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70% of consumers worldwide now believe online marketplaces are the most convenient way to shop. This highlights the growing dominance of ecommerce platforms in the modern shopping landscape, offering a valuable opportunity for businesses and entrepreneurs.
However, building an online marketplace can be daunting, especially when you're unsure of where to begin. After reading this, you'll be equipped with an understanding of different marketplaces, the process of building a marketplace and factors to consider along the way. We’ve also included some industry examples, so if you’re looking to be the next Airbnb, Etsy or Amazon, this guide is for you.
What is a marketplace?
A marketplace is an online platform that connects buyers and sellers, enabling transactions across a wide range of goods and services. Unlike traditional online stores, which focus on a single seller, a marketplace brings together multiple vendors, offering a diverse selection of products or services to consumers in one convenient location. Additionally, Forbes projects that B2C marketplaces will reach $3.5 trillion in sales by the end of the year, highlighting the evolving significance of these platforms.
This type of e-commerce model fosters competition, promotes variety, and provides users with a comprehensive shopping experience, while allowing sellers to reach a broader audience than they could independently. This dynamic has led to a surge in online marketplaces, making them an increasingly popular choice for both buyers and sellers.
Why are marketplaces thriving in the ecommerce industry?
Enhanced analytics: Marketplaces offer powerful analytics tools, allowing businesses to track user behaviour, sales trends, and overall marketplace performance for data-driven decisions.
Global reach: Digital marketplaces break down geographical barriers, enabling businesses to expand globally and tap into diverse customer segments across regions.
Virtual business model: Online marketplaces eliminate the need for a physical storefront, cutting operational costs for sellers, including rent and utilities.
Customer convenience: Platforms like Amazon offer consumers a vast array of products at their fingertips, allowing them to shop from home.
Trust through policies: Established marketplaces such as eBay and Amazon have instilled confidence in buyers through strict policies on refunds, authenticity, and delivery timelines.
Lower advertising costs: Marketplaces provide an affordable way for businesses to establish their brands and reach a broader audience quickly and effectively.
Online marketplaces offer a range of platforms, each catering to different needs and audiences. Whether you're shopping for products, services, or connecting with individuals or businesses, there's a marketplace designed to meet your requirements.
Defining types of marketplaces
Let’s explore the different types of marketplaces including: B2B, B2C, P2P, C2C, Hybrid and Niche:
B2B (Business-to-Business)
Description: Facilitates transactions between businesses, typically involving bulk purchases or commercial use.
Industry examples: Alibaba, ThomasNet & Faire
Common features: Volume pricing options, bulk order facilitation, customisable supply management tools, advanced analytics for tracking sales and customer behaviour, integration capabilities with ERP systems.
B2C (Business-to-Customer)
Description: Connects businesses directly to consumers, offering a variety of goods or services.
Industry examples: Amazon, Etsy & Target
Common features: User-friendly interface, robust search and filtering options, secure payment gateways, customer review system, marketing tools like email campaigns and loyalty programs.
P2P (Peer-to-Peer)
Description: Allows individuals to transact directly with each other, often through sharing or rental models.
Industry examples: Airbnb, Uber & Depop
Common features: User profile verification systems, secure payment methods, peer review systems, communication tools for direct negotiation, dispute resolution mechanisms.
C2C (Customer-to-Customer)
Description: Connects private individuals for direct transactions, either for money or barter.
Industry examples: eBay, Craigslist & Vinted
Common features: Simplistic listing and posting interface, secure transaction processing, user feedback and rating systems, community forums for user interaction, robust moderation and fraud detection.
Hybrid marketplace
Description: Combines features of multiple types of marketplaces, allowing transactions across various models.
Industry examples: Etsy, Walmart & Amazon
Common features: Multi-faceted search engines to cater to multiple types of transactions, integrated payment systems, cross-category listing capabilities, dynamic pricing tools, and analytics dashboards.
Niche marketplace
Description: Focuses on a specific category or industry, catering to a particular audience.
Industry examples: Houzz, TaskRabbit & Farfetch
Common features: Specialised search and filter options, tailored UX design, community-building features such as forums or blogs and custom marketing tools for targeted campaigns.
A step-by-step guide to building your marketplace
Now let's explore building your own marketplace. Whether you're building from scratch or enhancing an existing structure, these steps will ensure your marketplace is well-equipped to cater to both buyers and sellers.
