We wanted to share with you some insights on the topic of marketplace startups, as it is a circulating topic nowadays. Especially after the great success achieved by companies such as Airbnb and Uber many entrepreneurs look towards a marketplace model as their way to success. But as in every business what matters most is the idea that makes it stand out from the crowd and passion to spin it off.
Below you’ll find tips based on our experience as web development team building marketplace startups. We will show you how not to burn money on excessive development.
Marketplace startup definition and structure
To put it simply, marketplace startup is an innovative business which connects sellers and buyers via an online platform. The products or services sold belong to a specific industry sector such as fintech or edtech, or have some other significant feature in common. It is easily scalable, as every startup should do, and make a great use of a network effect. If a marketplace startup is successful it has a big chance to challenge the market’s status quo - see protests of taxi drivers against Uber or city laws restricting the Airbnb rentals, such as the latest one introduced in Berlin.
Marketplace startups differ when it comes to their structure, whether they are centralized, decentralized or somewhere in between. Centralized marketplace startup means that most of the work is done by the platform, so it has much control over the overall quality of experience. Decentralized startup has less actions to perform thus it is faster and cheaper. Obviously each approach has its minuses as well, but generally the trend goes towards increasingly centralized structure, where the marketplace offers more services and thus has higher income, and the user pays more for security and predictability.
For example Airbnb is a hybrid model with centralized payments, reviews, user verification but decentralized photos, profiles, pricing and key exchange. Whereas our client Holidale centralizes all those activities - verifies apartments (quality and furnishings), provides keys, organizes the cleanup and maintenance, and supports the users every time they need something from a fresh towel to minor fixes. It works totally like a hotel, apart from the facilities that are real homes with all their conveniences.
Marketplace startup potential
Marketplace may seem a very attractive business model, since you don’t have to have to produce anything on your own - you ‘just’ need to build the platform that connects buyers with sellers and cut off coupons ;). The reality might not be so bright, although some say it is the best business model ever conceived.
Still, you need to remember that getting both sides of a deal at the same place and time is a tough job. Apart from great products/services offered the trend is that the users want the platform to take most of activities over them, mediate between two sides and to take responsibility for any bungle. When building a marketplace startup you need to take care of security of data, payments, insurance in case of damage or accident, quality of service/product offered, etc. Of course if you provide proper tools such as ratings the very community will help you get rid of bad content such as nasty properties on Airbnb, bad drivers on Uber or unreliable contractors on eBay.
Examples of Marketplace startups
Closer look at online marketplace startups will show you how broad can be the spectrum of their activity, no way they can be boring! Some of the most famous include Airbnb (connecting travellers with hosts), Uber (connecting car owners with people that need transportation), Etsy (craftsmen and buyers) or Kickstarter (innovators and founders).
Let’s have a look at some marketplace startups from various market sectors we’ve built and worked for to see what they deal with and what distinguishes them on the market.
ArtConnected is an online platform for artistic interaction based in Ireland. It allows to publish various calls from the artistic sector and to find attractive opportunities. It is the first portal in Ireland that gathers in one place artistic jobs, funding opportunities, spaces, professional development, services and equipment - published both when offered or needed. Before the platform has been launched such calls and information were either transmitted by word of mouth or highly dispersed.
Board a Boat: travel, leisure
Board a Boat is a peer-to-peer boat rental portal from United Kingdom. It operates similar to Airbnb but the boats not rooms are rented. It connects boat owners, skippers and travellers through a sharing economy platform. It allows to have a local experience with pre-screened skippers in different styles of boating (from foodies to those who like action), length and destinations. The portal ensures secure trip - verifies hirers and skippers, checks if boats fitted with the latest safety equipment, collects payments, prepares contracts.
Holidale offers professionally managed vacation rentals from California, United States. How the very online platform operates is based on Airbnb concept, but what makes it exceptional is quality, apartment verification and management. Holidale gathers 3 parties in one place: travellers, homeowners, and cleaning services. Homeowners can let their houses to be fully managed by Holidale including cleaning, fixes, key transfer.
Mięsna Sztuka: food
Mięsna Sztuka is a startup delivering fresh, healthy beef from local Polish farm directly to the door. It is aimed at gourmets, who value healthy and delicious beef from cows that eat grass, but also take care of environment and well-being of animals. The company not only delivers high-quality beef from local Polish farm directly to clients’ door (courier/pickup locations), but also provides them with recipes and tips how to store, prepare and take all the best out of the meat.
