Pros and Cons of Peer-to-Peer Business Model in the eCommerce Industry

Since the evolution of the eCommerce marketplace, centralization has been a key component of its managerial system. Vendors and sellers, whoever wished to join Amazon, Walmart, or others, had to follow their countless rules and regulations.

But today, vendors and sellers constantly look for more liberalization in eCommerce marketplaces. They no longer want to rely on centralized mediators to deal with customers. This is where the peer-to-peer business model originates.

Here, the seller and buyer can directly communicate with each other without the interference or assistance of any third-party intermediary. Many tech giants have already adopted this model, such as Uber, AirBnB, and Lyft.

But how the model works? You will know everything in this article. Stay tuned!

What is Peer-to-Peer Business Model?

In a peer-to-peer business model, individuals and businesses can directly interact with each other. The process is free or keeps only a minimal intermediary involvement, unlike traditional marketplace models

In a traditional eCommerce marketplace, sellers don’t receive the payment directly from the customers. The admin keeps a commission and pays the rest to the. Even in many cases, vendors can’t use the personalized delivery system.

They have to use the marketplace-recommended delivery system. But in peer-to-peer business models, buyers and sellers don’t need to follow these bindings. All they need is a platform (act as a matchmaker) that will enable the parties to find each other.

Next, buyer-sellers fix prices for their product/services, choose a delivery system and complete the transaction through a preferred payment system. Finally, the platform owner cuts a commission for its matchmaking services.

Examples of the Peer-to-Peer Business Model

The peer-to-peer business model is not a new idea to the world. Long ago, farmers and dairy workers would trade directly with the customers. But middlemen culture became inevitable with the industrial revolution.

It became difficult for the producers to handle so many products. So, the middlemen’s idea became mandatory to help the manufacturers and producers in the distribution system.

But with the advent of communication systems, the peer-to-peer model got it’s way back into the business world again. Today, tons of organizations belonging to different sectors stand on the business model. For example,

Rideshare Apps

Uber, Lyft, GoJek, Blablacare, etc. All these apps connect car owners and riders together. Whenever a rider confirms his destination, interested riders approach him.

Freelancing Sites

Upwork, Freelancer, Fiverr, Guru, Toptal, etc. These sites connect clients and freelance workers in different areas. Such as translation, graphic design, programming, marketing, and others.

Grocery Marketplaces

Etsy, Amazon, and eBay have partially adopted this business model. Sellers list their products, including detailed info, on these sites. When customers put an order, sellers complete the delivery, and marketplaces cut just a minimal fee.

Rental Apps

HomeToGo, Tripping, AirBnB, Booking, Verbo, etc., allow people to make money by renting unused property to people looking for accommodation services.

Fashion Swap Apps

The Dress Change, Vinted, Swap Society, ThredUp, and Nuw. These platforms connect the fashion loving-people to swap their clothing items without even any price tag mutually. Here, your fashion items are currency.

Payment Facilitators

PayPal, Stripe, and Square. They support online money transferring and work as alternatives to traditional paper money methods. They are alternatives to checks and money order systems.

Due to its growing popularity, we expect to see many new sectors adopting the model soon. Hopefully, we will see many of them in the running decade.

How the Peer-to-Peer Business Model Makes Money

There are always two parties in a peer-to-peer business model: one offers service, and the other consume it. The platform admin imposes all sorts of fees on the service providers. Some most common them are:

  • Commission on transaction
  • Membership fee
  • Advertisement charge
  • Premium subscriptions
  • Additional paid functionalities

But there are many examples where the admin charges both these parties, though by different percentages. Such as Upwork, Fiverr, Freelancer, etc. Besides, when a platform starts getting big, many opportunities automatically come to the fore.

For instance, Uber initially came to the market as a ridesharing app. It has multiple other businesses like Uber Eats, and Uber Freights. You will find the same example in many other peer-to-peer businesses too.

Advantages of Peer to Peer Business Model

Many entrepreneurs and experts are adopting the model to sharpen their skills and resources. Here’re its advantages:

Cost Reduction

In a traditional business, producers and suppliers have to bear too many costs, such as production, storing, marketing, distribution, and transportation. Hence, it becomes difficult to maintain a high-profit margin.

But, since the model connects sellers and buyers directly, they don’t have to spend much on marketing, warehousing, and distribution. It reduces their costs in meeting the customers who are looking for their products or services.

Labor Specialization

Commercialization is always a stressful part of any business organization. But as the peer-to-peer business model takes out much of this pressure, entrepreneurs and experts can focus more on developing their skills. Thus, it promotes labor specialization.

Economies of Scale

Reduction of cost in marketing, storing, insurance, and distribution makes it easy for entrepreneurs to increase production in large quantities. Therefore, they can even offer customers discounted prices on selling their products and services.

In this way, the peer-to-peer business model helps achieve economies of scale and better support the social community.

Risk Reduction of the Platform Admin

Look at any traditional eCommerce organization: Amazon, Walmart, Alibaba, or else. You will see they maintain a big supply chain management system supported by warehouses and logistics. All these require huge financial backup.

Not many entrepreneurs can afford to launch a marketplace like these. Besides, macro-environmental factors such as politics, economy, and social behaviors are always uncertain. Therefore, a major change in any of these can bring a massive disaster to the managerial board.