Step 1: Market research and analysis
The journey of launching your own marketplace begins with a crucial first step: identifying your target market. This initial phase is fundamental to shaping the direction and strategy of your marketplace
First, you need to decide what will be sold on your marketplace. With this you have two options.
If you’re unsure of what marketplace you want to build, think of it like this:
Do you want to build a marketplace like: Amazon, eBay, Walmart, or Alibaba?
Or do you want to build a marketplace like: Etsy, Airbnb, TaskRabbit or StockX?
If you want to build a marketplace like Amazon, this is a horizontal marketplace which offers a variety of products and services across different categories. For example, Amazon provides goods ranging from electronics, books and clothing to groceries and more.
If you want to build a marketplace like Etsy, you’ll want to look at building a vertical marketplace which focuses on a specific niche or industry, attracting users seeking in-depth options in a particular category. For instance, Etsy specialises in handcrafted and unique items.
Once you have a concept for your marketplace, you need to measure both the total market and the addressable market size. This involves understanding the full scope of the market you wish to enter and determining the segment of the market that is accessible to your business.
Tools you can use:
Statista: Offers a wide range of data on industries, countries, and market trends, which can be crucial for estimating market size and growth potential.
IBIS World: Provides detailed industry reports that include market size, growth rates, and comprehensive industry performance data.
Euromonitor International: An extensive database of global market research, including market sizes, company shares, industry trends, and growth forecasts.
Frost & Sullivan: Offers detailed market research and analysis, including market forecasts and insights on emerging technologies and trends.
CB Insights: Specialises in advanced data analytics to provide detailed market intelligence, competitive analysis, and technology trends, particularly useful for startups and tech companies.
Gartner: Provides research and predictions in the IT sector, which can be useful for tech-based marketplaces.
Google Market Finder: A tool that helps businesses identify new international business opportunities using market insights, helping to estimate market sizes abroad.
It’s also important to understand the level of competitiveness within your market. This includes identifying major players, assessing the saturation of the market, and understanding the barriers to entry that may exist. Analysing competitiveness helps you pinpoint opportunities for differentiation and positioning your marketplace to stand out.
Tools you can use:
Ahrefs: A tool for SEO and backlink analysis that helps you track competitors' search traffic, keyword rankings, and backlink profiles.
Crunchbase: Provides information about businesses and startups, including investments and funding information. Useful for tracking competitor growth and new entrants in the marketplace industry.
Owler: Offers competitive insights by providing news alerts, company profiles, and information on competitors' revenue, employees, and funding updates.
SEMrush Market Explorer: Provides an overview of market trends and competitive landscapes. It offers insights into industry players, audience demographics, and seasonal peaks.
Crayon: Tracks over 100 data types from competitors' websites, such as pricing updates, product changes, and new marketing tactics, keeping you informed about their strategic moves.
Google Alerts: Set up alerts for specific keywords related to your industry and competitors.
Step 2: Validate buyers/sellers pain points
This step ensures that your marketplace concept not only fulfils a need but also addresses specific challenges effectively. Here's how you can go about this validation process:
Customer journey mapping: Developing detailed customer journey maps can help you understand the different touchpoints where users interact with your marketplace and identify pain points at each stage. This method helps in visualising the user experience from initial contact through various stages of engagement to the final transaction.
1-2-1 customer interviews: Engaging directly with your potential users through one-to-one interviews can provide deep insights into their needs, frustrations, and expectations. These interviews are especially valuable in B2B and niche marketplaces, where understanding specific user requirements and customising solutions can significantly impact your platform's success.
Surveys: Distributing surveys to a wider audience helps gather quantitative data about common problems and pain points across a wider section of your target market. Surveys are particularly useful in B2C marketplaces where reaching a large volume of users is necessary to validate market assumptions and gather scalable insights.
Smoke testing: This method involves creating a minimal advertisement or landing page describing your product or service to gauge consumer interest before the actual product is fully developed. The idea is to see how many people click through or sign up based on the proposed value proposition. This technique is great for any marketplace model as it helps test hypotheses about market demand without significant initial investment.
Concierge MVP (Minimum Viable Product): This approach involves manually delivering the service or product to users without fully building out the technology or systems needed to automate the marketplace. Essentially, you perform the service of the marketplace manually to understand the customer experience and validate the business model. This is particularly effective in peer-to-peer and service-oriented marketplaces where personalisation and user experience are critical.
