The amount of online marketplaces increases every day. Both consumers and suppliers increasingly turn to online interaction. According to Statista, in 2019 e-commerce sales worldwide reached the point of $3.4 trillion, and this number is expected to grow further.
Online marketplaces dominate over traditional offline platforms due to convenience and time-efficiency. In such a manner, more and more entrepreneurs come to an idea to build an online marketplace platform and need to make many decisions before any work is done. What are they?
In this article, we discuss five main questions you need to consider to start your own online marketplace.
1. Marketplace business model
Initially, you need to define the business model of your marketplace. It is important as you need to understand the benefits and drawbacks of your future product.
Step 1. Choose the type of your future marketplace
To begin with, let’s define the classification of online marketplaces:
|Classification of online marketplaces|
Here you need to make a decision on the ‘who to whom’ issue and define the thematic category. Initially, marketplace creators think about the product that will be traded on their e-commerce platform. Depending on it, they turn to consider the platform parties like B2B, B2C, C2C which is important for making decisions on marketing campaigns, planning, monetization strategies.
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Step 2. Vertical vs. horizontal marketplace
Additionally, online marketplaces differ by type of platform: vertical and horizontal. Let’s shortly define the differences.
This type of platform focuses on a particular industry or niche. Such marketplaces normally specialize in a specific good or service for a particular people group. They have a smaller client base than horizontal marketplaces. Thus, it’s easier to set up efficient promotion campaigns.
This type of platform covers various goods and services with a common unifying characteristic. Such marketplace websites include generally used and salable products.
Make a long story short, vertical platforms are easier in launching as there are still many spheres without large opponents. Also, this option allows you to create a custom marketing approach to find out more about your targeted audience.
Step 3. Finalize and validate your thoughts
Alongside, to form a future marketplace business model, you need to meet the following statements:
Your marketplace platform is valuable
Here you need to be sure your e-commerce platform is valuable for both buyers and sellers. Emphasize the main strengths of the platform that attracts each side to join it.
Your marketplace platform is responsive
In order to make your marketplace website suitable, you need to understand the roots of acquiring the customers to the platform.
Thus, discussing all the aspects mentioned above will let you figure out your marketplace business model and move on to the ways of monetization.
Before moving to the next stage, we’d recommend you to take a look at the table which helps you to draw a distinction between different marketplace types.
|Comparison of online marketplace types|
|Value of sale||Tens of dollars||Tens and hundreds of dollars||Thousands and millions of dollars|
|Pricing||Negotiable market-based price||Standard pricing||Customer pricing|
|Length of the sales process||Hours to days||Days to weeks||Days to months|
|Number of decision makers involved||One or two||One or two||Several people to a dozen or more|
|Motivation for purchase||Individual needs or emotions||Individual needs or emotions||Business needs|
|Buying process for a provider to use a marketplace||Single step||Multiple steps||More multiple steps|
|Goal tasks of a marketplace||
2. Monetization strategy
When you have defined your future marketplace business model, you need to choose the monetization strategy for your platform. The point is that you are most likely starting your marketplace to make a profit, not as a charity program.
For this reason, you need to carefully choose the option for your platform and implement it. Let’s discuss the main monetization strategies.
For instance: Sellers pay $15 per month for a subscription.
Applying this approach, the sellers have the possibility to get a subscription and use the extensive offer on the marketplace. This offering may include premium listings or advanced software solutions and services integrated with the platform. This payment is usually done on a monthly or yearly basis.
For instance: Sellers pay 4% of the transaction value.
It seems to be the best model of monetization for sellers as they pay fees only when they sell a product. Without any advance payments, sellers are more likely to be inspired to join your marketplace.
The logic is pretty simple: the more transactions your platform website executes, the more income you bring in. Thus, this strategy scalability is very high.
For instance: Sellers pay $10 for listing each product on your marketplace.
The point is that you charge the vendors for listing the items on your marketplace. Interestingly, this monetization option is complete opposition to the transaction fees. In case your marketplace is new-made and has no traffic, it can push off the vendors from joining your marketplace website.
For instance: Sellers pay $5 for a premium listing, which stays higher in the feed for a week.
It’s a good option in case you provide a free service. You can charge the vendors if they want to make their offer more visible for the buyers. The placement in the top of search results produces more customer leads. Consequently, the sellers are more than likely to cover a larger number of customers by purchasing premium listings.
Featured ads are a great way for the vendors to promote their products and get more visibility within your platform.
However, this type of business model is really hoar. You need to control the amount and size of the advertising blocks on your platform. Lots of users are tired from annoying ads and such an option may put them off your platform.
The only means is to make these ads tailored and personalized. For this reason, this income stream works best for niche platforms that are related to one particular industry. In this case, any advertisement will be relevant for many users.
