Success of the online marketplace

It’s have created the richest person in the world. How’s that for a statistic pretty easy to remember? Yes, marketplaces are responsible for many of the worlds richest people. But, before we take a look at why this has come to be and what areas are ripe for marketplace disruption, it’s best we understand and define the modern marketplace.

What is a marketplace and how does it work?

The modern online marketplace systems such as Amazon, Uber, eBay, and Alibaba are eCommerce businesses that allow suppliers and buyers to do business on their platform. On the supply side, a vendor would join the platform, usually submitting business forms and official documents to confirm authenticity, then upload their inventory directly to the platform. On the buyer side, whether it be a business or consumer this person logs into the marketplace site, and chooses from all products, across all vendors. When they place an order, that specific supplier get’s the order and ships the product. The marketplace makes money by taking a percentage and/or monthly amount to be a part of the marketplace. Now, there’s a lot happening to make this all work on the technical end. However, here’s a good visual for the marketplace concept.

So why have these marketplaces begun taking over? For one, it supports a lot of the “new” age sharing economy. Take Uber, they operate in 83 countries in 674 cities, bringing 40 million riders around monthly, with a 2017 valuation at $69 billion. Has nothing to do with eCommerce, but it works as a marketplace none-the-less. With the success of giants, there are now a multitude of marketplaces being made, and several marketplace builder platforms out there. Within our own business we are in development of three marketplaces for clients. So, the trend toward marketplace development will continue, it’s a matter of finding the right marketplace niche to actually fulfill and keep both sides of the market happy. Here’s several ways in which marketplace owners make it work:

• Starting with specific territories
• Sticking to narrowed niche and expand from there
• Leverage other marketplaces
• Own/create the technology
• Make the numbers work revenue-expenses must equal >$0
• Investment second, revenue first
• Keep it simple stupid — don’t overcomplicate the model for buyers or sellers
• Referral program is key
• Try to avoid price only differentiation
• Leverage technology to create a unique experience

Up and Coming Marketplaces

What get’s interesting is when we talk about other areas marketplaces can be introduced. They have impacted most people in at least two or three ways from eCommerce to rides, or rentals. We have yet to even consider one of the giants of our time, Airbnb which serves over 4 million home listings in 191 countries providing accommodation on any night for 2 million people. This model again is not the classic eCommerce model, but it works.

Recently I was judging a pitch event for 5 companies. Out of those five companies three of them were marketplace concepts. It’s becoming of the times to have almost everything coming from a marketplace because they make it so easy for everyone to get involved, which the maintenance, marketing, sales, etc. be taken care of by a central party. I anticipate at some point the marketplace will simply become a blockchain based system where there is no central governing body and everyone monitors the system, which reducing costs to the user.

Here’s a few spaces that I believe to be ripe for the taking in terms of marketplace adoption:

• Rooms and space: storage space, parking spot in the city, garage rental
• Childcare: heard this one presented it’s called Juice Box Hero
• Cars: it’s already being done, but I think we’ll see a major shift toward this
• Delivery: again already seeing it, but I think there is room for improvement and everyday people to perform more of the last mile delivery
• Children's toys and products: it’s expensive and outgrown quickly
• Fashion: rent-the-runway style for the everyday person
• Equipment: there’s lot’s of construction equipment that sits idle many days of the year
• Waste: there are farms who can and will use the (food or other) waste to fertilize and grow better crops

The truth is the more marketplaces that come out, the more are being developed. From the one off beauty salon rental marketplace to the niche Mexican craft marketplace, they are popping up and making a stand.

The Largest Marketplaces: How to Deal with Them?

With Amazon and Alibaba together making up greater than 1/3 of their respected countries eCommerce markets, it’s a question that should be explored. In general, I think a mixed approach with the large marketplaces is best. By mixed I mean a mix of product that you are ok with putting up on their platforms and products you keep for yourself.

Conditions to place items on a marketplace:

• You own a product which already has had success selling online or in retail and can protect the product once on the marketplace
• You are a volume drop-shipping company
• Digital products (music, learning, templates, code, etc.)

There may be some other examples I’m missing. However, in general it needs to be considered a threat to put your product up on a platform like Amazon. Why? Is for a varitey of reasons so here’s another bulleted list:

• They will steal the SEO from your brand/products, even after you’ve taken the product down
• You are handing over your data to them. They can use this to build a competing product if it does really well.
• Many will try to steal your idea if they know it does well. Look at Popsockets
• Be sure you can support the volume
• Other companies will place ads on your product pages

All things being said about the benefits and downsides of selling on a marketplace, I know many people who are making a killing selling in very niche product segments and simply building a private label or just drop-shipping product.

What goes into building a marketplace?

Marketplaces are actually quite tough to start and operate since they are two (or more) sided and you are marketing/selling to both sides simultaneously. This is in addition to making sure you fulfill the supply and demand (chicken and egg) problem in the beginning. Beyond this is the straightforward technical challenges and actually maintaining the marketplace itself. Let’s cover these pieces in depth.

Design and Planning

First you’ve got to have at least a niche which you feel is going to have both supply and demand. Whether that be in toys or toilets, you need to think about differentiation out of the box. What distinct look will you have as well, how will people experience your web platform? Will you have an app?

Building out the front-end

The front-end, of what people will actually be using to buy on your platform is the very first thing anyone sees, it provides the way to buy so it needs to be good. For the marketplaces we’ve been building recently we went with material design as it’s a very clean and efficient UI package to help streamline development and ensure smooth user experience. Remember for a marketplace, the front end views include the whole account for sellers to manage their listings as well as the buyer to manage their cart, wishlist, orders etc. Things to include:

• Simplified checkout: save cart with an email
• Seller profile for buyers to view
• Seller admin management panel for their items/listings
• Buyer profile with preferences and stored billing, shipping, credit card details
• Suggestions for other related products
• Geolocation relevance

Building out the back-end

This will be the driving force behind your application. It’s what puts together the customers views and your actual application, as well as handling the logic, responses, messages etc. that go out along the way of setting up the marketplace. Things your back-end should do:

• Make buyers lives easier by providing recommendations, auto filling information, anticipating
• Event-triggered messages (webhooks) that can tell a seller about a new order or inform the buyer their product in the wishlist went down in price
• Provides automation tools for marketing, customer management, messaging, etc.

Marketing like crazy

The success of your marketplace will largely depend on how well you can market it to both the suppliers and buyers. It helps if you have some connections in an industry of the supplier type you need. They will want to clearly see the benefit to them of putting their product on your site. Luckily, even if you don’t have the suppliers, it’s unlikely many suppliers are going to refuse legitimate orders of any type of volume, so customers = suppliers.

Referral programs work really well, when you’ve set them up right. With the right incentive (Airbnb offers $200 for new hosts). Make your already satisfied customers your salesmen.

Conclusion

Marketplaces are popular and gaining more traction across the globe. Pretty soon there won’t be anything you can’t get on a marketplace somewhere. So, while cutting out your own piece of the pie, keep an eye out for these things. If you plan to build a marketplace and need a partner to help you with the build of your marketplace, reach out to a specialist@orkiv.com for help.