5 Questions to Ask While Building Your Marketplace Platform
Building a marketplace setup is a tough nut to crack – and this is no breaking news. Although the model works extremely well at scale – for example, eBay, Airbnb, and Uber, among others – but getting to scale is another challenge altogether.
It’s not something that’s achieved overnight, or without thorough planning. For instance, it took Wattpad, a community of writers and readers, around three years to get 300,000 uploads. Then, it took them only three more years to reach the 10 million mark. Similarly, the crowdfunding platform, Indiegogo, was founded in 2007, but it took them four years for their first big break.
However, building an online marketplace does seem like a lucrative business option. Even more so, when you realize that global marketplaces are set to own around 40% of the online retail market by 2020.
Amazon, for instance, takes a large chunk of that pie with over 190 million monthly visitors. Sellers there have benefitted from the massive traffic and have seen an increase in sales by around 50%, once they switched to that platform.
But before you let that statistic blow your mind, let’s also talk about the other side of the coin – the grueling competition in the e-commerce sector. According to another research, only 50% of small businesses manage to survive in the market for four or more years.
Clearly, as great as it is, an online marketplace is also a tough place – even for the seasoned players. Even Amazon, the giant, started in the US way back in July 1994, but could break even before the last quarter of 2003. That’s 10 – or 9 ¼, more precisely – long years!
Let’s go through five key questions that you should definitely ask while building your marketplace – so that your business truly gets the kickstart it deserves.
1. How will you resolve the “chicken and egg” problem?
This is one of the oldest problems but still manages to stump business owners – especially the ones just starting out.
Let’s introspect a little:
A new marketplace has two major challenges – finding vendors and drawing buyers. Also, if the store has nothing to display, preparing the storefront is another challenge – this makes getting visitors even more tricky.
It’s important, before anything else, to find your solution to this problem – as soon as possible.
After all, how will you attract buyers without having some products to display? And without a buyer, how will you approach vendors to set up their store at your marketplace?
Airbnb, in their initial days, used to rent their own houses, when none of the hosts agreed to rent their living space.
Tinder, too, reached out to the college campuses and convinced students to find their soulmate over the application.
Once you understand the needs of your audience, you’ll be closer to attracting your first visitors.
2. How are you different from the others? What’s your USP?
There’s rarely a budding entrepreneur who isn’t haunted by either of the following questions:
How will you stand out from the competitors?
Do you have a groundbreaking and disruptive business idea?
If you have no groundbreaking idea, how will you differentiate your marketplace from the existing model?
Airbnb offers the opportunity to earn a living by renting expenses – thereby owning the market. Uber completely transformed the way people looked at public transport – something that nobody was doing at that time.
What if your marketplace doesn’t have such a disruptive idea? Well, seek inspiration, whenever you seem lost, from Ola and Flipkart – the Indian counterparts of Uber and Amazon.
At the end of the day, it’s about being better than your competitors. See what modifications you can make to ensure an easy journey for the buyers. Or maybe, make it easier for your vendors to sell their products?
Whatever you choose, it’s best for you to rigorously analyze the genre of the services you’re looking to offer. This will help you perform an elementary market research – which will help you define your USP. This is pretty much what Flipkart did, too. By analyzing their customers and their competition (Amazon), they were able to derive strategies and tactics that helped take them off.
3. What will be the revenue model?
Let’s talk about the real outcome, aka, revenues. As a marketplace, you have quite a few revenue models to choose from.
Membership or subscription fees
Ads & featured listing
A problem of plenty, eh? What if this is a boon in disguise for you? Why not take a good long time to evaluate each, and find which fits you best. There’s no set formula for this in the market – well, at least not yet.
If you look at the market leaders, you’ll realize different marketplace businesses have different revenue models. Airbnb, eBay, Fiverr, and Uber, for example, have commissions as their main model. Craigslist, on the other hand, earns through listing fees.
4. What will be your payment infrastructure?
A well thought out payment infrastructure is imperative for adding value to sellers and buyers. Below are some points you should ponder over while deciding your payment infrastructure:
How will money flow between admin and vendors?
What kind of fees will it be – transaction or listing?
Will you manage the payment processing channel?
Will the buyers and sellers interact, or will you be the mediator?
How will you gain the trust of your providers and buyers?
You’ll find the answers to most of, if not all, these questions if you focus on your target group. Find out what comforts them the most and plan your actions accordingly.
If you look at Uber, for instance, you’ll realize that their drivers are not in a direct financial relationship with the customers. It is Uber that guarantees services and charges from the user. The drivers, on the other hand, have a financial relationship with Uber as contractors.
5. How will you strengthen your relationship with your vendors and customers?
Managing a marketplace goes way beyond just setting up a well-planned payment process. Your marketplace is about building and nurturing a better relationship with your buyers and vendors. Those are the people who’ve invested themselves in you, it’s only fair you strengthen your relationship with them.
Think over the ways you can be of any help to your buyers or vendors. Understand that it’s important to safeguard a vendor and protect buyers’ interests during any dispute, and figure out ways to achieve that.
Etsy, the unique goods marketplace, helps sellers get found – they even have a comprehensive guide for the same. This favor goes a long way in winning their trust and loyalty.
Airbnb, on the other hand, has different ideas on this. They’ve mentioned in their contract that they won’t engage in the maintenance of buildings. To incite a feeling of trust in both their guests and hosts, they’ve designed a stringent identity verification process.
They’ve also cracked the code that (sometimes) it’s best to leave things transparent between your vendors and buyers. They have a public forum where both guests, as well as hosts, can interact. They can rate and review each other and clarify any concerns they have.
Bonus: How will you facilitate a smooth interaction between the users of your platform?
We couldn’t have talked about transparent communication and skipped this. So, a bonus for you.
While having a dedicated forum for your vendors and buyers is a good idea, it’s even better to set up a channel where they can communicate one-on-one even more seamlessly. Chat integrations are what we’re talking about.
Presenting a real-time chat feature to your marketplace will facilitate smoother communication between buyers and sellers. They’ll be able to communicate one-to-one, in real-time, 24*7.
This will also help vendors gain extremely precious insights into their buyers’ minds. They’ll get a better understanding of their sentiments and frequent queries – thereby help them improve and serve better.
More often than not, a buyer has questions but he decides against it because of them being on a public forum for everyone to see. A one-on-one chat feature will completely eliminate this. And if you didn’t guess already, it’ll help you gain a lot of trust of your buyers.
Also, as your marketplace grows, it’ll stand a chance of product duplicity. Giving your buyers an option to directly interact with the vendors, you’ll help them get over the fear of receiving a duplicate product. You can even enable in-chat payments to accelerate the process of conversion.
A good inspiration here is AliExpress. This online shopping portal allows customers to directly interact with the sellers.
This robust chat solution helps to improve the level of engagement in your users, thereby helping you attract and retain more. To add to the list of benefits, it also allows you to monetize your website, thereby shooting up your revenue.
Now, the ball is in your court
Your idea has all the potential to make it big. But even with that, there are a fair share of questions you’re supposed to ask yourself before taking the first big steps. Understand your business, customers, and buyers, and work towards doing what’s best for them.