Further reading: Best Monetization Practices to Build a Successful Online Marketplace
Finally, the best way to prove the capability of these strategies is to see well-known brands. Let’s take a look at some benchmark companies.
|Monetization strategies by famous companies|
|Subscription fee||eBay, Amazon, WIX, Docplanner|
|Transaction fee||Shopify, Etsy, eBay, Amazon, Stripe|
|Listing fee||Etsy, eBay, Delivery Hero, Mercado Libro, OLX|
|Premium listings||Google, oLX, Craigslist, Pizza.de, MyTaxi|
|Advertising||Amazon, eBay, Facebook, LinkedIn, Twitter, Snap|
3. Promotion and user acquisition
Online marketplace branding is a major challenge. Every web marketplace frequently struggles with the issue of user acquisition, the so-called “chicken and egg” issue. Suffice it to say, a platform needs to draw both consumers and suppliers, but either party will not come without the other.
When a buyer purchases a product on a marketplace, it’s important to understand that the buyers frequently don’t remember the seller who supplied the product.
Initially, you need to draw both consumers and suppliers to your online platform. Here come marketing and traffic attraction issue. There are different ways to promote your e-commerce platform, as follows:
- Social media through graphical updates & joining relevant groups
- Paid-for advertisement
- Keyword focused content marketing around the particular product category you are targeting
Let’s take a look at one of the key strategies for attracting buyers first, using the example of Creative Market. When this marketplace started, they offered $5 to every first time user. They pointed out that this strategy guaranteed enough leads from the beginning. Moreover, they were not worried about providing money because most people would contribute more than $5 later on. This technique proved its value.
4. Customer service
Here is another issue that should be discussed before starting an online marketplace. Quite often, the customers become disappointed with the purchased products or their platform experience. In such scenarios, they shape a bad opinion and direct their anger towards the marketplace, rather than the seller.
Therefore, it is important to build an environment where both suppliers and consumers are charged with the fulfillment of their obligations, as it can be critical in terms of growth. Also, this recurring problem can frequently escalate into a PR issue or a social-media recoil.
Online selling sites like Alibaba or Amazon are prosperous partly due to the fact that they can engage with consumers to know whether anybody experiences the faults. If a buyer experiences some negative emotions considering the purchased product, then they explain that this fault is imposed on the vendor or enterprise, that is responsible.
If you do build a great experience, customers tell each other about that. Word-of-mouth is very powerful. - Jeff Bezos, Amazon CEO
In conclusion, to provide the users with the best user experience, an optimal strategy is to set up an environment where both consumers and suppliers are looking after their duties. You can engage with your website consumers to receive feedback about the performed purchase, and, if any issues emerge, you need to point out who is responsible for that.
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5. Software platform
Initially, you need to choose the marketplace software. It is important to build accurate business logic that you want your customers to follow.
Putting it shortly, there are two main options of building your own marketplace:
- Build it using the existing platform or software
- Build it from scratch
Let’s take a closer look at both options.
Use an existing platform or software
In case you are looking for fast-in-launch and easy-in-use solution, you can opt for a ready-made marketplace software. Many entrepreneurs choose this option as it requires far less time to launch the marketplace. Frequently, you don’t need to spend time for wireframing, developing, or testing.
There are already lots of e-commerce platforms available in the market like Magento, Shopify, WooCommerce, CS-Cart Multi-Vendor, Sharetribe, Yo!Kart and so on. All of them can be either open source, licensed, cloud-based or self-hosted. To opt for a particular read-made solution, you need to decide how much control you want over your platform.
If you want to create online marketplaces like Amazon or Flipkart, then you should choose an open-source option as it provides you with full control over your online platform and more room for customization. Magento is one of the most popular open source e-commerce platforms, as they have lots of users constantly designing new plugins and extensions.
Contrariwise, a ready-made marketplace solution has several disadvantages:
- The potential impossibility of making some customizations because of platform dependent.
- Opponents might use the same template.
- You need to optimize the software performance regularly.
Build your marketplace from scratch
However, in case you want to start a marketplace website with customized business logic, then you should opt for custom development. In such a manner, you build those features and rules that you want to have on the platform.
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Of course, this option frequently requires more time and funds for coding, quality assurance, and final launch. However, it’s a perfect choice if you want to improve your online platform with more personalized features and integrations.
There are different ways of starting the development process and all of them have both pros and cons. Let’s discuss all the options:
In-house development team
One of the marketplace development options is to hire a highly skilled developer or even a team in-house. This is an excellent choice to grow your team, and co-operate together with motivated employees on your project.
Though, this choice may be funds-consuming because skilled professionals are motivated by the project idea and the salary they will receive.
However, this option has some subtle moments. First, remote collaboration may be challenging if you have not experienced this option before. This article with our tips on remote work may help you with this issue.
Furthermore, you need to assure that the team of freelancers has proper competence. We recommend contacting their existing customers for getting feedback before starting any cooperation.
The main benefit of this choice is that such agencies would have great experience in creating various marketplaces that allows you to be sure of getting exactly the solution that you need. Having built many marketplace platforms, the specialized agency already knows beforehand all the methods and approaches that will work best for your product creation, together with industry's best practices.
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Building an online marketplace is a time-consuming and complicated process. In order to create a sustainable and thriving e-commerce platform from the ground up, you need to think about dozens of details beforehand.
Each marketplace faces its own unique challenges, as every platform is different. However, initially, regardless of the type, you need to make decisions on the major points like the development process, monetization issue, customer service improvement, and marketing, as well as consider the latest marketplace development trends.