How to build an online marketplace

If you've ever fancied yourself the founder of the next Etsy, Depop or Tinder (yes - it’s a marketplace!) but didn’t know how to start - well, this article is for you.

What is a marketplace? 

A marketplace is somewhere that brings people who are selling something together with people who are searching for that thing. In a digital world, this takes place online. It could be a specific type of product, second-hand goods, or even people (think of sites like Fiverr, Taskrabbit and even dating sites...)

Online marketplaces are different from other websites because typically, all they do is connect buyers and sellers. They might have other features - such as payment processing, shipping, or a reviews section - but unlike a traditional e-commerce site, you are not the person actually selling a product or service on your marketplace. Instead, your job is to facilitate sales or swops on behalf of other people. 

Online marketplaces may have a peer-to-peer (P2P) function (i.e. they let people sell to other people). Or they might focus on business-to-business (B2B) sales or even business-to-consumer (B2C) focused. Marketplaces can grow very quickly because they're built on top of existing demand. So if you've spotted an opportunity or niche that doesn't currently have a dominant online marketplace then you're in an exciting position...

Challenges in building a two-sided marketplace

The main challenge in building a two-sided marketplace is to create an equally engaging experience for both the buyers and sellers. In the long run, this can be done by providing them with different options and features that will help them find or sell their products or services effectively. But in the short term, you’ll need to work hard to bring onboard enough suppliers to keep buyers interested and enough buyers to attract sellers to your site. 

The other challenge is to make sure that your site generates sufficient income. There are different ways to do this, depending on what type of interaction your marketplace facilitates.

Business models for marketplaces

If your site facilitates monetary transactions between buyers and sellers, then you should consider a transaction fee-based model or commission-based model. A transaction fee is usually paid by the seller (to list their goods/ services) but could be split between each party. A commission-based model charges the seller a small percentage of each sale.

Alternatively, you might need to consider a subscription model. You can use a subscription model if your marketplace doesn't facilitate sales, for example, a dating site or exchange site. You also need to think about whether you want to charge a small monthly subscription fee to access your platform and/or a one-off sign-up fee or annual renewal fee.

There is also an option to offer your marketplace for free to both the supply and demand-side users. If you have enough active users and a clearly defined audience, you can look to charge for advertising space.

Ultimately, how you monitise your marketplace is up to you. There are no hard and fast rules about whether or not you should charge for your marketplace or how much you should charge. You need to consider what value your platform offers, the target audience, and how much they're willing to pay. The more unique your offering is, the more likely people will be willing to pay for it.

Getting started

Whatever type of marketplace you’re thinking about building, there are a few steps you’ll need to take to get started. 

1. Identify your niche - The first step in building an online marketplace is to identify a niche market and find a problem that needs solving within that space. Even Amazon started out selling just one thing (books) before it expanded to the behemoth it is now!

2. Choose your tech stack - Once you’ve identified your niche, it’s time to decide what technology stack (collection of tools) you want to use for building your platform. There are many different options available, from a bespoke build (for example, by hiring an agency), to testing out your ideas using DIY technology (for example, using no code tools).

3. Identify users who are likely to become early adopters - This could be suppliers, buyers or other users. Once they’re identified, you’ll need to market to them to encourage them to join your platform at an early stage. You might want to offer incentives such as discounts or free services in return for them signing up or promoting your marketplace. 

The good news is, if you’ve identified a niche and managed to get those early users signed up, there’s a good chance of success - marketplaces are all about supply and demand, and you’re helping people on both sides to get what they need.

Photo by Campaign Creators on Unsplash