How to Start Your Own Online Marketplace

Despite the wide variety of existing trading platforms, such as Amazon, Etsy or Aliexpress, creating your own marketplace is a great idea, since the e-commerce market is growing at 15-20% per year. The main thing is not to make a mistake with the choice of a niche and as quickly as possible to switch from an idea to MVP. Our article will help you with this. We will tell you how to start your marketplace from scratch and show with real examples which solutions lead to success and which ones to failure.

Step 1: Choose A Viable Niche

The first thing to do after you decide to launch a marketplace is to choose a niche for your project. This may be the sale of electronics, renting child seats, selling photos, travel services, home delivery or dating (yes, Tinder is also a market place). Any product or service may become a niche for your site if the following conditions are met:

There is a critical mass of suppliers and buyers. If there are many buyers and suppliers on the market, then it will be much easier for you to provide value and be relevant than when there are few buyers / suppliers. This is due to the fact that when the market is small (or too “niche”), it is unlikely that many suppliers will want to use your platform, since in a small market all buyers usually know the suppliers personally, which means they do not need the services of your market place. Here are some examples of such markets:

1. Mail, delivery of goods and parcels. In most countries, this market is occupied by several companies, each of which people know by name, as well as where their customer service and parcel delivery points are located.
2. Medium-tonnage and large-tonnage oil tankers. Demand for them is constantly growing, but such tankers are made by several concerns in the world, while contracts for their production and sale are planned for 5-10 years in advance.
3. Sale / home delivery of molecular cuisine. Unlike fast food, pizza, Indian cuisine, vegetarian dishes, only a few restaurants in the city are usually involved in molecular cuisine, so even if gourmets demand it, suppliers simply cannot satisfy it.

The product is often bought or it is quite expensive. How many times will customers be able to buy a product or order a service on your site:

1. Buying furniture: every 2-5 years?
2. Home interior design: once every 10 years?
3. Purchase / delivery of food: 2-3 times a week?

If the chosen niche implies a low frequency of purchases, then the marketplacewill be successful only if the price of the goods is quite high, as, for example, in the real estate market or car market. Conversely, if the product is cheap, then you need a fairly high frequency of purchases, such as, for example, in the food or taxi delivery market. Average values of cost and frequency are also viable if the product has an impressive audience, such as, for example, in the market for gadgets or bicycles.

Always study the price / frequency ratio of purchases, because even if you find an empty market, create an excellent website and win the love of customers, you will fail with unsuccessful combination of these indicators. As once, after two months of operation, NextMover failed - a platform where you could find a person and a truck to help with moving or transporting something.

NextMover found financing, created an attractive application and received excellent customer reviews. But after a brisk start, the project team noticed that it was not gaining momentum. After analyzing the situation, the startup decided to close, because it turned out that people move every few years, and the price of renting a pickup is $ 50-200. That is, their service has a low frequency and cost, so NextMover business will always be unprofitable.

Step 2: develop a value proposition

After choosing a niche, you need to develop a unique value proposition - a set of reasons that encourage buyers and sellers to use your marketplace, and not other options. To do this, you need to understand what benefits your marketplace can bring to users. Usually it means:

1. Market access orientation. That is, suppliers will receive more buyers, and buyers will have more choices. Services like Uber Eats, Travelduck, Udemy, Etsy, and the Apple Store have relied on this.
2. Targeting the price of a product or service. Thanks to the marketplace, the buyer will receive a much better price, as was the case with Uber, Kyōyū, HostelBookers, Couchsurfing, OLX, Amazon, AliExpress and Cycle.land.
3. Focus on higher quality. Reduce time for what you need to do. Improving the quality of service. Examples: Airbnb - a quick and easy search for housing, Tinder - a quick and non-traumatic (not very) way to meet someone, Upwork - a quick and convenient search for freelancers and customers for copyright, web development, SMM and other things, TaskRabbit - search the artist who will do whatever you want.

Analyze your business idea and create your unique value proposition based on these drivers. Here's how it might look:

1. Access orientation: by joining our marketplace, you will contact more than 10,000 mentors for more than 500 sports.
2. Price orientation: subscribe to our newsletter and you will receive the best wholesale offers for furniture and a headset for hotels with a discount of up to 40%.
3. Focus on convenience: download the application and order flower delivery anywhere in Washington within 50 minutes.

Step 3: choose a business model (monetization)

Next, you need to understand which monetization model is best for your business idea. The easiest option is to create a service intermediary that will connect suppliers and buyers, and charge a fee or a subscription for this. With this approach, you will have neither warehouses, nor a large number of personnel, nor other large expenses. All that you will spend money on is the development, support, marketing and development of the service.

Another option is the path of Walmart and other retail chains. They buy goods from many suppliers and keep them in warehouses and store shelves. Thanks to this, the buyer can receive the goods on hand on the day of the order or check it in person (put on, turn on, smell) before placing the order. Such sites earn on speculative value, that is, they sell goods more expensive than bought from suppliers. Expedia uses a similar speculative monetization model: the service buys rooms from hotels and sells them at a premium.

