What kind of Marketplace are you Planning to Build?
There are so many wonderful possibilities for market opportunities which are only limited by our imagination and the determination to create them.
If you have a general idea of the kind of marketplace you’d like to establish, you need to consider how your marketplace will function and the design choices you’ll need to take.
Before you create your marketplace it’s crucial to determine the kind of market you’d like to create. Do you offer products or services?
Are they managed or not? What is the difference between P2P, B2C or B2B?
The answers you provide on these issues will impact how you run your business today and shortly.
Let’s get started and look at the various kinds of markets and the design considerations you’ll have to take into consideration for each.
Unmanaged or Managed
Marketplaces that are not managed just connect buyers and sellers. Most of the time, they offer the simplest signup procedure. The seller will sign up for an account, create a listing, with only a few (if there are any) checks for verification and then set their price. Customers can check out live listings, contact and/or directly book the seller through the platform.
An excellent illustration is eBay anyone can sign up and post items for sale without going through any reviews or tests. Buyers can search through thousands of listings in real time and bid on (or purchase) the items they are most interested in.
The major benefit of marketplaces that are not managed is that they have low costs. In contrast to a managed marketplace, there is no need for expensive third-party software or fancy automated systems for verification and you do not have to hire staff to join suppliers.
Marketplaces that are unmanaged are ideal for sectors where there is very little risk or emotion. For instance, purchasing second-hand clothing is safer and less stressful than stepping into an uninvolved car to take a ride home following having a night out.
A managed marketplace can provide a range of extra services for suppliers and buyers. These include authenticating the products and verifying their identities.
Let’s consider Uber as an illustration. If you’d like to become an Uber driver, you’ll have to register on the internet, and then obtain an official private hire license. If you require help in this process, Uber will set up an appointment to walk through the process and give you suggestions. In the next step, Uber will need to check your identification, driving license as well as private hire insurance. In the final stage, Uber will be required to verify that the car you’re driving is in good standing. It’s quite a bit more work to take on an Uber driver than it is for an eBay seller!
Another characteristic of a marketplace managed is that they do not typically provide prospective buyers with a complete listing of providers. Instead, they’ll inquire with the client what they want to “match” the customer to the vendor that best fits your requirements. For instance, Uber asks customers where they’re travelling to and from and assigns a driver for them.
In general, marketplaces managed establish prices on their providers. For instance, Splento, the marketplace for booking photographers, offers three pricing options. The packages are identical for every customer regardless of their needs and suppliers (suppliers) are paid equally, regardless of their skill and expertise.
Managed marketplaces generally require more employees to perform the additional services, which increases the cost of operating. This is why we encounter managed marketplaces charging an additional commission. It is normal for an unmanaged marketplace to charge between 5 and 15 per cent, whereas a well-managed marketplace may charge as much as 70 per cent.
If you’re building a market for the very first time, my advice is, to begin with, a marketplace that is not managed, and then build on it by adding additional services one by one (if and when needed). Your initial marketplace should be as light as you can. Create a minimum of features, gather feedback from your intended customers, and build. If your users don’t have an essential feature You’ll soon discover it!
No matter if your marketplace is managed or not the ability to build trust between suppliers and buyers is crucial. In a marketplace that is not managed reviews and customer ratings will likely be an important aspect. They’re usually the only source for buyers to find out whether the seller is trustworthy and reliable.
In managed marketplaces, where buyers do not typically choose their suppliers providing assurances to customers that suppliers have rigorous verification processes and offering refund guarantees when the buyer isn’t entirely satisfied will dramatically improve confidence.
P2P, B2C or B2B
Peer to Peer (P2P) marketplaces
P2P marketplaces are places where people join to sell their goods to other people. For instance, FatLlama is an online marketplace where users can lease household goods from others within their area. The two sides aren’t operating as their sole source of income It’s just a group of regular folks working together to create the transaction.
The great thing about Marketplaces for P2P is the fact that users can both be sellers and buyers simultaneously. For instance, I could let the lawnmowers to my neighbor and then hire a drone from a person who lives just a few blocks from me.
Thus, it is important to ensure that an individual can function as a buyer and a supplier simultaneously and easily change roles. One should be able clearly to differentiate between transactions in which they’re performing as suppliers and transactions in which they are acting as the buyer.
Otherwise, the transaction will be quite chaotic! An excellent visual design plays an essential role in identifying the specific role one is playing in every transaction (e.g. the use of a different color scheme or icons when you’re selling).
Business to Client (B2C) marketplaces
In B2C businesses, companies sell their products to consumers. For instance, Booking.com is an online marketplace that allows regular people to book travel and accommodation from professional companies. B2C marketplaces function similarly similar to P2P marketplaces. However, the primary distinction is that businesses typically include large listings. Think of a major hotel chain looking to advertise more than 10,000 rooms across 500 properties on Booking.com. Each hotel will have to enter information regarding rates rooms, amenities, room sizes photos locations, availability, etc.