Step 3: Define your acquisition strategy
You also need to determine how you will attract both buyers and sellers to your marketplace, which includes understanding the cost implications and choosing the most effective channels for outreach.
Your acquisition strategy should leverage a mix of digital and offline channels tailored to your audience. Here’s a breakdown of different channels for each approach:
Digital marketing
SEO (search engine optimisation): SEO enhances your visibility in search engine results, driving organic traffic to your platform. By optimising your website with relevant keywords and high-quality content, you can attract users who are actively searching for your products or services. Tools like Google Analytics, Moz, and Ahrefs can help you track and improve your SEO performance.
PPC (pay-per-click) advertising: PPC advertising allows you to capture the attention of users actively searching for related products or services by placing ads in search engine results and social media platforms. This method ensures immediate visibility and can drive targeted traffic to your marketplace. Platforms like Google Ads, Bing Ads, and Facebook Ads are effective for PPC campaigns.
Social media marketing: Engage with potential customers through organic posts and targeted ads on social media platforms. This strategy helps build brand awareness, foster community engagement, and drive traffic to your marketplace. Utilising platforms such as Facebook, Instagram, LinkedIn, and Twitter can effectively reach and engage your target audience.
Email marketing: Email marketing is a powerful tool for nurturing leads and converting them into active marketplace users. By sending targeted and personalised email campaigns, you can keep your audience informed about new products, promotions, and updates. Tools like Mailchimp, SendGrid, and Constant Contact can help manage and optimise your email marketing efforts.
Offline marketing
Networking events: Participating in networking events allows you to connect with potential users and industry professionals. These events provide opportunities to build relationships, gain insights, and promote your marketplace.
Traditional media: Traditional media channels such as print and TV ads can effectively reach your target demographic, especially if they respond well to these mediums. Advertising in newspapers, magazines, and on television can increase your marketplace's visibility and attract a broader audience.
Trade shows: Showcasing your business at industry-specific trade shows can significantly expand your reach. Trade shows offer a platform to demonstrate your marketplace, engage with potential users, and network with industry professionals. Consider trade shows like Web Summit, International Manufacturing Technology Show (IMTS), CES (Consumer Electronics Show), The National Retail Federation (NRF) Expo, and Autumn Fair.
Partnerships and referrals
Strategic partnerships: Building relationships with businesses or influencers that share your target market can extend your reach and enhance credibility. Co-marketing efforts with strategic partners can introduce your marketplace to new audiences and create mutually beneficial promotional opportunities.
Referral programs: Implementing referral programs that reward users for bringing new participants into the marketplace can be a highly effective growth tactic. These programs leverage the existing user base to attract new users through word-of-mouth and incentivised sharing. Tools like ReferralCandy, Ambassador, and Post Affiliate Pro can help set up and manage referral programs.
Step 4: Define your revenue model
Selecting the right revenue model is a critical decision for the success of any marketplace venture. It determines not only how you generate income but also how you align incentives among stakeholders and sustainably grow your platform. Each revenue model has its unique implications for both the platform owner and users, influencing everything from pricing strategies to user experience. In this section, we'll explore various revenue models commonly used in marketplaces helping you make informed decisions to drive profitability and long-term success.
Listing fee: Sellers pay to list their items, gaining visibility on the platform. Examples: Etsy, eBay.
Subscription fee: Sellers pay regularly for access to the platform's features. Examples: Amazon Business, Shopify.
Commission model: Sellers pay a percentage of each sale, ensuring the platform earns when they do. Examples: Airbnb, Uber.
Advertising fee: Third-party advertisers pay to promote products or services on the platform. Examples: Alibaba, Craigslist.
Subscription box model: Customers subscribe for recurring deliveries of curated products, generating revenue through subscription fees. Examples: Birchbox and Loot Crate
Freemium model: Basic platform features are free, with users having the option to upgrade for additional benefits with a subscription fee. Examples: Slack and Dropbox.
Transaction fees: Marketplaces charge a flat fee per transaction, varying based on value or volume. Examples: Eventbrite and Fiverr.
Lead fees: Buyers pay for detailed information about specific items or services. Examples: Realtor.com, Angie's List.
