What is the difference between marketplace model and inventory model in ecommerce?

The new FDI policy regulation in the ecommerce sector has allowed 100% FDI in marketplace model of e-commerce under automatic route. Correspondingly, no FDI is allowed in the inventory model.

The new policy comes as clarification by the FDI policy think tank- the DIPP (Directorate of Industrial Policy and Promotion)

What is marketplace model?

According to the FDI policy guideline, “Marketplace model of e-commerce means providing of an information technology platform by an e-commerce entity on a digital and electronic network to act as a facilitator between buyer and seller.”

Marketplaces are platforms that enable a large, fragmented base of buyers and sellers to discover price and transact with one another in an environment that is efficient, transparent and trusted.

The main feature of the market place model is that the e-commerce firm like flipkart, snapdeal, amazon etc. will be providing a platform for customers to interact with a selected number of sellers. When an individual is purchasing a product from flipkart, he will be actually buying it from a registered seller in flipkart. The product is not directly sold by flipkart. Here, flipkart is just a website platform where a consumer meets a seller. Inventory, stock management, logistics etc are not supposed to be actively done by the ecommerce firm.

What is inventory model?

According to the FDI policy, “Inventory model of ecommerce means an ecommerce activity where inventory of goods and services is owned by e-commerce entity and is sold to the consumers directly.”

The main feature of inventory model is that the customer buys the product from the ecommerce firm. He manages an inventory (stock of products), interfaces with customers, runs logistics and involves in every aspects of the business.

Alibaba of China is following the inventory model.

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