There are so many amazing opportunities for marketplaces out there that are only limited by our imagination and our drive to build them.
You probably have a high-level vision for the type of marketplace you want to build, the next step is to think about how your marketplace should work and what design decisions you’ll need to make.
Before you build your marketplace, it’s important to clearly identify which type of marketplace you want it to be. Are you offering goods or services? Will it be managed or unmanaged? Is it P2P, B2C or B2B (and what does those terms even mean...)?
Your answers to these questions will influence the way you operate your business, now and in the future. So, let’s dive in and explore the different types of marketplaces and the design considerations you’ll need to make for each one.
Unmanaged marketplaces
Unmanaged marketplaces simply connect buyers and sellers. Typically, they have a very simple signup process. Suppliers will create an account, add their listing with very few (if any) verification checks and set their own prices. Customers can view live listings and contact and/or book the seller directly through the platform.
A good example is eBay - pretty much anyone can create an account and list something for sale, without it going through any platform reviews or checks. Buyers can search millions of live listings and place bids on (or buy) the items they’re most interested in.
The main advantage of unmanaged marketplaces is that there are very few overheads. Unlike a managed marketplace, you don’t need expensive third-party tools or fancy automations to complete verification checks and you don’t need to employ staff to on-board suppliers.
Unmanaged marketplaces are best suited to industries where there is little risk or emotion involved. For example, buying a second-hand jacket is far less risky and emotional than getting into a stranger's car for a ride to home after a night out.
Managed marketplaces
A managed marketplace provides lots of additional services to suppliers and/or buyers such as authenticating goods and verifying identities. Let’s take Uber as an example. If you want to become an Uber driver, first you’ll need to sign up online, then you’ll need to get a private hire licence. If you need help with this, Uber will set up an appointment with you to talk you through the process and offer advice. Next, Uber will need to verify your ID, driving licence and private hire insurance. In the final step Uber will need to ensure that your vehicle is eligible. As you can see it’s a lot more work to onboard an Uber driver than it is to onboard a seller on eBay!
Another key characteristic of a managed marketplace is that they don’t usually show prospective customers their full list of suppliers. Instead, they’ll ask the customer what their requirements are and then “match” the customer to the supplier who best suits your needs. For example, Uber asks customers where they are travelling to and from and then assigns a driver to you.
Typically, managed marketplaces set the pricing for their suppliers. For example, Splento, a marketplace for booking photographers offers three pricing packages. These packages are the same for all customers, regardless of their requirements, and the photographers (suppliers) are all paid the same, regardless of their skills and experience.
Managed marketplaces usually need to employ more staff to carry out the additional services which raises the company’s operating expenses. Therefore, we often see managed marketplaces charge a higher commission. We’d expect an unmanaged marketplace to charge a commission in the region of 5-15%, whereas a managed marketplace can go as high as 70%.
If you’re building a marketplace for the first time, my recommendation is to start-off with an unmanaged marketplace, and then add additional services one-by one (if and when necessary). Make your initial marketplace as lightweight as possible. Build the bare minimum, get feedback from your target audience and then iterate. If your users are missing a key feature, you’ll soon find out!
Regardless of whether your marketplace is managed or unmanaged, building trust between buyers and suppliers will be key. For an unmanaged marketplace, customer reviews and ratings are likely to be an important feature. They are often the only indication for buyers to know if the seller is legitimate and reliable or not. In managed marketplaces where customers don’t usually choose their supplier, assuring customers that suppliers go through rigorous verification checks and offering refund guarantees if the customer is not 100% satisfied will significantly increase trust.
Peer to Peer (P2P) marketplaces
P2P marketplaces are where individuals connect to offer things to other individuals. For example, FatLlama is a marketplace where people can rent out regular household items from people in their local area. Neither side is doing this as their sole business - it’s just regular people coming together to make a transaction.
The interesting thing about P2P marketplaces is that people can be both buyers and suppliers at the same time. For example, I might rent out my lawn mower to my neighbour, but I might also rent a drone from someone who lives around the corner from me. Therefore, you’ll need to ensure that it is easy for an individual to be a buyer AND a supplier at the same time and quickly switch roles. Individual should be able to clearly distinguish between transactions where they are acting as a supplier and transactions where they are the buyer. Otherwise, it’s going to become very messy! Good visual design will play a key role here in distinguishing which role an individual is playing in each transaction (e.g. different colour scheme or use of iconography for when you’re a seller).
Business to Customer (B2C) marketplaces
In B2C, businesses sell things to individuals. For example, Booking.com is a marketplace for regular individuals to book flights and accommodation from professional businesses. B2C marketplaces operate in a very similar manner to P2P marketplaces, but the main difference is that businesses will usually add bulk listings. Think of a large hotel chain who wants to list over 10,000 rooms in 500 hotels on Booking.com. For each hotel, they’ll need to input information about prices, amenities, room sizes, photographs, location, availability etc.
P2P and B2C marketplaces are quicker to get up and running. Due to their shorter sales cycles, they’re often quicker and easier to earn revenue - great if you’re building on a budget! However, you need a high volume of sales to really make a profit. It’s also a crowded space so you’ll need to find a way to differentiate yourself and offer something unique. Therefore, if you're patient and have a decent sized budget, B2B marketplaces can see higher successes in the long-run.
