You are planning a seven-day vacation in Paris. You open Airbnb and find the most suitable apartment somewhere in the city center. When the day arrives, you use the Uber app to hire a ride, and on the way to the airport, you check Mush to plan the next meetup for local parents when you come back. Now you are ready to have the time of your life in France.
It looks so familiar to us that we hardly ever think of how these and other companies have been part and parcel of our everyday lives. It is almost hard to believe that once they were just marketplace startups with a big idea and no business models, websites, or apps. Still, it is highly possible, that pretty soon we will see the next top marketplace startups that will transform the way we live.
What Is An Online Marketplace?
An online marketplace is a website or app where third parties can provide their services, useful information, or sell products to other people. All the payment transactions are processed by a mediator − the online marketplace provider. This feature ensures reliability, builds trust and develops a close rapport with its multiple users.
Currently, there are a plethora of online marketplaces that have altered the way people conduct business in various industries − from retail to real estate and hospitality. For instance, if you search for top online marketplaces, you will find multiple hits with the most well-known names you definitely heard of − Airbnb, Alibaba, Amazon, Craigslist, eBay, Etsy, Uber, and many others. They are all lucrative businesses with thousands of transactions per day and multiple devoted users across the globe.
How Does An Online Marketplace Generate Profit?
Without profit, online marketplaces wouldn’t be able to evolve into more proficient businesses, establish branches on all continents, and reach excellence in their services. If you have ever thought of making your own marketplace, you probably wondered how all these market giants generate revenue. The answer is evident − they use the right marketplace business models that align with their mission, vision, and business plan. Emerging companies can pick the one that will perfectly suit their needs to start their success journey. Alternatively, they can employ a mix of several models. Thus, they can have more ways to generate revenue.
We conducted market research and shortlisted three widely used marketplace business models:
- Ads and featured listings
1. Ads and featured listings model
Online marketplaces can use this model to boost income by utilizing a special feature − paid ads and listings that will stand out in a pool of similar proposals. As a rule, such marketplaces are free, but if a service provider or producer wants to promote their offers and reach a broader audience at an online marketplace, they can pay a fee for a featured listing or ad.
Zillow, a real estate top marketplace where you can sell, rent, or buy houses, uses this model. It allows users to promote and advertise their offers for a fee. If a person needs to sell an estate in a highly-competitive area, they can pay for a featured listing on Zillow, and it will give them a competitive edge over other sellers that do not promote their offers.
Marketplace startups can also use ads and featured listing model. However, here is the catch. To utilize ads and featured listings effectively, companies need to have many users. Otherwise, no one will want to advertise a post where there is no traffic.
Examples of companies:
2. Subscriptions model
By using this model, companies charge their users with recurring payments for utilizing their platforms. Furthermore, this type is a lucrative lifelong tool for businesses in all domains. Companies do not need to worry about where to find new users and one-time purchases as they can get monthly or yearly recurring payments by providing a few types of subscriptions.
Spotify, a Swedish online song marketplace, provides a premium subscription where users can access online and offline music streaming. The company pays a certain amount of money per stream to the owner of a song.
This marketplace business model is suitable for those companies that can offer real value and have an extensive pool of users.
Examples of companies:
- Apple Music
3. Commission model
This online marketplace model is considered to be the most lucrative one. It allows a marketplace and a product or service provider to split revenue for a transaction that was made at their platform. It can be a flat fee or percentage. For instance, if a person books an Uber ride, the taxi driver will get 75%, while the company keeps 25% from the transaction. This percentage might vary from country to country.
If a service or product provider hasn't made any profit, the company does not get anything either. Companies that use such a marketplace business model can list and promote providers at no cost. In case they want to advertise their platform by providing discounts, they cover all the expenses so that providers won’t lose a dime.
This marketplace model enables startups to generate revenue quickly and establish trustful relationships with providers and their clients.
Examples of companies:
What Are The Success Stories of Marketplace Startups?
You can easily find Uber and Airbnb among those marketplace startups that have made it to the top.
Airbnb is an online marketplace platform where you can rent apartments, rooms, or even houses in 191 countries and 65,000 cities around the world.
The idea behind the company was quite simple. In 2008, three aspiring designers were renting an apartment in San Francisco when the rent skyrocketed. As a result, they could hardly afford it and had to find a way out of this situation. Luckily, there was a conference for designers in SF, and they decided to rent out one of the extra bedrooms as a bed-and-breakfast. They didn’t have a bed but had an air mattress. With this idea in mind, they quickly created a WordPress blog where they put an ad. Three people wanted to stay with them. This is how three guys came up with an idea for a marketplace startup that would become a multi-million company.
Uber is another prime example of phenomenal success. Now it has more than 110 million users, operates in 63 countries, and its revenue is 11,27 billion USD as of 2018.
The idea behind Uber is also quite unremarkable. In the winter of 2008, while attending a tech conference in France, two friends experienced troubles with hailing a taxi. They thought that it would be nice to order rides via smartphones that would spare you any inconvenience. Thus, another successful marketplace was born.
Is It Difficult To Become A Successful Marketplace?
The good news is that every marketplace startup has an opportunity to gain great success.
Mush is definitely one of them. It is an online social media marketplace which has become popular in the UK among moms. Mush united moms in the global community of like-minded people where they can find peers, chat, arrange meetups, etc. Parents can also exchange valuable information on upbringing, health, schooling, and other topics that are important to moms and their children. Geolocation is integrated to allow users to find parents in their region and meet with them on a regular basis.
The idea behind Mush was to combat the challenges of upbringing and motherhood by creating a strong community of parents. Equipped with useful information and friends’ support, plenty of troubles and problems can be easily resolved.
How To Build A Successful Marketplace?
In fact, to create a thriving online marketplace is not that difficult. All you have to do is to follow a three-step plan for how to build a successful marketplace:
- Get an innovative and original idea
As you already figured out from the stories of Airbnb and Uber that almost all marketplace startups began their successful journey with an idea.
Get an idea that will blow your customers’ minds. Alternatively, if you know that some new features can significantly improve existing marketplaces, go for it and create your own.
- Decide on your marketplace model
Unfortunately, any company can't survive without revenue. So, you have to decide what kind of online marketplace model you need to generate as much income as possible. You can choose one model or combine several ones to yield more results.
- Do the technical part
With the great idea in mind, it is time for the technical side of your ideal online marketplace. More than ten years ago when Airbnb and Uber started their businesses, it wasn’t that common to have all those sophisticated, appealing, and convenient online platforms − Airbnb was just a simple one-pager built on WordPress. However, nowadays, it would be the biggest flop if you decided to establish a similar company. Therefore, you need to create a platform that will be easy, intuitive, engaging, and technologically advanced.
Online marketplaces have had a high impact on the way people live − we order taxis via apps, sell real estate on the Internet, and rent an apartment in a different part of the world. This convenience has become possible thanks to bold ideas of startups and the right implementation of those ideas, which includes the carefully selected online marketplace models and technology.
If you have an online marketplace idea in mind, but struggling with the technical part or not sure what kind of business model is the right fit, get in touch with LITSLINK, a US-based mobile development agency. We know how to create a marketplace startup that will be enlisted among the next top companies — just check out our outsourcing case studies, where you can find a few examples of marketplaces.