Premium membership: Users pay for exclusive features or content. Examples: Fiverr Pro and Upwork Plus.
Marketplaces can employ multiple revenue models to diversify income streams and reduce dependency on a single source. This approach can enhance financial stability and appeal to different user segments. For example, Amazon uses the following revenue models:
Commission model: Amazon charges sellers a percentage of each sale made through its platform, which varies by product category.
Subscription fee: Through Amazon Prime, customers pay an annual or monthly fee in exchange for benefits like free shipping, streaming entertainment, and exclusive shopping deals.
Advertising fee: Amazon offers advertising options where sellers can pay for product placements on the platform to gain more visibility.
Subscription box model: Amazon has ventured into this space with offerings like Subscribe & Save, which provides periodic delivery of products at a discount.
Step 5: Map out key functionalities
There are a few key features all marketplaces should have to cater to all stakeholders involved.
When building a marketplace, it is crucial to consider features that satisfy different stakeholders. Here, we group these features into three main categories: buyer, seller, and platform owner.
Buyer features:
Product page: Provides descriptions, high-quality photos, and videos to inform and attract buyers.
Shopping cart: Allow users to add multiple items for purchase, streamlining the buying process.
Search feature: Help buyers navigate your marketplace efficiently. As it is likely your marketplace will provide a variety of products using AI-powered semantic search will boost user experience.
Wishlists: Enable buyers to save and revisit items for future purchases.
Sign in/Sign up form: To elevate user experience even further, buyers should be able to register, track order processes, view previous purchases, and receive personalised recommendations.
Shipping: Offer a range of delivery options, enhancing convenience for buyers.
Seller features:
Sign in/Sign up form: Allow sellers to register, list products, and manage their offerings effectively.
Admin panel: Give sellers control over their listings, orders, payments, and shipping, allowing them to manage their business smoothly.
Product page: For sellers to create detailed product listings with photos, descriptions, and pricing.
Analytics and insights: This gives sellers insights into product views, purchases, and other statistics, helping them refine their strategies.
Promotional tools: Sellers can have the option to run discounts or special offers, to encourage repeat business and new buyers.
Platform owner features:
Admin panel: Platform owners will need to manage all transactions and operations, including orders, payments, and abandoned checkouts, from a single platform.
Trust mechanisms: Includes reviews, ratings, and refund policies, building confidence in the platform.
Community building: Builds engagement through loyalty programs, communities, and brand engagement activities.
Marketing strategies: Owners could use content marketing to promote the marketplace and attract both buyers and sellers.
Legal compliance: This includes data protection and consumer rights as well as other ecommerce regulations.
These features should be prioritised when building your marketplace to ensure your platform is optimised effectively for your audience.
Step 6: Develop an MVP
When building a marketplace MVP, leveraging no-code tools can significantly streamline the process and get your platform to market faster. Depending on your needs and timeline, there are dedicated no-code solutions you can explore:
Off-the-shelf solutions
If you’re looking for a quick and efficient way to launch your marketplace MVP, utilising no-code tools like Sharetribe and Arcadier are a great choice. These applications allow you to create a fully functional marketplace with essential features such as user registration, product listings, and payment processing. While it may offer a simpler version compared to custom solutions, it enables you to launch faster and start testing your concept with real users. This approach is particularly advantageous if you want to validate your idea and gather user feedback early on.
Tools like Arcadier provide the essential functionalities needed to run a marketplace, including user registration and authentication, product listings with images and descriptions, basic search and filtering options, integration with major payment gateways like PayPal and Stripe, a simple messaging system for buyer-seller communication, and a reviews and ratings system.
Custom software
For those who require a more tailored solution, no-code tools like Bubble, Webflow, and Xano offer the flexibility to create a custom MVP that includes specific features tailored to your audience. Developing a custom MVP with these tools can take longer than using an off-the-shelf solution, but it allows for greater customisation and scalability.
Bubble, Webflow, and Xano enable you to fully customise your marketplace, offering advanced user profiles with detailed information, complex product listings, advanced search capabilities, tailored payment workflows and reporting tools to track user behaviour and sales data. You can also seamlessly integrate with external services like CRM systems and marketing automation tools.
