The Success of Online Marketplaces
It’s 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 nonetheless. With the success of giants, there is now a multitude of marketplaces being made, and several marketplace builder platforms out there. Within our own business, we are in the 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 are several ways in which marketplace owners make it work:
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 the time 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 reduces costs to the user.
Here are a few spaces that I believe to be ripe for the taking in terms of marketplace adoption:
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 products that you are ok with putting up on their platforms and products you keep for yourself.
Conditions to place items on a marketplace:
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 variety of reasons so here’s another bulleted list:
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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.
A sample of a prior system architecture to demonstrate the movement of data, and interaction with the customer.
Design and Planning
First, you’ve got to have at least a niche that 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 used 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 a 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:
Building out the back-end
This will be the driving force behind your application. It’s what puts together the customer's views and your actual application, as well as handling the logic, responses, messages, etc. that goes out along the way of setting up the marketplace. Things your back-end should do:
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 upright. 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, contact us for help.