The P2P, as well as B2C marketplaces, are less time-consuming to set up and operational. Because of their shorter time to sell, they’re typically less time-consuming and quicker to generate revenues – which is great for those who are building on a tight budget! But you’ll need to have an extensive sales volume to earn a profit. It’s also a very crowded market and you’ll have to figure out ways to stand out and provide something different. If you’re willing to wait and have a budget, B2B marketplaces will have better success over the long run.
Remember that just because you choose one market first doesn’t mean you can’t move into another one later. For instance, Zoopla, an online marketplace in the United Kingdom for those who want to rent and purchase residential properties (B2C) was expanded into Corporate real estate (B2B). They also list commercial properties, such as offices and shops as well as private homes.
In B2C marketplaces there is a chance that a supplier can additionally be a buyer, so ensure you’ve clearly defined roles that satisfy the particular specifications of each. Suppliers will likely require several listings, which they’ll have to monitor and keep track of. It should be easy for suppliers to update their listings regularly and manage multiple transactions simultaneously.
Business to Business (B2B) marketplace
B2B marketplaces, on contrary, are where companies sell their products to other companies. For instance, Cantera is an online platform for companies to search for solutions to their software needs. In these kinds of marketplaces, there are often wholesale sellers selling their products in large quantities. The prices are usually quite high and have a more lengthy sales cycle (months) than B2C or P2P (often hours or minutes).
B2B marketplaces are typically controlled marketplace. It will require more hand-holding to get all sides of the market onto the same page. Transactions typically have more expensive and less volume therefore, take note of your commissions. For instance, a 10 per cent commission on a PS10 transaction is much more appropriate than 10% on a PS100,000 transaction.
Information, products, services or investments
Marketplaces for products
Marketplaces for products typically offer things that are available for sale, rental or both. For instance, Fy! is a marketplace that allows people to purchase homewares and wall prints, while Rentalcars.com offers (you probably guessed it) rental cars.
In the process of designing a product marketplace, You may need to take into consideration “stock” levels. For instance, a vendor on rentalcars.com might have only three cars on a Wednesday. It is essential to ensure that your suppliers can manage their inventory and stock levels in your marketplace otherwise they could be in danger of signing rental contracts for more cars than they really have.
Then, you’ll have to choose how you’ll manage the situation when buyers want to purchase items from multiple suppliers. For example, could they pay in one transaction or must they pay for each item separately? The addition of the “basket” concept so that customers can purchase items from multiple vendors in one transaction may be complicated for the back end of your online marketplace, but it can provide a more user-friendly experience for customers.
It is also important to determine whether shipping costs are charged for every product. If you don’t have stocks yourself It’s likely that all suppliers will want them to pay their own shipping costs. If a client makes an order from three various suppliers, they’ll need to pay three shipping costs (one per item).
Marketplaces for services
Services are typically scheduled by day/evening time, an hour or by the event. Most of the time it is possible that more than one person can avail of services at once (e.g. walking tours are generally open to a number of participants). But other services, such as hairdressing are only available for one reservation at one time.
They will have to limit the number of “seats” they sell per service they offer. For instance, an in-person cooking class could accommodate up to 12 participants and online fitness classes could be open to everyone. It is important to speak with your suppliers to determine the way they function and whether they require a specific function to determine how many seats that are available for each class.
If the event is scheduled sometime in the near future it is possible to think about an escrow. This means that the cash to be paid by the customer in advance will remain in a holding account, and then be paid to the provider after the event has been completed. When I set up my own marketplace to book photographers local to me, photography sessions were typically scheduled 2-4 weeks in advance.
Our platform would take the payment from the client when they booked, and Stripe would keep the money until three days after the shoot was completed. This was to ensure that, if there was a problem it was possible to be informed and make a refund.
Information marketplaces offer users details about a certain area or in a certain format. For instance, YouTube hosts video content created by users that cover any topic you could imagine. In contrast, Yelp offers local businesses as well as service suppliers. Information marketplaces typically don’t take bookings, however, users are able to “subscribe” or pay to access the information. In addition, vendors may pay to advertise their offerings.
In designing an information-based market you’ll have to consider the ways your customers can stay up-to-date with new information that could be useful or relevant to the consumer. Notifications can be extremely helpful in this regard and also the capacity to inform users about the kind of information they would like to be informed about and at what frequency.
Markets for investments
Then, an investment marketplace is a place where investors can invest in businesses or offer an initial capital investment in exchange for the creation of a product in the future. For instance, on Kickstarter, you can offer to purchase the product prior to it has produced. After the creator has reached their goal of funding then the customer is charged and the creator begins creating the product. But, there’s no guarantee that you’ll receive your order If the company isn’t able to fulfil their commitment!
Investment markets can be very complicated, especially for payments. It is essential to be completely compliant with the regulations of your country especially if your market has a stake in crowdfunding for equity. I’d suggest that you seek legal advice prior to you creating or building any kind of product.
As you can observe, there are a variety of different models of business that can be found within the framework of marketplaces and it’s crucial to choose the right one for your company. Be sure to understand the ways sellers function in order to ensure that it is as simple as they can establish and manage their businesses through your platform. Keep the platform simple! It is always possible to make it more complex later.