The marketplace concept is not new. We are familiar with shopping malls that have a one-stop solution for almost all kinds of stuff. Third-party vendors offer their products and services to the visitors of the mall. Likewise, online marketplaces sell goods and services of multiple categories to online shoppers.
Online marketplaces are growing rapidly. Dutch company Takeaway.com recorded the fastest growth rate worldwide in 2021. According to Statista, It reached a 252% compound annual growth rate (CAGR) based on revenue.
This whopping growth rate speaks of the immense possibilities of an online marketplace.
If you’re wondering whether or not you can build an online marketplace, you’re at the right place. In this article, we have answered all questions you might have about an online marketplace.
Let’s know what an online marketplace is and how it can benefit you before moving any further.
What Is an Online Marketplace?
Online marketplaces bring buyers and sellers together in a common platform. Usually, third-party sellers join a marketplace platform and list their products and services to reach target customers. Amazon and Alibaba are the two most regarded online marketplaces worldwide. Alibaba originated in China, and Amazon originated in the US.
How Online Marketplace Benefits the Users
Marketplace owners sometimes sell as a retailer, but most of the transactions happen through third-party sellers.
“In 2020, Amazon’s gross merchandise volume (GMV) was estimated to amount to 475 billion U.S. dollars. From this sum, 295 billion dollars were from products sold through Amazon’s third-party sellers and 180 billion from Amazon as a retailer.”Statista
Online marketplaces provide something for all the stakeholders- the investors, the marketplace owners, the buyers, and the sellers. Let’s know how it can benefit all types of users.
Check the following list to learn how online marketplaces benefit the owners:
- Owners can build a product-rich eCommerce website without managing the content, inventory, or customers
- Marketplace owners get a commission for each sale made through their platform
- They can integrate other monetization strategies like subscription packages, featured stores, etc.
- The marketplace owners/operators have full control over what happens within their platforms
- They can even use their platform to start selling as a retailer.
Let’s know how you can take advantage of an online marketplace as a third-party seller. The following list enumerates the benefits of a marketplace for vendors.
- Vendors can sell their products without spending money on website development
- They can easily reach a larger audience with less investment
- Sellers get a convenient channel to showcase and sell their products
- The marketing and operation costs are comparatively less
- A well-designed and developed marketplace boosts its presence in search engines.
Online marketplaces help sellers reach prospective buyers and bring the buyers to the right place to get their products delivered to their doorsteps. Have a look at the following list to learn more.
- Customers get a wide range of products and services in a single place
- They can easily compare the quality and prices of the products
- Confused buyers can read the product details to be sure of the product features
- They can make informed buying decisions based on the reviews and ratings
- Buyers can analyze the available delivery methods and choose the right one
- They can make payment through the method they find suitable for them
- Buyers can enjoy special deals and discounts offered by the sellers.
15 Questions to Ask About Your Online Marketplaces
Building an online marketplace requires you to spend a substantial amount of money on research and development. You should have a deep understanding of the marketplace ecosystem before getting started.
We have gathered all the important questions you need to ask about your online marketplace here.
- How does the marketplace model work?
- Do marketplaces work for both B2C and B2B companies?
- What is the problem that you solve?
- What is your niche?
- Who are my customers?
- Who are your competitors?
- What technology should you choose?
- Why do you want to start this business?
- Are your marketing materials ready?
- How will you safely process transactions?
- What shipping careers are suitable for your business needs?
- How will you facilitate contracts or agreements?
- What will attract the right people to your marketplace?
- How much are you willing to spend?
- Are you ready to accept the unexpected?
1. How does the marketplace model work?
The idea is simple. Marketplace owners host multiple sellers on their platform. The sellers register their stores and manage content, product assortment, customer services, delivery, and other relevant things.
Buyers visit the marketplace and buy from the available sellers. The marketplace owners get a percentage of each sale made through the marketplace. This is how a marketplace works and caters to all stakeholders’ needs.
2. Do marketplaces work for both B2C and B2B companies?
The marketplace platform has always been successful for B2C businesses. B2C buyers make purchases driven by emotion. It’s easy to convert visitors into customers in B2C. For this reason, the marketplace works best for B2C. B2B buyers make decisions based on data and their business needs. This is why converting B2B buyers is more challenging.
But, with more millennials becoming decision-makers in recent times, B2B buyers are also moving online to complete their purchases. So, B2B online marketplaces have great potential to succeed in the coming days.
3. What is the problem that you solve?
It’s difficult to attract buyers if you don’t have a unique selling proposition. You must understand the target customer’s pain points and provide solutions to their problems.
For example, Airbnb identified that tourists were facing difficulties to arrange accommodation at a lower price. It solved this problem by connecting people who are looking for accommodation and house owners who have spare space and need money.
