Online marketplaces is a lucrative business option and a growing chunk of e-commerce industry worldwide.  Backed by their wide range of vendors and ample visitors global marketplaces are set to own 39% of the online retail market in 2020.

Amazon with a large share in that pie has monthly visitors over 190 million.  Sellers at there have been benefited from the massive traffic and reported an average increase in sales of 50 percent once they’ve started selling there.

Flip it and you will face the grueling competition in e-commerce sector and high failure rates. Only 50% of small businesses stay in the market after four years.

Indeed, online marketplace is a great option to kickstart your e-commerce. But, it’s a tough place, even for the seasoned ones.

So, how can you make sure you are not wasting money by building your first marketplace?
Don’t worry. We are here to guide you.

All you need to do is to test your marketplace concept and business strategy with our six questions. Once you go through them, you will have better insights to prepare your marketplace before making it live.

Here we go-

1. How will you solve the “Chicken and Egg” problem:-

Oldest problem in business but still the biggest challenge for emerging players.

Let’s introspect-

A new marketplace faces the challenge of finding vendors and drawing buyers. And if the marketplace admin has no own product to display, the challenge of preparing the storefront and getting visitor there gets more tricky.

Find your solution now-

• How will you attract buyers when there is no product to display?
• And if there is no buyer at your marketplace, how will you convince vendors to open their store at your marketplace?

How about some inspiration from marketplace leaders-

In their initial days, Airbnb rent their own houses when they have no host agreed to rent their living space. Dating marketplace Tinder reached out to the college campuses and convinced the young peers to find their soulmate over the app.

2. What’s the USP of your marketplace?

Marketplace is a booming concept around the globe. But these questions haunt every budding entrepreneur-

• How will you stand out from the competitors?
• Do you have any groundbreaking and disruptive business idea?
• If you have no groundbreaking idea, how will you differentiate your marketplace from the existing model?

Airbnb stormed into the market by creating the opportunity to earn by renting living space. Uber transformed the public transport behavior with on-demand cab booking.

But, what if your marketplace has no such disruptive business idea? Seek inspiration from Flipkart and OLA- the Indian counterparts of Amazon and Uber.

To figure out where you can do different or do better from existing marketplaces, below questions will guide you-

Does your marketplace make it easy for vendors to sell their products? Does your marketplace ease customers’ buying journey?

Airbnb finds their USP in their competitor’s weakness.

Beautiful Image draws customers. Airbnb is the testimonial. 

They quickly identify that other listing website like Craigslist does not feature professional images of their products. Turning it out into their biggest asset, Airbnb starts to feature attractive photographs of the rooms and draws more buyers to their website.

Marketplace champion Amazon provides a ton of seller-friendly and buyer-friendly features. For third-party sellers, Amazon has come up with Fulfillment, a seller dedicated shipping service.

Do not forget to count Amazon Prime (a paid subscription service for free shipping, streaming items, and other benefits) and Amazon Go (more ease in product browsing and checkout process from physical Amazon store), you will get all kind of Avatars from Amazon for every touch point of the consumer journey.

3. What will be the revenue model of your marketplace?

Enough of strategies. Let’s talk about outcome aka revenues. Marketplace has multiple revenue models-

Ugh!!! “too many models”. “Problem of plenty”. What if these are the golden opportunities in disguise for you? Evaluate them and select the best revenue model for your marketplace. There is no set formula in book and market.

Different marketplace businesses have their own revenue model. Airbnb, Etsy, eBay, Fiverr, TaskRabbit and Uber—all use commissions as their main business model whereas Love Home Swap is run on membership model and Craigslist earns through listing fees.

4. What will be the payment infrastructure of your marketplace?

Have not we talked about adding value to sellers and buyers? A convenient and seamless payment is your brownie points. Let’s find out the areas where you can make a difference-

• How will the money move between admin and vendors?
• Will it be transaction fees or listing fees?
• Will they process the payment through your channel?
• How to introduce a credible and secure payment structure.
• Will the marketplace admin receive a fee, then the buyers and seller interact and pay directly?
• How will you win the trust of your providers/vendors and buyers?

Find out what comforts your vendors and buyers and then set up your payment structure according to this.

Take Uber for example.

Source

In Uber eco-system, the drivers are not in a direct financial relationship with the passengers. The Uber guarantees the level of service and charges the money. The drivers have a financial relationship with Uber as contractors.

5. What’s the growth model of a marketplace?

Ok. So, you have started your marketplace and now growing big is on your card. Question is, how will you make it feasible? On paper, the growth model of a marketplace is tricky. Have a close look-

A virtuous cycle of growth to confuse you. Hope these questions help you out-

Will you eye on adding more number of vendors?
Or, will you target a bigger vendor with a large inventory to feature your marketplace with new products at regular interval?
Will you target local market in search of more buyers?
What about cashing in competitor’s traffic to make it big?

And here is how the big players have scaled up-

Tinder has gone to local colleges and hosted a number of parties to popularize their matchmaking app. Airbnb hijacked Craigslist’s traffic to catch potential hosts. Whereas Uber continued to hire their own drivers till the third party drivers started registering their cabs.

Indian product marketplace leader Flipkart concentrates on building their own warehouse to comfort and catch more number of vendors.

6. Customer and vendor management:-

Managing marketplace is a difficult task. It’s not just about the sellers or buyers but building and nurturing a better buyers-sellers-marketplace relationship.

Here are the questions that will guide you-

• How much help will you be for your vendors?
• How will you safeguard a vendor and protect buyers’ interest during any vendor-customer dispute?

Let’s seek some inspiration from industry leaders-

Unique goods marketplace Etsy offers a comprehensive guide for the sellers on how to get found. Can you do such favor? Then, win their loyalty and trust by reaching to them.

Different marketplace leaders have their different policies to manage vendor-buyers dispute.

Take Airbnb as an example –

• Airbnb has clearly written in their contract that they will not engage in building maintenance and other stuff.
• Leaving that to hosts, Airbnb only owns their host’s money when they receive an actual booking
• Airbnb has introduced a considerable identity verification process for both guests and hosts.
• Hosts and guests can also write public reviews about each other
• Airbnb also offers “Peace of Mind”, a $1,000,000 damage guarantee for the hosts against certain conditions, limitations, and exclusions to the hosts.
• Airbnb recruits a team of investigators to track down any fraud and misuse

What’s your strategy? Go through your business model. Understand your potential vendors and targeted buyers. Identify the probable hiccups and take guards.

Now, The Ball is on Your Court:-

Your marketplace has all the potential to moonshot your startup to become a profitable business. But, success has it’s own fair shares of challenges what we refer here and show you how the bigger players have overcome them.

Have you found their strategies inspiring and helpful? What are the biggest challenges that you are facing just before launching your marketplace? And most importantly, what strategies you are opting to overcome those challenges? Share your thoughts and concerns with us.