and create barriers for a new entrant like you trying to gain a foothold in the market.

Again, a strategy that has been shown to work against the giants is to niche down. Identify a vertical that these platforms don't serve well and specialize in offering it a tailored experience. Famously, this is how Airbnb won over hosts that had previously used Craigslist to list their rentals.

Threat from niche marketplaces

Big horizontal marketplaces, while initially successful due to their broad appeal, can become victims of their own success.

As they grow, they try to cater to every possible need, which can lead to a diluted user experience that doesn't satisfy anyone perfectly. This opens the door for smaller, more focused players to enter the market and disrupt the status quo.

These verticalized players can offer specialized solutions that address specific niches in a way that the big horizontal players cannot match. Users who are looking for a more tailored experience are often drawn to these specialized services, leading to their success and the eventual fragmentation of the market.

For example, Fiverr and Upwork took some market share away from Craigslist job postings, as Airbnb did with vacation rentals. While Craigslist is still around and thriving, it did lose out on some business from both these marketplaces. The same can be said for Thumbtack and OfferUp, both of which offer specialized services and take the market away from Craigslist. And now, these marketplaces which cater to several verticals are being disrupted by even more specialized vertical marketplaces that focus on just one of their niches.

Hence, the story repeats itself: broad horizontal platforms grow, submarkets within them expand, and new, more specialized players emerge to cater to these submarkets, ultimately challenging the dominance of the biggerplayers.

So, when building a horizontal marketplace, you need to be prepared to face such challenges. Starting small can be a smarter move when you're starting a marketplace. By focusing on a specific niche or area, you can build up a strong user base more quickly.

Many successful marketplaces we know today, like Amazon and eBay, actually started by focusing on just one thing. They built up a loyal customer base in that niche before expanding to offer more products.

Another approach is to focus on a specific location, like a city or even just one neighborhood. This can help you get a foothold in the market before expanding to other areas.

Using both of these strategies together can be even more powerful. By starting small and focusing on what people really want, you can set yourself up for success and grow your marketplace into something big. So, how do you do that? This brings us to:

How to build a successful horizontal marketplace

Building a successful horizontal marketplace requires hard work, vision, and perseverance. The road to success is likely going to be long.

However, it's always good to start vertical before going horizontal. Amazon started as an online bookstore and not an online retailer. Likewise, Craigslist started as an email distribution system featuring local events. Thus, there was always a niche focus. This focus allows the marketplaces to dominate one segment while keeping operations costs down.

Based on our experience of observing marketplaces grow and scale, here are the 10 steps to successfully building a marketplace:

1. Brainstorm marketplace ideas. Start by brainstorming ideas on how your marketplace can solve problems. Talk to friends and family and visit online forums on some common pain points they share. Visit other online marketplaces and identify where they leave room for improvement. This will give you a list of ideas to work on.
2. Start with a focused scope. You can't start working on all ideas you generate, and you shouldn't. Rather, find a focus and figure out the most pressing problem you can solve in the marketplace. Again, our recommendation is to start with a single vertical and location, and expand from there.
3. Select a marketplace business model. The problem you're trying to solve should be in line with a strong business model. Therefore, develop a business model around your marketplace and figure out how you'll be making money. Most of today's most successful marketplaces charge a commission out of every transaction they facilitate.
4. Validate your marketplace ideas. Before investing time and resources in building a marketplace, it's necessary to validate your ideas. This requires you to further talk with your target audience and seek feedback for your ideas. Understand if they're willing to pay for what you're offering or will give your marketplace a shot.
5. Build an MVP. Next, instead of a comprehensive marketplace, build an MVP or minimum viable product. This is the minimum version of a product you can build for testing purposes. The process is super easy with no-code + low-code builders like Sharetribe.
6. Onboard the sellers. Once you have an MVP, onboard sellers onto the platform. This essentially solves the classic chicken-and-egg problem. It's usually sellers who need more buyers than the other way around.
7. Launch your marketplace. Next up, launch your marketplace to the world and attract some buyers. You can do this by running ads or organically through word of mouth.
8. Figure out problem-solution fit. You'd have to go through a series of iterations to achieve product-solution fit. This is where your marketplace actually solves a particular problem, and you can demonstrate it. A sign of problem-solution fit is that your early users are completing transactions (even if volumes are still quite low at this point).
9. Figure out product-market fit. Your marketplace also needs to achieve product-market fit to become financially viable. It'd require some more iterations. A sign of product-market-fit is that transactions are happening on your marketplace and you've reached liquidity.
10. Scale into new verticals. After you've perfected a vertical, you can expand on others. When you've reached product-market-fit in a small market, you have a playbook you can use (and show investors, if you're looking to raise funding).

Even if your ultimate goal is to create a large horizontal marketplace, starting with constraints can set you up for success. By focusing on a single vertical (a specific category of products or services) and potentially adding a geographic constraint, you can concentrate your efforts and resources to achieve product-market fit more effectively.

Starting small allows you to test your marketplace with a targeted audience, refine your offering based on their feedback, and gradually expand into new categories or locations once you've established a strong foundation. This iterative approach, where you continuously improve and add features based on user feedback, is key to building a successful marketplace.

Sharetribe's no-code builder is designed with this iterative process in mind, making it easier for marketplace founders to start small, test their ideas, and scale up gradually as they grow. This approach can help you build a sustainable marketplace that meets the needs of both buyers and sellers.

Key takeaways

• A horizontal marketplace is an online platform that connects a wide range of buyers and sellers across various industries, sectors, and locations.
• Horizontal marketplaces are a one-stop shop for all the needs of consumers.
• Such marketplaces follow a generalist approach, and the products or services offered are intended for the masses.
• Because they're intended for everyone, horizontal marketplaces are well-recognized brands and often eventually become household names.
• In most cases, horizontal marketplaces compete on prices and offer the best rates to stay competitive. They rely on a high-volume-low-margin approach to succeed financially.
• Horizontal marketplaces typically require higher investment and more time to reach liquidity as compared to vertical marketplaces.
• Today, horizontal marketplaces face increasing competition from specialized, vertical players.
• It's not uncommon for horizontal marketplaces to start as vertical marketplaces and then scale up to diverse markets. This is intentionally done to reduce cost and become efficient in one segment before diversifying.
• The best way to start a horizontal marketplace is to first focus on a single vertical and expand from there.