Marketfy is an online marketplace from Detroit, United States that provides traders and investors with financial insights and guidance. It offers quality financial products, tools and education, created by the world-renowned economic experts - all curated and verified. Industry experts running products and services on Marketfy go through rigorous background check. Each member of Marketfy has access to a personal concierge that offers help and answers questions.
How to build a marketplace startup - the process
Understand your future users. Their needs, behaviour and what they are willing to pay for.
Are they easily attracted or quite the opposite? Conduct offline tests on different types of clients before you build and app, listen carefully and draw conclusions from their feedback.
With in-depth feedback prepare detailed user stories and personas that will be the basis for thinking about user experience design.
Think over who will have access to your platform and/or search results - all Internet users (public access), registered users or those who have already paid for subscription.
If there are many kinds of items and features offered in MVP add only those crucial for your business. You will go for more later.
Build a model of whole app, design the architecture, take into consideration how search/filters work, how many items can be there and whether they need to be put into categories.
Pay special attention to the presentation of the list of items and single item page. Regardless of the type of marketplace startup you want to build usually there is a list of ads, a map, search, filters and then a single item screen. The problem is how to show many items at one page, because despite appearances there is not much space. The same problem we face going to a single item page. If the user previously screened 5-10 items it is worth to allow the right/left navigation between them.
If you have many items to offer, you need to develop an admin panel or a dashboard for at least one group of users, usually those who post items. Beware that this panel may be more complicated and time-consuming than the remaining part of the application. Do you really need every process to be automated from the very beginning? Automation may not be essential for the business, but surely will be expensive. Your investors will be interested in market potential rather than if all processes are automated.
If the online payments block start of your business, do it by hand! Automated invoices, currencies, form with personal data, integration with payment system, SSL certificates can be easily added when the platform works.
Set conversion aims in Google Analytics and run a few first campaigns that will check our efficiency. Analyze the results be prepared to adjust.
What we’ve leant building marketplace startups - 5 tips
1. Before you automate the marketplace processes, which means the use of rather costly software, try to do everything at least a few times offline. This will show you if there is a demand for your service and - what is equally important - enough supply. For example our client ArtConnected for 5 years has facilitated the communication between artists and organizations in job, space and equipment search. Knowing there is a demand for that kind of service they decided to build the platform to automate those processes.
2. It’s worth to focus on one city at first such as our clients did. Holidale started with Los Angeles, Board a Boat with London, ArtConnected with Dublin, Marketfy with Detroit and Miesna Sztuka with Warsaw. It will make your business easier to promote and control the quality of service. Start locally but scale quickly!
3. Think over how you will earn money, namely who will pay for using your marketplace platform. This may be buyers in the form of monthly subscription or platform fee added to the price of product or service bought. This may be sellers in the form of a fee added to every product sold, fee for every advertisement (no matter product was sold or not) or monthly subscription independent from the number of items sold, or a mixture of all above. Examples? ArtConnected has a monthly subscriptions giving access to the very platform. The person who wants to publish a call needs to pay monthly fixed price. In Board a Boat there is a fee added to every cruise paid by the boat owner.
4. The question is who is harder to win over in our business - buyers or sellers? Usually it is the one who pays the fee, but when marketplace startups are considered, it is not always so obvious. There are marketplace startups where at least at some stage you look for the service providers more than clients. In case of Uber in Wroclaw, where one of our offices is located, there were not enough taxi drivers to serve all orders. In case of Upwork it is not clear who is harder to attract - those who offer quality jobs or reliable contractors. If you diagnose them well it is worth to talk with a few key clients, give them free access to the platform and gather feedback.
5. Sooner or later marketplace startup will need online payments. We use Stripe, PayU, PayPal or MangoPay. Stripe works well for both United States and Europe. We recommend MongoPay for European startups, it supports various currencies, currency conversion, digital wallets with a few currencies. PayPal we recommend to to add for every startup wordwide, it is popular to such an extent that many people have money on PayPal not in a bank account. PayU works mainly for Polish users.
If you want to build a marketplace startup…
Consider all the aspects above focusing on your future users first. Don’t burn money on development before you know them, their needs and shopping habits.
If you needed any help with your marketplace make use of our one hour free startup business strategy consultation. We will be happy to give a hand!