Before you start building an online marketplace, you need to acknowledge the fact that is is not an easy business to maintain.
Nevertheless, it’s really rewarding at the same time – and worth it! You can make a lucrative amount of money IF you invest and brand your marketplace the right way.
Once your marketplace is built and you have transactions being made, you are on your way to financial freedom. If you keep pumping out consistent quality content, strategic marketing (like influencer marketing), and provide world-class experiences to your users, your marketplace can exponentially grow!
How do they work?
Well, to answer that question we need to examine deeply what exactly is an online marketplace.
In short, an online marketplace is a platform which connects BOTH Sellers, who are supplying a product or service, and Buyers, who are demanding the product or service. In this way, the customers can use the same website to purchase products or services from different sources or vendors.
There are three sectors of online marketplaces:
Vertical Marketplaces only sell products of one type (from many different sources). Uber is a great example of that, as it’s a marketplace for Customers (demanding) rides and Drivers (Suppliers) providing the transport service. Check it out – Uber – Everyone’s Private Driver
Horizontal Marketplaces sell products that share the same characteristic – in this case – clothing and shoes. Amazon is a great example of that – it offers users the ability to shop from various different sources (Puma, Nike, Adidas, Zara, Topshop, etc.) in one app. It saves the trouble of downloading separate apps of different retail stores and at the same time, it saves the customers a lot of time and broadens their offer.
How do these marketplaces generate profitable income?
Since online marketplaces are not selling anything and they’re just an intersection between both communities (buyers and sellers). There are a few monetization strategies:
- Transaction Fees – when there’s a fixed fee for every transaction carried out through the marketplace
- Listing Fees – when there’s a fixed fee for listing an offer on the marketplace
- Premium Listings – ability to promote the listing higher in the search results
- Subscriptions – this model, for example, offers users access to the software available only for premium users or different benefits dependable on the type of the website
- Selling Fees – anytime vendor makes a sale, admin fees can be added-on along with concierge type of services
- Ads – regular ads can work very well as well – especially if you have a lot of users
What’s interesting, there are also online marketplaces that add the SaaS (Software As A Service) component to their offers. They are called SEMs – SaaS enabled marketplaces.
What is SEMs?
It’s a business that combines the characteristics of two models:
– Marketplace component that connects two or more parties to conclude a transaction and thus can generate and benefit from real network effects.
– SaaS (Software as a Service) component that offers software features to one — or more — of the parties. This SaaS component needs to be usable as standalone software. This is how we differentiate pure marketplaces (like Uber) from SEMs like StyleSeat.
In simpler terms, it’s a SaaS product with additional marketplace features.
The fascinating part is that the SaaS component can be both on the buyer and the supplier side.
I will do a Podcast Episode on this as it can get complex.
Let’s keep going so you can get the best understanding of a Marketplace and how you may be unfolding ideas as you learn more!
There are 8 Types of Marketplaces
When you talk about marketplaces you definitely hear words like B2B or peer-to-peer. What are they and what do they mean? These are the types which classify marketplaces. And for now we want to tell you about these existing types of online marketplaces.
Let’s go through available types of marketplaces and find their meaning. Here the 8 types of online marketplaces:
- B2B – a platform for transaction of products or services between businesses
- mCommerce – a platform for buying or selling of goods and services through wireless handheld devices
- Crowdfunding – platform lets people post their projects and raise money for their execution through fundraising campaigns.
- C2C – a platform for transaction of products or services between customers
- eCommerce – a platform for two parties, e.g. seller – shopper, startup owner – investor etc.
- B2C – a platform for transaction of products or services from business to customers
- peer-to-peer – a platform which brings together users, who offer products through offline services
- auction platforms – a platform where a seller lists a product and sets a deadline; buyer with the highest bid gets the item
For instance, you can find such Marketplaces as BlaBlaCar, OLX, Etsy and Couchsurfing among C2C (customer-to-customer). AliExpress, Booking.com and Amazon – are the B2C (business-to-customer) Marketplaces. And you can refer Alibaba.com primarily to B2B (business-to-business) type of Marketplaces.
Marketplaces are one of the biggest trends without saturation in the market. As there is a uniqueness in each one of us, there is a uniqueness in each marketplace idea.
You don’t have to have a million customers to become well off, call it wealthy, you only need a few thousand a year and you will be living in financial freedom!
In summary, now you have a good understanding that there are 3 sectors of marketplaces: Horizontal, Vertical, and Global. You now also know how marketplaces generate profitable income and you know there are 8 types of marketplaces that cater to the public.
Do you know what marketplace you want to create and grow?
Have you figured out what your passion is and what you spend most of your time doing as a hobby?
Whether if its drawing, singing, walking in parks with your dogs, volunteering, any of these can be turned into a creative idea to form a networking community and a profit producing marketplace.
Schedule your Consultation today with me at TechNerds.com and I can help you establish your marketplace idea and deploy it to the public!