Small Business

How to Start an Online Marketplace Business

Alibaba, Ruby Lane, Groupon, Amazon, and that’s not the end of the list. If you’ve decided to replicate the market giants’ success stories, this article is right for you. We’ll guide you through the main steps towards ensuring your marketplace’s success and subsequent growth.

Where will we start from? Our first step is selecting a winning business model.

Step 1: Find a winning business model

It’s a costly mistake to release a product with no revenue in mind and presume that you can generate revenue at any time. Imagine your users’ reactions. Why should they have to pay for something they previously had for free? So you’d better choose your business model from the very start.

The most popular business models include commission, subscription, listing fee, freemium, and advertising-based ones. Let’s take a closer look at each of these models.

Commission

With the commission-based model, a marketplace cuts a fixed fee or percentage from every successful transaction. You might have seen this model on the Postmates, DaWanda, Wyzant, and Fiverr websites.

Membership or subscription

Customers pay a subscription price each month/year to access a product or service in the marketplace. Thus, HomeExchange offers users to join its community for $150 per month and Studiotime gives clients its basic package for $23/month.

Listing fee

This model supposes you charge users a nominal fee for every listing they add to the marketplace. A fee’s size may depend on the item’s/service’s category, the listing’s duration, and your listing’s rank: the higher it is, the more you pay. Craigslist, Etsy, and Delivery Hero leverage this kind of business model.

Freemium

This is when a company offers a base product for free and charges customers for premium tools and services: Zapier charges users for more zaps (automation), Dropbox for a larger amount of space, and with Slack, you need to pay to see messages beyond the free threshold.

Advertising

Marketplaces using this model raise revenue through ads on their websites and usually don’t charge their customers. If you want to see the advertising-based model in action, check out Zillow’s or Freecycle’s websites.

If it’s hard for you to choose from one of the above, take into account your type of product/service and the value you offer, your target audience, and your business needs.

Once you’ve defined your revenue model, it’s time to test your business idea and make your product go public.

Step 2: Validate your business idea

A good marketplace addresses customer’s needs and serves as an optimal solution to their problems. This is why, before building a marketplace, you’d better check your idea and attest its worthiness. Don’t try to sell people what you think they need. Instead, sell them what they really need.

“There were helpdesks before Zendesk, tablets before the iPad, electric cars before Tesla, and CRM tools before Salesforce. These brands all strove to do something beyond being viable ‒ create products that delighted their users.” ‒ Brian de Haaff, Co-founder and CEO of Aha.

Interaction with customers will help you:

  • detect customers’ pains and the solutions they adopt to “relieve those pains”;
  • test their attitudes towards new solutions;
  • discover the market’s need;
  • evaluate the concept you’re working on;
  • ensure its feasibility: whether your idea is an exact fit for the customer’s pain or not;
  • reduce risks;
  • save time, effort, and money.

Additionally, you may discover more problems you can solve ‒ more chances to drum up your business.

There’s a wide range of techniques you can test your business idea with: interviews, crowdfunding campaigns, pre-sale/pre-orders, or an MVP (minimum viable product).

Crowdfunding campaigns

Crowdfunding campaigns are multi-beneficial: they enable you to test your idea, collect investors, and as a result accumulate capital for your project. We all remember NOMAD’s success story. Its first campaign on Kickstarter attained 322 percent of its funding goals.

Pre-sale/pre-orders

The concept is simple: you just create a pre-launch list with prospective users and present your product to them, or you may follow Logitech’s example. While working on the VR keyboard kit, the company restrained its first launch to 50 samples and created a special form where developers could apply for it.

MVP

An MVP helps release your product to the market quickly, test your business idea, and reduce implementation costs. Moreover, an MVP allows you to gather and enhance your user base and gain valuable insight into what works and what doesn’t.

An MVP can be a landing page, video, or your ready-made product with the minimum set of features necessary to resolve customers’ pains. Teambit’s landing page may serve as a great example of an MVP.

Obviously, your marketplace’s success heavily relies on your first users. Here’s where the question arises: “Whom to pull first into your marketplace?”

Step 3: Detect the right first users

Most marketplaces have two ‒ or sometimes more ‒ user roles:

  • Producers ‒ people, who generate value: they’re taskers on TaskRabbit, drivers on Uber, and hosts on Airbnb;
  • Consumers ‒ users, who want to satisfy their needs and wants: they’re task posters on TaskRabbit, passengers on Uber, and rentees on Airbnb.

While selecting the first users, you should consider both roles, detect the side that’s harder to attract, and address this side first. Let’s explore all possible variants via examples.

Producers first

Find the producers with a ready-made base of clients and enable them to communicate with customers in an easier and more efficient manner. In this vein, MySpace engaged “indie” music bands to win its fans’ hearts, and Shopkick, in turn, got five national retailers on board.

Consumers first

Gather the consumers’ base first and then conquer the entrepreneurs. With this tactic Yelp draws the attention of consumers willing to search, leave, and read business reviews, such as those on barbers or bars, and, afterwards, it brought merchants to its marketplace.

Both sides

Pull both sides simultaneously. The simplest way to perform this is to “piggyback” an existing network. Thus, StumbleUpon blossomed by being one of the Firefox browser’s first plugins.

Although, according to the Guide to Marketplaces, most marketplaces tend to build their marketplace from the supply side; you can’t blindly adjust the supply-side approach to each specific case, however. Be attentive to your target audience.

Attracting desirable users is one thing, but retaining them and making your product viral is another. So our last step is to examine the best “capturing” techniques to grow and enrich your marketplace.

Step 4: Retain users and grow a marketplace

The post-launch strategy is vital for any product and defines its future. Some marketplaces celebrate a winning release, but can’t maintain continuous success. To help you out in this post-launch battle, we’ve collected the best practices to grasp knowledge of. Here we go.

Build trust between your users and your marketplace

Clearly, you need to provide a secure environment for your customers and make them feel safe and comfortable about using your marketplace. Who would buy accessories from Bonanza if they didn’t trust the sellers?

You can earn your clients’ trust by implementing verification systems, reputation ranks, arranging insurance programs, and running background checks. For instance, Trusted not only conducts their babysitters’ initial screening but also provides a live stream video so parents can check what’s going on with their child at any time.

Focus on quality instead of quantity

EatWith, a community that nudges people to enjoy home-made meals and connect with hosts, adopted this effective strategy. The company fixated on its services’ quality right from the jump and thus became into its category’s leader.

Leverage Existing Communities

Not everyone knows the story behind Etsy’s creation. Etsy’s founders were working on redesigning GetCrafty, an online forum for crafters when they came up with an idea for a marketplace where crafters could sell their masterpieces. Etsy’s founders also discovered the Craftster.org community and leveraged both channels to set up the customer’s base.

“Communities already exist. Instead, think about how you can help that community do what it wants to do”. ‒ Mark Zuckerberg.

Supply is the new demand

In some marketplaces, such as TeachersPayTeachers, teachers sell their original lesson plans and buy ones from others. So supply becomes the demand and vice versa.

To recap

  1. Don’t focus merely on functional requirements.
  2. Find the right business model.
  3. Test your business idea’s feasibility.
  4. Adopt the Lean Startup methodology.
  5. Don’t neglect your target audience: talk to them and listen to them.
  6. Pull in the harder side.
  7. Build trust between your users and your marketplace.
  8. Accentuate your products’/services’ quality.
  9. Don’t be afraid of using existing channels and partners.
  10. And remember that the success of your marketplace is in your hands.

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Daria is a technical copywriter at RubyGarage, a web and mobile development company. She likes writing on topics related to software development and digital technologies. Daria has been in the industry for over 2 years.

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