What you need to know to build your own E-Commerce Marketplace

what is marketplace

The “marketplace platform” is the catchphrase of the economy of the present, and the foreseeable future. Knowing what it is, and moreover, actualizing one’s own marketplace is the endeavor of the modern entrepreneur. This article intends to help those who have gone astray, and those who haven’t even begun yet.

Simply put, the marketplace platform is not a new thing – it has been around since the birth of the shopping mall – which is its first tangible example. Other marketplaces (like the Grand Bazaar, Istanbul) have flourished since the dawn of trade itself, though perhaps in a more haphazard fashion.

The concept of space is now moving in the virtual direction. When we refer to these e-commerce marketplaces,  we  are largely concerned with the digital world and online platforms. This platform is technologically assisted, and makes money off of facilitating these transactions between buyers and sellers – often taking a percentage of those transactions. Since most of these marketplaces do not require ownership of the product itself, nor space to set up in the real world, they can be tremendously profitable. Some famous examples are: Uber, Airbnb, Etsy and so on.

Understanding Your Audience

An online marketplace does not simply have to cater to consumers and customers – one has to also take care of the supply, and identify demand.

As far as the consumers (those who visit) and customers (those who have made a transaction) are concerned, innovation of existing services is key. Industries and concepts that have stagnated over time and are comfortable without growth should be targeted – take Airbnb’s case when it comes to revamping the hospitality sector completely, or Uber, who have changed the way we look at transportation services.

This is done by creating value, and identifying a core value unit for your online marketplace to streamline. Airbnb’s value unit, for example, happens to be the listing of its available houses. Once you’ve identified that, you can move to the model that applies more for your marketplace, depending on what you are facilitating.

Types of Marketplaces

E-commerce marketplaces can be of varying types. Before foraying into the business itself, it is important to understand what kind of marketplace model will work best with the type of business that you are going to set up. The following list should provide some insight:

1. Single Commit

In  this  type  of  marketplace,  the buyer and the supplier interact by ‘picking’ each other. However, this happens only one way – the buyer picks the supplier (like Airbnb, where the buyer picks the house from the list of available houses) or the buyer generates leads for the supplier (like Uber, where the driver chooses to act upon various ferrying requests that are in his/her vicinity).

The Single commit marketplace is ideal where quality control is necessary, and hence involves more effort – mostly on the supplier side of affairs. Review and rating systems help consumers make choices.

2. Double Commit

In this type of marketplace, both, the buyer and the supplier pick each other. Buyers post jobs, which attract people with the relevant skill set, and then the buyers pick from the people available based on their preferences in terms of quality etc. An example is Care, a platform that connects people who seek care­-based services (child care, pet care or otherwise) locally and nationally.

This may be more convenient since most of the evaluation and picking is the concern of both parties, but one has to ensure that the service providers don’t slip away due to a lack of jobs, and filtering by the consumers.

3. Vertical or Horizontal?

These  online  marketplaces  often  go  for  the  vertical approach due to the already existing horizontal­ domination by a few players, making the sector stagnant. Vertical economies have the needed flexibility, and the potential for growth that can even cut into the lion’s share (of horizontally dominant companies) and thrive.

This flexibility helps online platforms attain the necessary liquidity for becoming self­-sustaining;  however,  whenever  you  are  managing  verticals  in  one  sector  (i.e. being active in the manufacturing and distribution processes) then putting your hands into too many other sectors can  be  dicey  until  liquidity  is  obtained.  Many  fresher  ideas  have  tried  being horizontal altogether too early, and dismally crashed due to their hands being in literally too many pies.

Technology has especially helped the advancement of vertical models: with advertising, the need for manual labour, and the need for tangible infrastructure necessary to work your way around manufacturing and distribution channels. When building a marketplace, it’s imperative that you consider what infrastructure will work best for your niche and how you can adapt it to carve yourself a piece of the market.