Keep in mind that just because you pick one market at first, doesn't mean you can’t expand into another later. For example, Zoopla, a UK-based marketplace for people looking to rent and buy residential homes (B2C), expanded into corporate real estate (B2B). They now list business properties such as shops and offices, in addition to private homes.
In B2C marketplaces, it’s unlikely that a supplier will also be a buyer so make sure you have two clearly defined roles that meet the specific requirements of each. Suppliers are likely to require multiple listings which they’ll need to keep track of and maintain. Make it easy for them to upload new listings in bulk, and manage multiple transactions at the same time.
Business to Business (B2B) marketplace
B2B marketplaces, on the other hand, are where businesses sell things to other businesses. For example, Capterra is a marketplace for businesses to find software solutions. In these types of marketplaces we often see wholesale suppliers selling their goods in bulk. Prices are typically very high and have much longer sales cycles (months) than P2P and B2C (often minutes or hours).
B2B marketplaces are usually best suited to a managed marketplace. You’ll need to do more hand-holding to bring each side of the market onboard. Transactions tend to be higher value and lower volume, so think about your commission levels. For example, a 10% commission on a £10 transaction is more acceptable than a 10% commission on a £100,000 transaction.
Product marketplaces
Product-based marketplaces usually offer items for sale, for rent or both. For example, Fy! is a marketplace for people to buy homeware and wall prints, whereas Rentalcars.com offers (you guessed it…!) rental cars.
When designing a product marketplace, you might have to consider “stock” levels. For example, a supplier on rentalcars.com might only have three small cars available on Wednesday. You’ll need to make sure that your supply side can control their inventory and stock levels via your marketplace, or else they will be at risk of accepting rental agreements for more cars than they actually have available.
Secondly, you’ll need to decide how you want to handle the situation where a buyer wants to purchase products from more than one supplier. For example, can they checkout in a single transaction or do they need to checkout each item individually? Adding a “basket” concept so that users can purchase products from multiple suppliers in one transaction can get complex for the backend of your marketplace, however, it provides a much smoother experience for your customers. You also need to decide whether shipping is charged on each individual item. If you’re not holding stock yourself, it’s likely that each of your suppliers will want to charge their own shipping fees. This means if a customer is placing an order from 3 different suppliers, they’ll have to pay 3 shipping fees (one for each item).
Services marketplaces
Services are typically time-bound either by hour, day/evening, or event. Often, more than one person can book the same service at the same time (e.g. a walking city tour is usually open to a group of people). However, other services like hairdressing, will only be able to accommodate one booking at a time.
Suppliers will probably need to control how many “seats” they sell per service they list. For example, an in-person cooking class might have space for up to 12 people, whereas an online fitness class might be open to unlimited people. You’ll need to talk to your suppliers to find out how they operate and whether they require functionality to specify the number of seats available for each service.
Where the booking takes place sometime in the future, you might want to consider an escrow. This means the money paid upfront by the customer will sit in a holding account before being paid out to the supplier once the event is complete. When I built my own marketplace for booking local photographers, photoshoots would often be booked 2-4 weeks in advance. Our platform would collect the money from the customer upon booking, and then Stripe would hold onto it until three days after the photoshoot was complete. This was to ensure that if anything went wrong, we had time to be notified and could issue a refund.
Information marketplaces
Information marketplaces provide people with information about a specific topic, or in a specific format. For example, YouTube hosts user generated video content on any subject you can think of. Whereas Yelp lists local businesses and services providers. Information marketplaces don’t usually take bookings, but instead people can “subscribe” or pay to access the content. Alternatively, suppliers can pay to list their services.
When designing an information-based marketplace, you’ll need to consider how your audience can keep abreast of new content that might be helpful or of interest to the user. Notifications are really helpful here, as is the ability for them to communicate what type of information they want to be updated about and how often.
Investment marketplaces
Finally, an investment marketplace is where people can go to invest in companies or provide early capital in return for a product later. For example, on Kickstarter you can pledge to pay for a product before it’s even been manufactured. Once the creator has reached their funding goal, the buyer is charged and the creator can start making the product. However, there’s no guarantee that you’ll receive your purchase if the manufacturer can’t fulfil their promise!
Investment marketplaces can be quite complex, particularly for payments. You’ll need to ensure you’re fully compliant with country-specific regulations, particularly if your marketplace is involved in equity crowdfunding. I would suggest that you seek legal advice before you design and build anything.
As you can see, there are many different business models within the marketplace framework, and it’s important that you pick the one that is right for your business. Make sure you understand how sellers operate and make it as easy as possible for them to get set up and run their business through your platform. Finally, remember to keep it simple! You can always add more complexity later.
AUTHOR
With over eight years of product experience, Fiona designs beautiful, yet easy-to-use marketplace websites. What makes her unique? Well, she's an ex-marketplace founder and has previously worked for a Venture Capital firm so she has experienced life on both sides of the deal! Fiona is based in the UK and has clients all over the world.
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