During recent years, the way we run a business has been changed by the growth of various internet platforms. Nowadays, sellers, retailers and enterprises explore new opportunities and standards offered by online marketplaces.
There’s no doubt that e-commerce platforms are gaining popularity and becoming one of the most profitable online businesses for people who start them and their clients. What is more, this field allows online vendors to be more competitive among other merchants and offers everyone an easy way to sell their products and services. According to the eMarketer, retail sales will increase to more than $27 trillion by 2020 worldwide while retail e-commerce sales will reach $4.058 trillion in 2020.
However, running an online marketplace is not a trivial task. It’s better to know in advance how to start and which challenges you might encounter. In this article, we’re going to discuss important issues in this type of business and the different phases of building an online marketplace.
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Marketplace Business in a Nutshell
Marketplace is a virtual collection of stores where customers can browse and exchange goods/services from varied vendors. Amazon, Etsy, eBay, Tmall and Airbnb are great examples of this type of business.
There are several types of online marketplaces categorized by participants:
- P2P (Peer-to-Peer), where individuals are selling their goods to peers. Ebay, Airbnb, Etsy and Kiva are included in that category;
- B2C (Business-to-Consumer), in this case, existing sellers and businesses enter the online marketplace. Examples include Tmall, Foodpanda or Rakuten.
- B2B (Business-to-Business) connects suppliers, exporters, importers, retailers, manufactures and other merchants on one platform. Examples are Amazon Business, Alibaba, and Indiamart.
Marketplace is a website where thousands of merchants sell their products to customers. Quite on the contrary, traditional online stores offer their users one brand of goods and services. The main advantage of this type of business for sellers is that the website with a variety of goods and services draws more visitors and allows merchants to increase their earnings. Meanwhile, customers enjoy the convenience of searching for everything they need at one platform. All the merchants on an online marketplace are united by one checkout process; therefore, clients don’t need to click to different websites to complete the transaction. They can pay for their goods from different merchants at the same place.
The Way to Start is to Find and Validate the Idea
Marketplace businesses are long-term projects on which you need to expend a lot of effort and money. A lot of startups fail because the chosen business model doesn’t ensure sustainability in the long run, or the product can’t satisfy demand at the market. In that case, you need to focus attention on finding and validating the idea.
If your product doesn’t solve a particular problem, and there’s nothing new about it, you are not likely to succeed.
Below, we’re going to list some steps you should complete before starting an online marketplace.
1. You should be familiar with online marketplace businesses: which types they are, which difficulties challenge you and how to overcome them. What is more, you need to decide which goals you want to achieve through developing your marketplace. It’s best to ask yourself why, what and how you plan to build your business.
2. Everything starts from a particular idea. But, even if your idea sounds great for users, that doesn’t guarantee that they will use your product. That’s why your project should solve problems, both for customers and providers. You can think about the problem in terms of money, so find out how much money people will pay someone to solve their problem before starting the online marketplace. You can come up with a totally exclusive idea in many areas, make a central collection of different services, improve an existing solution or target a special niche. There are still many opportunities for different startups.
3. You should validate your idea. The first step is to understand the problem fit - that should be done before building MVP. Writing down assumptions will help you reveal problem fit. The assumptions should approach different aspects of business: value propositions, distribution channels, revenue streams, and others. During the validation process, you will realize which assumptions are right and which are wrong.
4. Find a business model that suits your startup and ensures sustainability. The marketplace monetization includes options like commission, membership/subscription fee, listing fee, lead fee, freemium, featured listing and the combination of different methods. In the beginning, it’s better to have one revenue stream to focus your attention on. With the growth of your business, you can explore new combinations of options.
5. One of the reasons marketplace business scale is great is that you don’t need inventory in the beginning. However, you should convince others to bring their inventory to your marketplace and find ways to attract customers to your platform. In such cases, one of your tasks can be changing people’s mindsets as well, but it requires a lot of work to convince buyers to use your product or service.
How to Build your MVP
After accomplishing the previous phases, you can start to build a minimum viable product (MVP) which will solve the main problems of your customers better than other solutions. After validating, launching and getting your customers to test your platform, you can really improve and provide value. Building an online marketplace is possible through one of these three options:
Make it from scratch yourself
1) Use the software or platform for building it
2) Pay somebody to build it for you
3) The method depends on several factors:
The method depends on several factors:
- Which kind of marketplace do you want to build?
- How much money are you willing to spend on your project?
- Do you have some needed skills and resources?
- Do you want to use the existing software?
When MVP is ready for you to launch it to your customers, you need to collect a lot of information about your assumptions so you can understand whether they are correct or not. However, your MVP needs to provide solutions to both sides - customers and providers.
How to Ensure the Growth of Your Marketplace
When you have launched your platform and gained some users, it’s time to help your business grow with some marketing tricks.
Public relations help you engage with your potential clients by sharing information, gaining influencers and learning your crowd.
Performance tracking will help you understand your users better, especially who they are, where they come from, and why they complete transactions. Tracking such activities is possible with the set up of Key Performance Indicators (KPIs). These show which areas should be improved and which marketing channels work.
Usage metrics - allows counting the amount of people that visit your website and how much time they spend on it.
Transaction metrics - checks the number of transactions and several ratios.
Business metrics - finds the volume of merchandise, customer lifetime value and acquisition cost.
Marketplaces need more time to grow in comparison with traditional online businesses, so you need to stay patient and dedicated in order to optimize your business. You need to try different marketplace growth channels such as viral marketing, search engine optimization, content marketing, paid advertising, email marketing and so on. These channels will not only help you expand your audience but also broaden your categories and niche.
Remember that your idea and online marketplace niche should set your business apart from other platforms in the industry. Make sure to validate your idea before launching and don’t skip the MVP building phase if you want to elaborate on your product in a long run. Online marketplace business is definitely not the easiest way to earn money, but the right idea and dedicated work can lead you to success.