What Does It Cost to Build a Marketplace? Part 3: Maintenance and Management

We already defined what a marketplace is and gave a basic features set and time estimation to build an online marketplace from scratch. Now let’s have a closer look at further stages — maintaining and managing a marketplace — which are often overlooked or underestimated by business owners, and especially startupers. We still use Upwork.com, a global marketplace connecting service buyers and service providers, to showcase some best practices.
Building Marketplace Is Cheaper than Maintaining It
From a technical perspective, creating an MVP of a marketplace is a clear and quite trivially solvable task. Yet, you should consider the strategies for its scaling and monetisation from the very beginning. This would ensure the platform’s sustainability in the long term. The marketplace economic design should be carefully planned; it is determined by the business vertical and the type/purpose of your platform. The systems of ratings, penalties and incentives, though implemented differently depending on a marketplace, play an important role and should find their reflection in your marketplace architecture.
Budgeting for a marketplace is another hidden reef many startups crash upon. The development cost are easily measurable as they depend on the features and functionality. However, significant costs should also be planned for maintenance and management of the platform — business owners often neglect this. A marketplace could hardly survive without human moderators and administrators. Whatever safe-haven services your platform offers, there will always be disputes, payment issues and rating conflicts to be resolved by the man. And the man has to be paid.
You would also need personnel to scan the system for the suspicious products/projects and users. A nice way to save both financial and human resources on this is engaging your users to cooperate — the strategy used by Upwork.com. The platform encourages both buyers and providers to report and flag any suspicious activity they notice: jobs or invitation that look suspicious or inappropriate, profiles that contain violations of identity policy. It sends a notification directly to Upwork administrators to investigate the case and take appropriate measures. This allows marketplace owners to curb expense on admin workforce.
Retaining Users Is Business-Critical
If your marketplace is intended for repeated deals and lives on transaction-based commissions, subscription fees, or other type of reward, then retaining users on the platform becomes critical. It is natural for most marketplace users to move repetitive business out of the platform trying to bypass its commission. To avoid such circumventions, marketplace has to leverage between “sticks and carrots” and make users return for more and more deals.
On the one hand, your marketplace Terms of Services should explicitly prohibit moving the deals off the platform. Users who violate these policies should be fined or banned. You could also limit the pre-deal negotiating phase solely to the platform space.
On the other hand, these rules should not go too far curtailing your users’ freedom. They should know of a way to opt out if/when they want to. Opting out in this case is not a circumvention move but a sound legal right of every user to continue a business started on the platform in a way they are comfortable with (e.g. offline or within another legal framework).
Upwork.com balanced between its own profit and users benefits in a great way. Per User Agreement, service byers and providers must keep business relations only on Upwork.com for 24 months or until they pay a sol-called “opt-out fee.” This means that, during this time, all payment transactions between the client and freelancer must go through Upwork. When “under the table” payments are discovered, both parties engaged get severely punished. This is an example of a strict but fair agreement between the marketplace and its users, which allows both parties to enjoy cooperation.
In terms of pre-deal negotiations, Upwork.com policy is user-friendly too. The system encourages on-the-platform communication between the users. It automatically scans the bids and messages, immediately recognizes if a stop word or the at sign (@) was typed, and reacts with a pop-up window suggesting a convenient in-marketplace messenger. Yet, it does not prohibit the users from choosing a different communication tool (e-mail, Skype, Slack, etc.).
You could certainly restrict your users’ right to leave marketplace for repeated deals. Yet the forbidden fruit is tempting, so, instead of forcing the users to stay on your platform, make them comfortable staying.
Originally published at logicify.com/en/blog on September 5, 2018.
