Online marketplace business: why should you start one?
The terms online marketplace and online store are often used interchangeably. However, they are not synonymous.
An online marketplace is an intermediary service connecting sellers and buyers.
Unlike an online store, which offers products from a single producer or distributor, a marketplace website provides a platform for multiple producers or distributors to sell things at the same time.
It’s common for existing retailers or producers to expand and start online marketplace businesses, as they offer more opportunities for development and diversification. This is how it may work:
Let’s say you have a woodworking workshop that produces unique furniture. You decide to expand and start selling online. When researching the market, you realize that many other businesses in your niche are ready to offer their products or services online but lack a platform to do so.
If you decide to build a home improvement online marketplace, you can kill two birds with one stone:
Grow your sales by reaching out to more potential customers online
Build a marketplace where other businesses can promote their services
A marketplace gives you an alternative source of revenue with huge scaling potential. You can switch to being a fully digital business or run an online marketplace website along with growing your carpentry workshop — the choice is yours.
Such a platform caters to the needs of two groups of users: buyers and sellers. And both have good reasons to choose your service.
Joining a marketplace website is a good decision for a business owner striving to sell online for a few reasons:
No need to hire dedicated developers to build an online store
No need to support and maintain a website
No need to pay for advertising and marketing campaigns
Constant flow of potential buyers
It’s obvious that the majority of small business owners would prefer a simple, fast, and cheap way to start selling online. And in most cases, it will be joining an online marketplace for services or products.
Buyers also have a few good reasons to shop on a marketplace website:
Wide selection of brands and products on a single platform
Easy communication and transactions
Unified payment and delivery policies
Centralized review system for products and/or sellers
In 2020, Forrester stated that one-third of all business in the USA now flows through e-commerce, and 63% of that is through marketplace websites.
As you can see, both sellers and buyers benefit from using marketplace apps. The only problem may be a lack of specialized platforms despite the fact that demand is huge.
I bet there is no centralized platform for buying and selling new and used furniture in your region.
I bet there is no platform in your region where pet owners can order services and buy goods for their animals.
I bet there is no… you name it.
Here’s where you can enter the game. Building a marketplace business means satisfying existing demand with a well-thought-out solution. Let’s find out how to build an online marketplace and achieve this goal.
We will cover two major components of launching an online marketplace: the discovery phase and app development. We also focus on the possible marketplace website cost and time to market.
Stage 1. Discovery phase
A beneficial feature of the sharing economy is that literally anyone can enter the market with a marketplace idea and become successful.
Take Airbnb, for example. It began by solving a problem the founders themselves had and grew into a company that now operates in 99% of countries worldwide.
The founders of the Fiverr marketplace were searching for alternatives to a 9-to-5 job and ended up helping millions of people find well-paid projects to suit their lifestyles.
This doesn’t mean you have to replicate this success and build another online marketplace like Fiverr. Just the opposite.
Answer one simple question: What is the problem you want to solve for yourself?
If you are a carpenter creating exclusive furniture, you are likely in need of a platform to sell your goods.
You can create an online marketplace for customers who want to renovate, furnish, and decorate their homes. Along with selling your own furniture, you can invite producers of wallpapers, curtains, bedding, and dinnerware to post their listings. This way you solve your own problem (selling your products), help solve a similar problem for other small business owners, and satisfy the demand of customers who want to renovate their homes. All you have to do is build a marketplace website.
Having an idea is essential, but your first step should be to validate it and prove that the idea is worth the effort. This is done during the discovery phase.
You can go through the discovery phase on your own or can hire a consultancy team. Hiring a team will help you get the most out of the research and make well-grounded decisions to create a marketplace website that generates revenue.
Let’s review the steps you’ll have to go through as part of your discovery phase.
Step 1. Fill in the business model canvas
A business model canvas is a template you should fill in at the planning stage of your new digital business. It will help you find the answers to crucial cuestions, prevent spontaneous decisions, and get a clear vision of the platform you’re going to build.
A business model canvas summarizes information about your platform, its users, expenses, and sources of revenue for your startup. Conduct research and brainstorm with your co-founders or external consultants to answer the following questions:
What is your value proposition?
Formulate the real problem and how you’re going to solve it with your app. Since we’re talking about a two-sided marketplace, you have to define the problem and the solution for both your potential sellers and buyers.
Who are your partners?
Describe all partnerships you need to launch your business. It’s time to think of your co-founders, development team, vendors, suppliers, etc.
What are your resources?
Think of the financial resources you have at your disposal as well as the available material resources you can use, such as real estate, equipment, and transportation.
Who are your customers?
You will have to deal with two major groups of users. Describe each of them in as much detail as you can. Make sure you define your buyer personas and understand your buyers’ needs and wants before you build a marketplace website.
What activities will help you attract customers?
Here, your main task is to find the solution to the chicken and egg problem. Whom will you attract first: buyers or sellers? Which strategy will work best in your specific case? You decide.
How will you work with customers?
Supporting your customers on their journey through your marketplace is just as important as attracting them. Plan your communication with platform users in advance.
What are the channels where you can reach your users?
Define what devices, social media channels, news websites, and online streaming services your target audience uses. Knowing their preferences, you can reach them more easily.
What is the possible cost structure of your company?
Estimate the expenses to create an online marketplace in advance. Basically I have created a marketplace kind of app mobile application development company and it works awesome. Think of the operating costs, salaries, app development costs, monthly marketing expenses, etc.
What are the possible revenue streams for your company?
Think about ways to monetize your app before you build a marketplace. You have to understand where your money will come from. Along with traditional marketplace monetization models, think of alternative revenue streams such as banner advertising or a white label model. Also, think about possible ways to attract investors to your platform.
You can print the template and fill it out during your brainstorming session. Be brief.
If you’re serious with your idea to build a marketplace, we recommend you read our article with detailed instructions on filling out a business model canvas for your future application.
Step 2. Research your competition
In a perfect world, you’d love to have your idea in a big blue ocean without any competitors. But the reality is different. Almost everything you can think of has already been invented. That’s why it’s important to understand your competitors. This will give you a chance to create an online marketplace that can beat them.
Basic competitor research consists of four steps:
Identify marketplaces that deliver similar services.
Analyze those marketplaces: go through their websites, check out the features, and read user reviews. It will also be helpful to become a customer and actually make a few purchases. This helps you go through the user journey and identify strong and weak points.
Find the weaknesses of competing services and think about how your marketplace platform can overcome them.
Conduct a SWOT analysis of your future product to identify its strengths, weaknesses, opportunities, and threats. However, your competitor is not necessarily a marketplace with the same services. Think of where else your target users do their shopping now.
Let’s return to the case of the home improvement platform. You may decide to build a marketplace website in this niche because there is no such platform in your region. But people still purchase the things they need to renovate or decorate their homes. Where do they shop? Analyze their current shopping experience with country-wide online stores, global chain stores, small appliance and decoration shops, private workshops, etc.
As soon as you have a list of stores and platforms where your target audience does their shopping, include them in your SWOT analysis. You have to clearly identify why people change their shopping habits and turn to your marketplace platform.
Analyzing the competition, you become aware of the existing market situation and can prepare to dive into an ocean full of sharks.
Hope this will help everyone.