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The advancement of information and communication technology (ICT), especially the Internet, has created a new way of conducting business and business transactions. E-commerce has been globally adopted and expanding in various sectors. Globally the size of e-commerce market is growing steadily. For example, retail e-commerce is growing 20.9% yearly. Retail e-commerce was US $3.53 trillion in 2019 and is expected to reach US $6.58 trillion in 2023, and one of the most popular activity on the Internet is on-line shopping (Clement, 2019).
The Internet has given the opportunity for firms to reach their customers directly, offering direct sales to customers with cheaper prices; interacting with customers and providing them better customer services; providing mass customization and personalization to suite customers’ need. Although customers can find products and services that they need faster through the Internet, with so many firms offering similar products or services, finding the firm that offer suitable products or services directly from the Internet could be time consuming. Similarly, for firms, they may have difficulties to reach their potential customers through the Internet as they cannot easily target the right customers. Digital marketplaces on the Internet help provide necessary functions for firms or suppliers to meet their customers and facilitate them to transact.
One of the greatest impact from the digitation of process is the creation of digital marketplaces as it creates immense impact on how supply and demand meet and transact. Digital marketplaces increase effectiveness and efficiency of market functions and significantly lower transactions costs. Essentially, digital marketplaces are developed along with the development of the Internet. Among the early digital marketplaces is eBay. It was founded by Pierre Omidyar in September 1995 and designed to be a digital marketplace to helps individuals transact goods and services easily and conveniently (Hasker & Sickles, 2010). There are many digital marketplaces that serve as platforms for business to business (B2B), business to consumer (B2C) and consumer to consumer (C2C) markets. Recently, there are many innovative digital marketplaces that created new markets and grow as global players in a relatively short time. For example, Uber is basically a digital marketplace for the transportation sector and Airbnb is a digital market place for the hospitality sector (Oskam & Boswijk, 2016) . There are also plenty of digital marketplaces for digital products such as Google Play (Play Store) for Android mobile apps, iTune for entertainment related products (music, movies, TV shows, etc.), and Craigslist for classified to name a few.
Essentially, there are three functions of market, (i) matching buyers and sellers, (ii) facilitating of transactions, and (iii) providing institutional infrastructure (Bakos, 1998). In general, digital marketplaces are firms that offer the first two market functions digitally in two-sided or multi-sided markets, and the third function is normally provided by governments or regulators. For examples, Airbnb offers a digital marketplace for accommodation owners and travelers and Uber offers a marketplace for drivers, food outlets and others with their customers.
A two-sided or in general multi-sided marketplace is an intermediary or a platform that facilitates or enables between two sides, producers or sellers and consumers or buyers, to interact and transact (King, 2013; Parker & Van Alstyne, 2005; Rochet & Tirole, 2006). A digital marketplace is a multi-sided market that provides digital interactions and transactions to run market functions between both side markets digitally. Some literature on two-sided markets have also discussed how a digital marketplace creates a price structure which attracts both sides of the market to transact (Armstrong, 2006; Roson, 2005; Rysman, 2009).
A digital marketplace offers values to both sides to stay in business. Stabell and Fjeldstad (1998) extends Porter’s value chain concept (Porter, 1985) into three generic value configurations – value chain, value shop and value network. A digital marketplace applies a value network as it mediates all sides in multi-sided markets. It provides a networking service or basically providing market functions to facilitate value exchange between customers.
This paper is organized as follows. The next chapter discusses related theories, which will be followed by a discussion on value network in digital marketplace. The following section discusses business models followed by a framework of digital marketplace and a discussion of Gojek, a growing digital marketplace in South-East Asia. The subsequence section is the conclusion and future directions.