We will analyze these two and other monetization models in more detail:

1. Commissions. Charging a fixed fee or percentage of each payment made directly on the website. Payment may be charged to the buyer, supplier or any transaction within the service. This model is used by eBay, Etsy, Rakuten, Airbnb, Uber, Booking.com and others.
2. Sales fees. As with the commission, you get a portion of each transaction. The difference is that with a commission for the sale, you get a percentage before the seller receives the payment. Example: eBay charges a commission for creating an ad and a commission for the final sale.
3. Listing fee. Charging a fixed amount from the seller for creating an advertisement for the sale of a product or service. This model is suitable for sites where they sell handicrafts, like on Etsy, or expensive goods, like cars or real estate on Craigslist, or sites and applications, like on Flippa.
4. Subscription fee. This is a strategy in which some or all users pay money for accessing the market. This can be a monthly or annual fee for a specific set of functions or individual functions. Earn eBay, Amazon Prime, Netflix, and Google Play Music this way.
5. Various advertising. This may be a paid promotion of individual goods or sellers within the marketplace: special design, a place at the top of the listing, advertising on the cover page and so on. In addition, the marketplace can earn revenue from advertising third-party sites and brands, for example, using the Google Ads service.
6. Leadership fee. Your customers must pay to obtain access to detailed information about the product or service they are interested in. It can be contacts, analytics or the name (site). This model is good when sales transactions take place outside the platform. This model was invented by Upwork and Fiverr.

When choosing a way to monetize the marketplace, remember that you can combine different ways of making money and change them if necessary. For example, the Studiotime platform, which specializes in renting music studios, first charged a fee for each booking, similar to Airbnb. But it soon became clear that this model is bad and not suitable due to the complexity of the billing process for recording studios, so the platform switched to a subscription model.

Step 4: develop a marketing strategy

At the next stage, you need to study the target audience (suppliers and buyers) and understand which channels are best used to attract them to your site. This can be done on your own or by hiring a marketing agency. If you decide to do everything yourself, then you need:

1. Analyze competitors through services such as SimilarWeb, SerpStat, SEMRush, Alexa, Quantcast, Ahrefs or their analogues.
2. Explore which keywords potential customers use to find products or services in your niche. Google Adword will help with t
3. Explore who can become your suppliers. It's easy to find out on competitor sites, online aggregators, and various listings.

After this, you must first of all engage in attracting suppliers in any way possible. This can be done through face-to-face meetings, phone or email - try it all! For example, when Airbnb started, they looked for landlords on Craigslist and suggested they create an ad on their site. In addition, they had a referral program: $ 75 for each new homeowner and $ 25 for each new traveler.

When you have an agreement with suppliers, you can begin to attract buyers (not before, since there is nothing to sell). To do this, you need to run test advertising campaigns on Facebook, Instagram, Google, YouTube and other platforms. What should be successful marketing campaigns, read the article «The Best digital marketing strategies for startups», examples in the article «10 Successful digital marketing strategies for e-commerce (real cases)».

Step 5: decide on a development approach

To create your own marketplace, you can choose one of three approaches: development from scratch, use ready-made templates, or resort to a SaaS solution. Each of these methods has its pros and cons.

Development from scratch. The design, user interface and most of the functionality are developed independently or with the help of a technical partner, which allows you to make the site unique and maintain flexibility in the development process and the subsequent development of the platform. It is expensive and time consuming, but it is the best choice if your project is advanced, innovative and requires a special approach.

Ready platforms. It involves creating a marketplace using open source software such as Cocorico, Mayocat or Sharetribe, or using WordPress templates. Of course, the result will not be as unique as when developing from scratch, but such an approach saves money and time. Especially if you use a WordPress theme.

SaaS solutions. SaaS means “Software as a Service”, that is, you, in essence, will use a marketplace template with limited design and functionality settings. These can be platforms like Sharetribe, Marketplacer, Shopify, Oracle Commerce, Demandware, or Near Me. The main advantages of this approach are simplicity and low start cost.

Step 6: create MVP as quickly as possible

The most common mistake entrepreneurs make is that they want to create the best, most perfect and amazingly well-developed online trading platform and only after that they will be ready to enter the market. As practice shows, this process takes a lot of time and requires tens of thousands of dollars, but it does not always lead to success.

You need to launch your business idea on the market as soon as possible, while you don’t even need to create your own platform, website or application. Sometimes it’s enough to test concepts in the simplest way.

As Krista Pohjanlehto did, when she decided to create a platform for the rental of prams. She just created a group on Facebook and tested the idea there. Moms liked the idea, and then Krista and her co-founder Heta Kärki used the Sharetribe Go SaaS service to launch their marketplace. Today Kinspiring is Finland’s largest rental market for baby supplies.

Another example of a quick transition from an idea to a work product is the Studiotime service mentioned above. It was launched by serial entrepreneur Mike Williams, who adheres to the concept: the transition from idea to launch should not last more than one evening. That is how the Studiotime success story began. Mike came up with the concept on Thursday afternoon, canceled his dinner plans and created MVP. The following Sunday evening, he introduced his new business at ProductHunt.

Step 7: Scale Your Project

When you receive confirmation of the concept and first users, you can begin to develop your product and, which is also important, to scale it. But this must be done gradually, carefully considering every moment and moving in small steps. This approach will make it possible to further test the product and idea at the lowest cost and risk, and will also help to avoid most of the growth problems.

Some of these issues are described in a Forbes article on the Cycle.Land platform (Airbnb for bike rental). The project became profitable just a few months after launch and began to rapidly expand its geographical presence. The first such attempt was a complete failure, as the team chose the wrong strategy: they used cheap advertising and relied on word of mouth marketing, while their competitors relied on expensive advertising and community development.

In Cycle.Land, they saw their mistake on time and changed development strategy. Now they rely on the referral program and move forward only after they gain leadership in the cities where they are already represented. Cycle.Land was launched in 2016 in Oxford, UK, now it is represented in many cities in Western and Central Europe, North America, Australia and East Asia.

How to Start Your Own Online Marketplace key takeaways:

1. Step 1: Choose A Viable Niche
2. Step 2: develop a value proposition
3. Step 3: choose a business model (monetization)
4. Step 4: develop a marketing strategy
5. Step 5: decide on a development approach
6. Step 6: create MVP as quickly as possible
7. Step 7: Scale Your Project