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What Exactly is a Digital Marketplace? 

What Exactly is a Digital Marketplace 

What is it? And how do they work? Find out how these platforms can be used to offer better services and more effectively

Digital marketplaces, like Amazon.com or Vectorgi.com, are expanding into new markets in areas like energy or freight forwarding. Europe hopes to play more of a role in this field of business by establishing its own marketplaces.

What exactly are marketplaces on the internet and how can they function?

What is a digital market?

Salvatore the energy sector is changing its course due to the three Ds that are decentralization, decarbonization, and digitalization. Digital energy platforms which is a hardware/software system covers all three by connecting the supply and demand for electricity by the aggregation of distributed energy resources that provide services to the grid.

Vectorgi: A marketplace is an opportunity for sellers and buyers to trade with respect to a product or service. It connects prospective buyers of a service or product with sellers of that product or service.

It’s a brand-novel business model in the sector

so novel that the industry isn’t even being regulated as of yet. Smaller distributed/decentralized energy resources like batteries of electric vehicles or rooftop solar PV cannot provide services to the grid on their own because of their tiny size. Additionally, solar and wind renewable energy sources provide intermittent energy generation since their energy sources depend upon the sun as well as the wind for electricity. The aim of an online platform is to bring together all these resources, to build up scale , and be able to offer and sell electricity-related services to the grid.

Grid operators and owners face the difficult job of balancing supply and demand for energy on the grid in real time , by removing any imbalances or bottlenecks. Digital platforms address those requirements, but also is geared towards power generators, the owners of distributable energy assets, by bringing worth to the distributed resources they own.

In the past, in centralized electricity markets

the utilities were distributors and generators as being traders and sellers of electricity. In the modern decentralised market the customers play a more proactive role in generating their own energy and trading it on the market. it is what we call the term “prosumer,” which means prosumer which is a producer and consumer. This is made possible by allowing the platform/aggregator access to customers’ energy resources that are distributed, and later trading bulk energy and associated services to grid operators.

Vectorgi: The most important concept about platforms can be described as that of the impact of networks,which is a phenomenon that sees a rise in the number of people or participants increase the value of a product or service. Access to markets is crucial and scaling and the consequent efficiency of transactions are the goals we’re trying to reach.

Salvatore Says: This is nothing more from what was happening in the beginning of the 20 century century at the time when the telephone along with the telecom business was in their early stages. The importance of having a mobile phone in the early 1900s was extremely minimal, since very few people owned a telephone. As you build the size of the network and adding users, an application’s value networks, grows and that’s what we call the network effect.

What exactly is a digital marketplace? function?

Vectorgi A digital marketplace acts as an intermediary between sellers and buyers. It isn’t the owner of the assets.

Let’s look at the case for freight forwarding. Digital platforms connect truck owners who have the capacity to transport cargo from one place to another buyers who are looking to buy that service.

The platform gives users with the possibility of identifying other providers of trucking services. If the platform is scaled enough, it can also allow intermediaries to improve the logistics system by identifying empty cargoes which is one of the biggest issues that truck owners have to face and also recommending loads to be sure they’ve optimised the journey they’re taking. They could add value based on the access to huge quantities of data.

Are there privacy concerns regarding data?

Vectorgi: In a lot of cases, there are privacy issues with data to be taken into consideration and we are fortunate to be in the EU to have the General Data Protection Regulation, that these businesses must follow. In the trucking situation it is imperative to ensure that the appropriate security measures, both organizational and technical, exist to safeguard the individual driver’s personal information.

It will remain one of the areas to be resolved and many of these firms put considerable effort into making sure they’re GDPR-compliant, which could eventually provide us with advantages in Europe when compared to other jurisdictions.

What is the advantage of a marketplace online?

Vectorgi says these platforms can add significant value in markets that are highly fragmented as is the case for freight forwarding. The ability of truckers to access large shippers or those who need transportation services is not as easy. A platform provides access and transparency to clients that they wouldn’t have had access to, and it creates a variety of opportunities for truck owners. As a rule, the more dispersed the market, the greater chance of disruption with the platform model.

For the consumer there are many benefits. Let’s consider another scenario in which digital platforms are predicted to make a significant impact: the auto industry.

