Examples of horizontal and vertical markets
AliExpress and eBay are examples of horizontal markets, as you can buy anything from them: from cosmetics to home appliances. Etsy, marketplace for handicrafts and antiques and the Steam – online- service of game and software distribution
are examples of vertical markets.
To increase the chances of success, it is better to create a marketplace that sells specialized products. So you stand out against the background of market leaders and will be able to better explore the target audience, therefore, you can use more effective ways to promote.
That's how Amazon started. In the first two years after launch (1995 - 1998), the site sold books, then music CDs and video products were added to the product range, and after some time, electronics, video games, furniture, clothing, and foodstuffs. Amazon first became a monopolist in the vertical market, and then began to conquer horizontal.
Step 2: Marketplace Type
Having decided on a niche and choosing a name, you should carefully consider what type of digital services market
- Price aggregators. Collect prices for goods and services, but do not sell anything themselves. Aggregators earn on affiliate programs when the seller of the product pays for attracting a buyer. Examples - Shopzilla, Nextag and BizRate.
- Traditional MarketPlace. Allows suppliers to sell their goods and services on the marketplace without switching to other sites. The best examples are the App Store, Google Play and Amazon.
- Wholesale B2B Marketplace (closed). Sites where suppliers sell goods at wholesale prices to selected retailers and small wholesale customers. Such marketplaces, as a rule, cover one commodity niche. For example, so usually sell pharmaceutical products.
- Wholesale B2B Marketplace (open). Open to all marketplace, where you can buy goods at wholesale prices. Usually on such platforms large suppliers sell goods. Classic example - Alibaba.
Step 3: Marketplace Development Approach
Choosing the type of trading platform
, you must also decide how to create it. Here the choice is between four options:
- WordPress Templates or their analogues. This is the easiest, fastest and cheapest option. Using WordPress templates, such as Mayosis or DGWork, you can create a website in a few hours, spending from 50 to 1000 dollars (template price + hosting cost). The disadvantage of this approach is stereotyped, limited settings and lack of technical support.
- White label solutions. These are also templates, but not of those sites like WordPress, but of ready-made trading platforms developed by experienced programmers. Their launch takes more time and costs more, because, in addition to development, programmers themselves launch the site, set up and test it. Tech support is usually also included in the White label solutions package.
- Self-development. People with programming and web design skills can create an online store on their own. This requires quite a lot of time and there are no guarantees that the result will be a high-quality product. But you do not need to pay anyone anything and you can develop a truly unique marketplace.
- Outsourcing development from scratch. This approach allows you to create a unique product, but with a guarantee of quality and for a relatively short period of time. The cost of outsourcing development ranges from one to several hundred thousand dollars.
Step 4: Project Business Plan
This is a document that describes the business project
in as much detail as possible. It is needed to plan the phased implementation of the idea in the finished product, evaluate the prospects of the idea and convince potential investors to invest money.
Usually a business plan consists of such sections:
- Summary. This is a kind of business card - the "face" of the project. The summary describes the key idea and the benefits of its implementation for the creator and stakeholders: suppliers, buyers, investors.
- Marketing. Analysis of the niche, target audience, competitors and competitive advantages, on the basis of which the marketing policy is developed.
- Risks. Analysis of the problems and difficulties that the business will face, as well as ways to prevent and overcome them.
- Finance. A detailed description of how much money you need and what they will use during the launch of the marketplace. Here you need to submit a forecast of the expected income and profitability.
There is no single standard for creating a business plan
, unless you intend to take a loan from a bank or participate in a tender. In such cases, it is necessary to focus on the specific requirements of the person for whom and for what purpose the document is being written.
So, if a business plan is written for investors and banks, the emphasis should be on cost, income and payback. If you need to win an “eco-tender” - indicate that you will focus on selling, for example, applications for more efficient use of electricity, gas or fuel.
Step 5: Project Budget
The launch of the digital products marketplace will require investments. The good news is that you can do without a warehouse and working inventory, so that the starting budget will be relatively small.
The money is needed for:
- Platform development and maintenance. Depending on the type of marketplace and approach to development, you will need from $ 1,000 to $ 50,000 to create a platform and another $ 300 a month.
- Attracting sellers. At the very beginning, you will need to spend quite a lot of money on the promotion of the site among suppliers of goods and services. This requires targeted advertising with a large coverage, for example, on Facebook, Google and other platforms. You can find contact sellers on competitors' sites and make personal calls, offering sellers unique conditions: free listing, low or zero commissions, free advertising on the site, and the like.
- Attracting buyers. As soon as you have the first sellers, you can run advertising to attract buyers. The methods are the same, only the target audience is different (depends on the availability of goods). Promotions, bonuses and discounts are welcome.
Experts advise not to invest big money in the platform and advertising
before and in the first months after launch. Invest enough to make first sales go, and then give the marketplace time to grow. Spend the first money on maintenance and "free" promotion: SEO, videos on YouTube, pages in social networks, etc.
You should not invest big money, because first you need to check the idea, test the platform and understand which methods of promotion provide the most return. All this is best done on a small scale and for little money. It is worth investing on a large scale only when you realized that the idea is 100% successful.
