How to create a marketplace?
Online commerce can be divided into three main sectors: online stores, various management, and data distribution services such as SaaS, PaaS, and large trading platforms - marketplaces. The latter can combine in one place both online stores and various consumer services.
Today, thousands of marketplaces are already operating around the world, and experts in the field of online commerce predict that the market for sites will only grow due to the continually increasing demand for online shopping, the globalization of Internet technologies, and other factors.
This article shares Sannacode's experience: how much does it cost to create your marketplace and how to go from idea to implementation without nerves and loss of money.
What is the marketplace?
Without going into theory, we can say that a marketplace is a trading platform that sells goods from other sellers.
There are two main models for building marketplaces: selling on behalf of the marketplace or a platform with attracted sellers when each store sells goods on its behalf but adheres to the site's creators' general rules.
The main features of a marketplace are:
availability of attracted sellers;
monetization through commissions, subscription fees, or a percentage of sellers' sales;
the ability to sell the same goods by different sellers;
hawking not only goods but also services: for example, ordering food, selling air tickets, etc .;
transparent and regulated rules of payment, delivery of goods, dispute resolution.
In other words, marketplaces are civilized online trading platforms with their own rules of the game that clearly regulate and protect the activity of sellers and buyers.
Marketplace implementation models
Price aggregator provides a platform for manufacturers, ranking them by filters, with a further transition to the partner's website. A classic example is Yandex Market, although recently, it wants to move to the second category.
Online Hypermarket provides a platform for manufacturers under the parent site brand. The order of goods is made without going to third-party sites. Classic example - Amazon.com
B2B Marketplace (closed) is a closed marketplace where large wholesalers post their prices and availability, and retail stores and small wholesale buyers place orders for subsequent resale. As a rule, such marketplaces cover one product niche.
B2B Marketplace (open) is a project available to all wholesale buyers that covers any product sections. First of all, manufacturers of goods are exhibited there. A classic example of this type is Alibaba.com.
В2С MarketPlace is a retail marketplace for end customers, the most classic example of such a project. The core of such a project, not a large part, is the products of the marketplace itself, and most of the products are products of small, medium, and large wholesalers and manufacturers. Amazon.com invented this scheme. It is also the largest classic marketplace.
Marketplace business models
Before starting a marketplace development, it is worth deciding on a business model. Consider the current marketplace business models.
1. Commission from operations
This is one of the most popular business models. For users, its main advantage is that they don't pay the marketplace until they start getting real customers and profits. This is also profitable for the site - it owes a part of all money passing through it. The difficulty lies in providing customers with a precious product or service. For suppliers, an uninterrupted flow of customers. Otherwise, both of them will find a workaround not to pay a commission to the marketplace. Marketplaces operate on a business model with a commission - Airbnb, Etsy, eBay, Fiverr, TaskRabbit, Uber, and Autosport.
The principal value for sellers here is that the marketplace helps them attract new customers. For clients - a unique experience and access to a limited resource for a constant and moderate fee. This model will work if the service offered on the marketplace is truly unique, and each site visitor wants a long-term subscription. The vulnerability of this business model is customer acquisition and retention. It may take multiple email funnels or dozens of social media ad impressions to deliver the marketplace's value to the customer and prepare them to purchase a subscription.
C2C subscription marketplaces: Love Home Swap, dating sites OkCupid, Tinder. These sites often research their users to offer them personalized services and thus justify the subscription fees. In the B2C segment, this model is often used on recruitment sites. For example, StackOverflow Careers charge companies to access the candidate database. Studiotime, a site for finding and renting recording studios, is another example of a niche where this business model can work.
3. Accommodation fee
This model is similar to how paid advertising works - the marketplace also provides an audience for the seller and guarantees coverage. The placement fee is beneficial for both the marketplace and the seller: the marketplace wins if one ad’s cost is high, and the seller of a product or service depends on the number of ads that he has placed on the site. Headhunter and Avito use this model.
4. Commission for a lead
This model sits between placement fees and commissions. Clients leave their requests on the site, and sellers respond to them and pay a commission to the site for this. Sellers benefit from this model because they only pay when they come into contact with a potential customer. For the model to work, the salesperson's likelihood will get a new customer must be high. In the segment of C2C marketplaces, the commission for a lead is rare. More often, it is used by sites operating on the B2C or B2B model. The bet is placed on having acquired a client. The seller will establish a long-term relationship with him and conduct several transactions. Example: YouDo, GetBlogger.
5. Pay for premium
The Danish startup Peerby is an excellent example of marketplace monetization, where people can swap or borrow items for free. All the main functions of the marketplace are free, and you have to pay for premium services. Peerby has come up with two main paid features. First, the person providing the item can ask for some money from the new owner as insurance. Second, the new owner can order the item's delivery instead of picking it up from the old owner himself. The main problem is that premium features have to be really valuable. If only one percent of the total uses them, and everyone else lives fine on the free version, something needs to be changed in the model.