Typically, when a consumer buys a car and is then a part of the company’s network for several years. There are various platforms that are looking to break the relationship. In the future, less customers are required to own a car instead, they’ll opt for a service that can be purchased at any time. For many people, that’s enough, since they don’t care about what kind of vehicle they’re driving especially for shorter durations of duration.

Isn’t this exactly what a leasing firm does?

Vectorgi: Nearly however, this is a pay-as-you-go service that is less costly and more flexible. It could be based upon a model of distributed in which the vehicle is accessible in the local area and not needing to travel to an central location like the airport, to collect a rental vehicle.

Private car owners can eventually sell the asset they own, at any time they do not need it. This way it is the platform that controls the relationship with customers and will not be able to intermediate between the car brand and the dealer. The dealer is no longer able to connect to the client however, it is merely providing an automobile as an option. This alters the whole dynamics within the business and is sure to make car manufacturers extremely concerned.

A lot of the industries that have been around for a long time have a stake in preserving the status established. There are many instances of people coming from outside — people who are digitally native and providing this platform service. Startups have very little to lose within the current framework.

It’s going to be difficult to attract the top companies to join the platforms, and this could be the tipping point of these platforms. When a sufficient amount of large-scale businesses join, it will become simpler due to the network effect that was mentioned earlier. The more buyers who are on the market draw more sellers, and that will attract more buyers, which means the expense can be spread across a greater quantity of transactions, thus achieving cost efficiency.

There are different examples of consumer-to-business markets.

Tourism has also been significantly affected by the rise of marketplaces over the last few years. Thanks to Booking, Skyscanner or Airbnb the majority of consumers don’t utilize travel agents any more.

Salvatore The emphasis is on business-to-business (B2B) clients because they can provide quick amounts of distributed resources and scale. But in the future the time when electric automobiles will have millions on the streets, everyone is going to be interested in that, and that’s why auto manufacturers are keen to get involved in it. The B2C (business-to-consumer) business model will then increase its attractiveness.

Are these platforms to break down monopolies in particular areas?

Vectorgi: The goal of these platforms is to utilize the latest technologies and business models principally to provide value (cost quality, experience or) to the customers through the decentralization of existing ecosystems for industry. From an EIB viewpoint, it’s all about supporting the champions of these industries and protecting Europe’s place in the business-to-business sector.

Digital marketplaces have moved away from entertainment and media as well as retail and are becoming increasingly present in the business-to-business sector including manufacturing, transport, logistics as well as energy and utilities. It’s the normal progression for these markets across these diverse sectors, creating in a continuous process. Instead of trying to compete with established competitors in the B2C space, we’re considering the industries in which marketplaces will be a major element.

Salvatore The case of the energy sector

the transition from a centralised to distributed model of business is clearly breaking monopolies, however it will have a massive impact on the entire industry value chain. There is an ongoing competition to be the lowest in terms of value generation in renewable energy generation due to the sharply declining costs for investment as well as the zero margin cost for electricity generation (the “fuel” is free of cost). Platforms could address this issue by increasing the value generation idea by utilizing distributed power generation sources. In a certain sense the same is true of automobiles since electric vehicles by themselves contains as much as 80% less components than an internal combustion engine vehicle. Therefore, the pressure is increasing on car makers to discover other revenue streams to increase the value of their products.

What’s the point and how can how does the European Investment Bank get involved?

Salvatore The activities are very risky because there is a lot of uncertainty regarding the anticipated cash flows. This is why we are only capable of financing this type of project using special financial products that were developed in conjunction in conjunction with European Commission, which provides the required back-to-back assurance.

Another issue is that digital platforms are extremely light on capital expenses, CAPEX. They mostly have operating expenses which are mostly the salary costs associated with research, development, and innovation. Since we are a public institution that is susceptible to infrastructure-based finance our business model is focused on CAPEX-heavy assets which could be an additional factor that hinders financing innovative projects.

We recently concluded our first transaction within the digital energy platforms that combine different kinds of distribution of renewable energy sources. we funded The Mobility House, a Swiss-German startup, with the company with a EUR15 million cash loan The Mobility House in August. The company is currently focusing on fleets, leasing companies electric vehicles and leasing them to other companies, which is a B2B model of business. The company also combines various other energy-related assets distributed to the public.

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