Step 6: Launch the Marketplace
Experience with Amazon, Etsy, Airbnb, and eBay shows that you need to launch the site immediately after creating a minimally viable product. Only three things should be well developed in it:
Design and usability
- protection of digital products from unauthorized access;
- security of personal and billing data;
- inancial security.
are important too, but do not bring them to perfection. Just create something that will interest more than ten people, and use their user experience and feedback for further development.
Step 7: Feedback and Improvement
User experience is a set of impressions that a client receives while using your service
. In a simplified form, it can be divided into three components: benefit, convenience and pleasure. Ask the first customers, as well as all those who can (friends, acquaintances, colleagues, subscribers in social networks), to evaluate your site by these parameters.
Don't forget to connect Google Analytics right from the start
To do this, you can create a special brief or application form and offer to fill it immediately after the transaction is completed or in front of it in exchange for a discount or bonus
. So you get feedback and increase customer engagement.
Still it is necessary to connect Google Analytics. This service will help with the analysis of the behavior of visitors, for example, it will count how often they click the buttons “Request a callback” or “Make a purchase”.
What else can you do with Google Analytics:
- watch what is happening on the site in real time;
- analyze the effectiveness of different advertising channels;
- conduct A / B testing and read conversion;
- monitor the activity of site visitors;
- track important business events;
- more 100 500 useful items.
You can read how to connect and use Google Analytics on the official page of the service in the Main section
. It contains a detailed guide, a description of the tools and the terms of cooperation with small and large businesses.
About supplier search
Unlike conventional online shopping sites, the digital marketplace
has two sides: sellers and buyers. This means that after launching the marketplace site you have to solve the “chicken and egg” dilemma - how to get customers with a small offer and how to get an offer with a small number of customers.
As Boris Wertz and Angela Tran Kingyens explain in the «Guide to Marketplaces», suppliers usually have several more incentives to enter a new market than customers, because sellers do not lose anything from this, but only create an opportunity to get more profit.
You can search for sellers in these ways:
- Contact suppliers that are active in other markets. Airbnb used this strategy at launch. They personally contacted people who placed ads for renting apartments on Craigslist and offered them to place an ad on their site.
- Use Google, business directories or standalone aggregators. You can start with Yelp and Yellow Pages, if you are focused on the United States, or just use Google. This approach has been used by Etsy.
- Find people in forums and groups on Facebook. If you chose the vertical market, as we advised, it will be quite easy to find suppliers in this way. In addition to Facebook, thematic forums and accounts on YouTube and Instagram will also help.
When you find the first suppliers, give them a large amount of your attention and time to explain how your project stands out from the competition. Offer unique terms of cooperation and help with registration and profile filling.
About finding buyers
When Airbnb started a business, their team used every opportunity to attract an audience and raise awareness of the site. For example, when Mariah Carey rented accommodation in Israel, the company paid for her reservation in exchange for a sponsorship post, which gained 45,000 likes.
This approach to promotion is called influence marketing
. He uses the recommendations of media personalities to promote products and services. Airbnb used it many times. The most successful one is Lady Gaga's Instagram post about her stay in Houston, which scored 500,000 likes.
You can also use this technique in your marketing policy. Moreover, according to research by Influence.co, it is better to cooperate not with big celebrities, but with small thematic accounts - from 1 to 10 thousand subscribers. The average level of involvement for such accounts is higher.
The average level of involvement for accounts with a small number of subscribers
The cost of advertising
for posts from accounts with a small number of subscribers depends on the country, niche and popularity. Usually it is 100-200 dollars per post.
The average price of a post in Instagram depending on the number of subscribers
About payment service providers
Payment service providers (PSP) are third-party financial services that specialize in creating and integrating payment infrastructure into various web platforms. On the Internet, these companies are usually called “payment gateways”, “payment processors” and “merchant services”.
To create a digital product marketplace, you need to select a payment service provider based on these criteria:
- offers a market oriented solution;
- works worldwide (at least in 10 countries on 2 continents);
- unlikely to go bankrupt in the next 12 months.
The following services meet these requirements:
One of the most famous PSP in the world of startups. The company is estimated at 10 billion dollars. The company offers the product Stripe Connec, which is designed specifically for trading platforms. It is used by the "unicorns" Thumbtack, Instacart, Postmates and Lyft.
This is perhaps the most popular payment service on our list. PayPal's market capitalization exceeds $ 100 billion, and profits in 2017 exceeded $ 450 million. The service owes its popularity to cooperation with eBay at the dawn of its history. For cooperation with trading platforms, the company has developed a product PayPal for Marketplaces.
This Dutch company is known to very few people, as it never relied on promotion among the masses (as does PayPal). Instead, Adyen focused on developing a unique technology solution with the lowest commissions on the market. In June 2018, the company became public, and at the time of this writing, its capitalization exceeded $ 16 billion.
Adyen offers a MarketPay solution. The list of marketplaces that use it is impressive: Etsy, Airbnb, Uber and Upwork. Back in 2018, it was announced that Adyen MarketPay would replace PayPal as the default eBay payment service provider.
Payment service that works with European markets. In 2015, it was bought by the French bank Crédit Mutuel Arkéa, which may indicate a good financial condition of the company. MANGOPAY has more than 2500 customers, half of which are marketplaces. The most famous are The Food Assembly, Plentific, WeTravel, Vinted and Chrono24.
You can also pay attention to Paybase, Assembly Payments, Lemon Way, BlueSnap and WePay payment gateways. They are less known, but in work with some niches and countries are more preferable.