Defining core features
An MVP allows you to test your marketplace concept in the real world with minimal resources and investment. By focusing on essential features and functionalities, you can quickly launch your platform and gather valuable feedback from early users. When building your marketplace MVP, consider incorporating these core features:
User registration and authentication
Product listing and search
Transaction management
Feedback and rating system
Basic user support
Order placement and management
Payments
Minimalistic design and user interface
Depending on the type of marketplace you're building, you can also consider adding these additional features to better tailor your platform to user needs. These enhancements can significantly improve user satisfaction and engagement, setting your marketplace apart from competitors:
Messaging between users
Dispute management
Delivery / logistics features
Location-based matching
Admin dashboard
Customisable seller profiles
Analytics integrations
AI based customer support
AI matching algorithms
Building an MVP enables you to acquire users early and kickstart the growth of your marketplace community. Acquiring users is crucial for gaining momentum and initiating transactions. Through targeted marketing and promotional efforts, you can attract both buyers and sellers, laying the foundation for transactions to take place.
Step 7: Measure marketplace performance
Tracking key metrics is essential for monitoring the success and sustainability of any marketplace. Metrics provide a quantitative measure of performance, helping to identify any inefficiencies and guide data-driven decisions for growth.
Here are some key metrics used to monitor measure marketplace performance:
For sellers:
Transaction volume: Track the total number of transactions completed reflecting how effectively the marketplace connects sellers with buyers and guiding operational strategies.
Engagement metrics: Monitor engagement, including how many listings created, interaction with buyers, and response times.
Success rate: Measure how often buyers are found, tracking the proportion of successful transactions versus missed opportunities. This can highlight areas for improving platform design or matching algorithms.
Diversity metrics: Monitor the variety of buyers to prevent over-concentration.
Lifetime value (LTV): Use LTV to estimate the total revenue generated over engagement period, to assess long-term profitability and retention strategies.
For platform owners:
Customer acquisition cost (CAC): Measure how much is spent to acquire new customers, ensuring CAC is lower than LTV to maintain profitability and revealing effective acquisition channels.
Engagement metrics: Track user engagement from both buyers and sellers.
Churn rate: Monitor churn rates for both buyers and sellers, identifying potential issues affecting platform retention and informing corrective action.
Transaction volume: Track overall transaction volume to assess how effectively the marketplace connects buyers and sellers, revealing trends that can guide future strategies.
Diversity metrics: Monitor the diversity of buyers and sellers, helping prevent over-concentration and ensuring a balanced marketplace.
The future of marketplaces
The landscape of online marketplaces is rapidly evolving, driven by emerging trends and changing consumer behaviours. These trends are reshaping how marketplaces operate, offering new opportunities for growth and challenges to address.
Integration with social media platforms is fostering social commerce, allowing users to discover and buy products directly through their feeds, expanding marketplace reach. Voice command searching is streamlining the shopping experience, prompting marketplaces to adopt voice recognition technology, while voice commerce further simplifies transactions, catering to new consumer habits.
Subscription-based marketplaces are gaining traction, offering recurring access to goods and services, ensuring steady revenue streams. Vertical marketplaces are also emerging, focusing on niche markets, providing tailored experiences, and attracting consumers seeking specialised goods and services.
Recommerce, promoting the reuse of products, is gaining momentum, supporting sustainable shopping and affordable options for second-hand goods. Mobile commerce continues to grow, emphasising the importance of catering to both smartphone and desktop users.
Finally, AI-driven customer support and augmented reality shopping are integral to enhancing user experiences, from prompt resolutions to visualising products in real-world settings. The future of marketplaces hinges on the ability to adapt to these trends, embracing innovation and responding to evolving consumer behaviours.
Final words
With 44% of product journeys beginning with marketplaces, this highlights the integral role these platforms play in the modern shopping experience. For entrepreneurs looking to capitalise on this trend, securing the right investment is key. Marketplaces offer the potential to reach a vast, diverse audience, significantly boosting sales potential and making them attractive to investors.
By following the steps outlined in this guide, you can build a marketplace that effectively meets your target audience. Thorough market research and validation of consumer pain points ensure your platform addresses direct user demands. A well-defined acquisition strategy and revenue model provide a clear path to attracting users and generating income. Mapping out key functionalities ensures your marketplace is user-friendly and efficient. Developing your MVP with the right tools allows for a rapid launch, enabling you to gather valuable insights early. Finally, measuring performance helps you continuously refine and improve your platform. Together, these steps create a solid foundation for a successful marketplace.