But admin and owners of the peer-to-peer model are completely free of all these hassles. Rather, they can subsidize the platform to retain active users during crises.

Easy to Scalable

Since the model is free of many costs, unlike traditional businesses, they can invest more in promotional activities and better user experiences. They can try newer ways to engage the platform with the increasing number of audiences.

That is why more economic sectors tend to adopt the model in this decade than ever before.

Limitations of the Peer-to-Peer Business Model

If you plan to start an online business using the peer-to-peer business model, you must consider its downfalls too. Below are its limitations.

High competition

As the model is easy to use, anyone or a group of people with a minimum budget can use the model to launch their business. Therefore, it is always challenging to establish a brand name in the industry, even for the big firms.

Though this excessive competition is better for the platform users, but not for the admin and owners. It becomes difficult for them to settle down.

Lack of Credibility

Since the platform owners don’t participate in production, warehousing, and delivery, customers have no guarantee of receiving quality products or services in the process. All they have to rely on is the ratings and reviews given to the sellers.

But sometimes those ratings are fake that deceive the customers. It really creates a bad impression on the platform. Unless there is a refund option for the deceived customers in this situation, things turn into chaos right away.

Lack of Remote Access

In eCommerce marketplaces, customers can order a product hundreds of miles away. But yet, the peer-to-peer business model has been so successful when sellers and buyers stay within a limited distance.

Consequently, apart from freelancing websites, not many online platforms allow their users to make dealings if the distance between them is too much.

Illegal Content

Many newspapers have headlined that some peer-to-peer platforms have been used for transferring violent, obscene, and illegal content. So, many popular platforms have been bound to change some of their policies.

For example, Fiver and Upwork don’t allow pornographic works. They use an AI boot to check personal message boxes if any illegal work contracts are going on. Thus, they slightly violate the peer-to-peer model concept for social welfare.

Finally, there is nothing in the world without downfall or limitations. The same goes for the peer-to-peer model. But in many ways, it can give you a wonderful way to grow and scale up your business in the shortest possible time.

How to Start a Peer-to-Peer Business

The peer-to-peer model is changing how people do business in this 21st century. However, if you wish to launch a business with the model, remember you aren’t the only one in the race. You are joining a sector that is getting more competitive every day.

So to avoid all possible risks and challenges involved, you must move constructively. There are some basic steps in starting a business with the peer-to-peer model. Let’s explore them.

Identify Your Niche and Audience

Once, peer-to-peer was a favorite platform only for the service sectors. Today, the banking and grocery sectors are steadily adopting the model. So decide in which industry you want to offer your solution.

Alongside, mark your target audiences. Thus you can identify a perfect niche for your business.

Outline Functionalities

Crucial functionalities that make the peer-to-peer platform highly attractive and usable to the audiences are user profile, product listings, checkout, notifications, account verification, payment system, reviews, and ratings.

Before designing your website, make sure the functionalities you must include there. For a better experience, we suggest you visit and research the successful platforms, such as Uber, AirBnB, or Upwork, based on your industry.

Define Your Business Model

You can make revenue from the peer-to-peer business model in several ways. Above, we have discussed it. Here you have to define how many ways you want to make revenue. You may choose one or multiple of them.

Consider Scalable Options

You never know the future, but always hope for the best. Who knows, your idea may get tremendous popularity nationally or even globally! Just look at Uber. In the beginning, not many investors cared about them. But today, Uber is a global figure.

So, always maintain enough scalable options (allow investors, expand geographic perimeter, explore new niches, etc.) in your business mode. Thus, you can ensure a greater vision.

Develop a Website

Choose a perfect domain name, subscribe to a reliable hosting service, and then hire some skillful coders to design and develop your business website. Obviously, you must include the functionalities in your website just mentioned above.

It must be user-friendly and responsive to all sorts of digital devices, from laptops to mobile phones.

Launch a Mobile App

At present, more than 60% of traffics are generated from mobile devices. Therefore, not having a mobile app for your business means you really are missing out on a big market prospect.

Besides, the mobile app makes it easy for regular audiences to connect with your business. It increases customer experiences too. So, hire some freelance workers or make contact with a recognizable IT firm to design and develop a mobile app for your business.

Marketing and Promotion

Now, it’s time to make your platform attractive to interested users. Here, you obviously face a common dilemma whom to bring first: sellers of customers! We recommend you not to be obsessed with it. Rather have two sets of promotional campaigns for both of them.

To attract customers, you can offer them a certain amount of discount for the first several purchases. Similarly, you can allow sellers to enjoy the platform for one month without subscription costs.

Honestly, there is no shortcut to success. Here, we have covered the tried and tested approaches followed by successful enterprises using the model. Once you enter the industry, countless new ideas will automatically come to your mind.

Final Thoughts on Peer-to-Peer Business Model

Peer-to-peer is the future in the coming decades. Actually, we are already living at the beginning of that future. With the further advent of communication technologies, this business model will become closer to mass users.

Hope you have found this article helpful enough to meet your curiosities. If you have any more queries about this topic, just let us know in the comment section. We will get back to you at the quickest possible time.

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