6. Promotion of ads and advertisements
All ads on the site are free, and sellers only pay to make their ads more visible. For example, an ad might land on the home page or at the top of the primary listing. A similar model is used on Avito and Etsy. To justify the need for paid advertising, the marketplace must bring in a sufficient number of customers - this is the main complex of such a monetization model. Also, advertisements can irritate users. All paid advertising business models perform better in narrow business niches where sellers can personalize their content. For example, Häätori, a Finnish service where users sell old wedding dresses. All the site functions are free, and the company receives money from companies organizing celebrations, photographers, and any organizations whose services are related to weddings. Advertising content is similar to the main body of user-generated content and does not cause rejection.
5 steps to create a booming marketplace
Before developing a marketplace, it is necessary to determine the topic and business model and then build its structure and design. The key rule at this stage is splitting into stages. You will go through each iteration with the developers, sometimes even several times. At first glance, it may seem that it is better to write out the terms of reference for 100 pages in advance and wait for the engineers' final result. But Sannacode's practice has proven the effectiveness of the Agile approach in everything related to IT development projects.
A good marketplace startup adheres to the simple rule of creating a minimum viable product (MVP) in the shortest amount of time. It is being tested on an already identified audience segment. The main task of such a model is to perform the main function of the service. Design, usability, and the platform are of secondary importance at this stage, although they should be thought out in advance with a view to development and scaling. At the MVP stage, you should first test not a specific implementation but the idea of a marketplace.
A successfully tested MVP is likely to attract investors. After all, the entry threshold at this stage is still low.
Typical platforms of marketplace development
Having decided to launch their own marketplace, entrepreneurs can choose one of two ways: develop a custom platform or choose a template service with a standard set of functions.
Each option has advantages and disadvantages. To make the right choice, you need to analyze the goals and assess the future project's scale.
If you are a newbie company, are taking your first steps in online trading, and just want to get a commission by combining suppliers with buyers on a small platform, you can get by with a budget template option. Its main advantage is maximum simplicity and time-saving.
The most popular marketplace development tools include Magento and CS-Cart. Template versions of platforms were created on them, which at the same time have flexible capabilities for further customization to individual customer requirements. Such platforms outperform self-written architectures both in price and development speed. Finalization of the portal is a loan for at least 2-3 months of work in a simple version, in the case of a multifunctional project - at least 5-6 months.
When developing a template solution, you can quickly launch a project and rely on a qualified studio experience that already has experience in such development.
At the initial stage, such a site will fully cover all your needs. However, the template service functionality is limited - to surprise users with a fresh solution, stand out from competitors, and achieve world fame with such a designer will definitely not work.
Large companies that are about to expand, or entrepreneurs who want to create a unique project, cannot do without custom development. This option requires serious financial investments and takes a lot of time. As a result, you will get an interesting and flexible, innovative project that can be scaled and adjusted to the user's needs.
UX refers to design aimed at facilitating user interaction with the web platform. Analysis of behavioral factors will help you understand where the weak point of the site is. In fact, UX design solves the cornerstone problem of design in general, only in the web format, simplifying the object's use. The difference is that creating the right context on the site increases its conversion, which means using UX's principles is imperative for the marketplace.
To assess the effectiveness of the eCommerce project, you need to enter quantitative indicators. Marketplaces are evaluated according to the following criteria:
Number of ads
Number of clients
CAC (customer price)
LTV (customer life cycle)
Of course, the bottom line will be net income. It is possible that in the first months of operation, the marketplace will be unprofitable since the critical mass of users has not yet been recruited. Then estimate the growth rate. Growth markers are the number of sellers on the site and the number of fresh ads. If these indicators grow, then the site has every chance of gaining profit.
Each marketplace will have its own features depending on the business model, audience, and goals. However, there are standard modules that characterize all marketplaces:
authorization and registration module,
data and role management module,
product or service management module,
social interaction module,
Authorization and registration module
Usually, it has standard authorization via email and password. It can be extended by authorization via social networks or two-factor authentication via SMS or other sources. When registering, the mail is usually confirmed with a verification code to the specified email. Accordingly, there is a page where the sent code is checked—password recovery page and functionality.
Data and role management module
Creation and editing of personal and company data, validation of entered data, uploading files and images, creating roles, and restricting access rights.
You manage all data in the system, viewing transactions, resolving disputes, analytics, and statistics.
Search by fields, filtering, and sorting data, limiting data output, optimization, and acceleration.
Product or service management module
Adding, editing, and deleting goods and services with a different set of fields. Data categorization. Management of the state of goods and services.
Social interaction module
Create chats for communication between suppliers and consumers, the ability to like or dislike, leave reviews and comments, and create ratings.
Creation of both instant notifications and sending email or SMS, creating push notifications.
Card binding and integration with payment systems, viewing and managing transactions, payment history, payment cancellation.
If you decide to create a marketplace, then the first thing to do and what you shouldn't spare money on is to conduct analytics, choose the right tools and choose a team interested in improving your business. This will help save a decent amount because you don't have to redo the project several times.
You can contact the Sannacode team, and we will help you with the implementation of your idea, from analytics and business model building to development and marketing.
The cost of developing a marketplace is quite high, but you need to know that at least the same amount, or even more, you will need to spend on marketing, advertising, and customer acquisition. No matter how cool and convenient a trading platform you make, it doesn't make sense without clients.