4. What is your niche?
It’s always wise to choose a specific segment of the market instead of a saturated market filled with a lot of competitors. Your niche will determine your target customer base.
For example, if you sell only iPhone mobile accessories, your target customers are people who own an iPhone. Thus, you can eliminate unnecessary competition and target the right audience.
5. Who are my customers?
Never take assumption-based decisions in business. Analyze your target market to find out who your customers are. As a marketplace owner, you should consider two types of customers- end-users who buy from your marketplace and vendors who are interested to register their shops on your marketplace. You need to focus on identifying buyers’ persona to become successful and achieve your business goals with a marketplace.
6. Who are your competitors?
When you’re planning to start a business, the chances are high that someone is already working with the same idea. That means you have competition. Know your competitors before getting started with a marketplace in full swing. Study your strong competitors and find out where they succeed and where they have room for improvement. Streamline your business strategies, taking them as case studies.
7. What technology should you choose?
The answer to this question is crucial to the future of your business. Choosing the right technology will help you grow bigger and better in the long run. You can build a marketplace from scratch, or you can leverage the SaaS platform, open-source software, PaaS, and other available website-building solutions. Make sure that you’re using top-notch technology when creating a scalable and secure marketplace with great potential.
8. Why do you want to start this business?
It’s understandable that everyone does business to make substantial profits. What other reasons motivate you to start a marketplace business? We suggest you align your passion with what you do. If you don’t love what you do, you’re not likely to succeed eventually.
You may have high hopes, like building an international corporation or becoming the number one e-commerce company in your country. That’s cool, but you need to be passionate about marketplaces to keep yourself motivated in this business for a long time.
9. Are your marketing materials ready?
What’s the point of making a great product without getting the attention you deserve? The need for proper marketing and promotion comes into the scene at this stage. Invest your time and money to write stellar marketing copies and product descriptions and take sharp and beautiful product pictures to attract buyers to your marketplace.
Focus on both organic and paid marketing to reach the target audience. Leverage the power of social media to get the best output from your marketing efforts.
10. How will you safely process transactions?
A marketplace receives a good amount of money each day made through sales. Each customer needs to provide sensitive payment information to complete the payment process. Processing the transactions safely for this many customers is a real challenge. How are you going to manage this? Ask yourself this important question.
You can use secure and well-known payment methods like Stripe, PayPal, Braintree, and more. Try to integrate as many payment partners as possible. You can consider Visa, Master Card, AMEX, and other mobile payment systems to ensure a buyer-friendly marketplace.
11. What shipping careers are suitable for your business needs?
It’s better if you can ship all your products via your own branded shipping career. But that’s possible only when you have a huge customer base. In the beginning, you can rely on trusted shipping partners like USPS, DHL, FedEx, Shipping Easy, ShipBob, etc. Choose the best delivery provider according to your business size, location, budget, and other relevant factors.
12. How will you facilitate contracts or agreements?
You may need to make multiple contracts based on agreements made between you and the vendors. All these documents should be recorded for further use if any dispute arises in the future. Keep your paperwork aligned with the rules and regulations of the region where you’re operating your business. You can make use of eSignatures if the law allows you.
13. What will attract the right people to your marketplace?
There are surely other marketplaces available in the market. Why would someone join you as a vendor, and customers buy from you? You have to come up with a few unique selling points.
For example, you can create a high level of trust, provide top-quality products, offer lower price points, or deliver the products within a day. If people find you trustworthy and get the right value for their money, they’ll surely be attracted to your marketplace.
14. How much are you willing to spend?
This is a crucial question that should come to mind when getting started with a marketplace. A lot of things depend on your budget. The more you pay, the more features you will get from a marketplace-building platform. The design and functionality of a website will also differ based on the budget. So, plan your finances way ahead to make the best use of your money.
15. Are you ready to accept the unexpected?
You’re most likely to succeed as a marketplace owner if you find the answers to all the above questions and act accordingly. Still, you may struggle in the initial stages. So, prepare yourself to embrace the unexpected. Have a contingency plan ahead of time to recover quickly if any crisis occurs. Don’t lose heart if things don’t go your way, rather start again learning from your mistakes.
Is an online Marketplace Suitable for You or Not?
A marketplace can work as an excellent revenue stream. You’re likely to become successful if you can attract buyers and sellers to your platform. A marketplace can provide you with complete ownership and control over the marketplace ecosystem.
It allows the rapid expansion of products and categories with almost zero costs for the vendors. You can easily integrate sellers and channel partners into the online marketplace. Moreover, an online marketplace is a highly scalable and profitable business model with huge potential.
Now, it’s your turn to make the decision and identify if online marketplace platforms are suitable for you. You need to consider your budget, target market, competition, and other available resources when choosing the best marketplace builder tailored to your needs.