How to build an online marketplace: from scratch vs marketplace software

Got an idea for a marketplace and can’t wait to implement it?

Well, fasten your seat belts because we are about to break down each of the options available to you for creating an online marketplace.

Basically, there are two main ways to build your own marketplace: 

• Custom development
• Off-the-shelf solutions

Custom development of online marketplaces

Custom development means building software for a client from scratch. You can either hire an in-house development team or outsource your marketplace development.

Custom development is suitable when you want…

• to raise investment
• to build a long-term project
• better quality and flexibility
• more features
• to be independent and in control of your project
• a custom solution
• integration with external APIs and services
• a scalable solution
• a custom UI/UX
• Opportunities for future growth

Pros of custom marketplace development

• Personalization: you can build a marketplace according to your business needs and requirements
• Compatibility: your marketplace can be made compatible with different devices, external services and tools
• Security: while packed solutions offer mediocre security, custom development brings a variety of choices for securing your marketplace against fraudulence and malicious activity.
• Scalability: a custom marketplace will be able to handle numerous listings and an increasing amount of customers, which is vital to the business’s growth.

Cons of custom marketplace development

• Cost: developing a marketplace from scratch requires bigger investments. Of course, no one says that you have to spend the whole sum right away; you will have time to find investors while building a marketplace MVP. After first getting traction on an MVP, you can pitch your marketplace to investors in order to raise money for further product development.

Related articles:

> How to Develop Online Marketplace MVP?

> Investment in online marketplace startups

• Time: No successful marketplace was ever built fast. Art takes time, and like any art, you need to have a team that is in it for the long haul. So building a super team can be a serious setback if not done conscientiously.

The process of custom development goes through several phases:

Off-the-shelf solutions

Off-the-shelf software is a ready-made solution. It can be a good start for quick validation of your idea. However, off-the-shelf solutions offer a limited number of features. So, if you want additional features that the platform doesn’t provide you will not be able to install them since the marketplace platform software wouldn’t allow it.  

Off-the-shelf solutions are suitable when you…

• want to test your idea
• want a quick and easy solution
• don’t mind low functionality
• have a small budget
• have no technical background

There are four types of marketplace software builders:

1. SaaS – Software as a Service
2. CMS – Content Management System
   1. Vendor-hosted
   2. Self-hosted (open- or closed-source)
3. API – Application Programming Interface
   1. plain
   2. with SDK
   3. with a basic front-end template
4. PaaS – Platform as a Service

#1 SaaS – Software as a Service

SaaS is a software model where software is accessed online via a subscription, rather than bought and installed on individual computers and is centrally hosted.  

The Saas marketplace platform could be the most suitable for marketplaces with a relatively simple business idea, or a niche & non-technical team. The service will create an account, connect a domain and allow for a personalized payment method – all in a few clicks.

One of the most common pricing models for such services is a monthly and yearly subscription fee. The exact price may depend on the number of transactions made through your marketplace, the number of listings (published goods or services), or the total number of users that have been registered on your platform.

Pros of SaaS for online marketplaces

• Little or no technical effort to start from the founder’s perspective
• Experienced technical support from SaaS provider

Cons of SaaS for online marketplaces

• Low flexibility in terms of both functionality and UI
• High price after reaching some number of users, listings etc.

Good examples: Sharetribe Go, Arcadier, MarketplaceKit, Cocorico, JaJuMa-Market.

Let’s take a closer look at the most popular marketplace builders.

Sharetribe Go, Arcadier and MarketplaceKit are the most popular examples of SaaS builders for marketplaces. The hosted versions of these platforms are pretty much the same except for a few differing features. For example, MarketplaceKit gives you a more powerful search across geolocation and custom multiple fields.

All three platforms offer you hosted versions, but only two of these SaaS builders offer self-hosted versions, namely Sharetribe and MarketplaceKit. Let’s look at the advantages and disadvantages of Hosted and Open-source versions of these builders.

Hosted version:  

• They take full responsibility for the technical part: installation, maintenance, updates, security, backups
• It is automatically updated to the latest version
• They offer full support
• It includes all the latest features
• Stripe and PayPal payments are available
• Almost no technical knowledge required
• You can easily move from the hosted to the self-hosted version
• Your software is hosted on the vendor server
• You are unable to customize the backend
• There is limited customization of CSS, HTML, and JavaScript

Self-hosted version/ Open source version (only Sharetribe and MarketplaceKit):

• Ability to rewrite the code
• You need to install the software on your own server
• You need to take care of each of the technical elements
• The level of support depends on the voluntary help of the user’s community
• The platform almost does not develop
• Some code and used methods are deprecated
• It’s price-free, but a customer needs to pay for their initial setup, customization, hosting and maintenance, which means more features and therefore more money
• Strong technical knowledge is required

Below you’ll find a comparison table with three main SaaS providers.

#2 Content Management System (CMS)

СMS is a software app or a number of related programmes that are used to create and manage digital content.

Marketplace CMS gives much more flexibility than custom SaaS in terms of logic and UI customization. That is because the developers in the marketplace team have full control over the code base and can create pages, animations, and transaction flows within almost any level of complexity. But this comes with a price: as a marketplace builder, you must locate and hire a team of developers who are:

1) familiar with this specific CMS or at least the tech stack on which it is built

2) professional enough to grab your vision of the marketplace features and main idea, and implement them precisely.

There are two types of CMS:

1. Vendor-hosted: it is not just a customizable code base because the vendor also offers additional hosting and deployment services, as well as backups and updates for your marketplace. Sometimes it is even possible to access a small team of dedicated developers through the vendor themselves who will work on the initial CMS code to customize it according to your needs.
2. Self-hosted: it can be an open-source marketplace CMS or it can be a commercial lifetime license which provides you with an instance of a closed-source CMS to deploy, scale and customize to any extent you need, but without support.

Pros of CMS

• Good opportunities for UI and business logic customization
• While having this flexibility, a marketplace builder can still rely on the vendor in terms of hosting, deployment, backups etc. in most cases

Cons of CMS

• Possible tech stack lock-in: a marketplace builder has to look for developers familiar with a particular CMS tech in order to customize it (if a vendor doesn’t offer any customization support)
• A CMS may become an additional development cost or even impossible, if it doesn’t feature public API or integration with external APIs (if a marketplace builder decides to provide an API for sellers).

Good examples: Sharetribe Go (hosted and open-source versions), Tamaranga (open-source (except for core components), self-hosted), OMS (closed-source), MarketplaceKit (open-source), Cocorico (open-source, self-hosted).

#3 Application Programming Interface (API)

Marketplace API (or so-called API as a service) seems to be the natural evolution of SaaS marketplace technology. API is a set of requests and methods between a server and a client.

All the API service providers want to offer both zero-cost management and maximum customization flexibility to their customers – people who want to build a marketplace. A great solution can be building an API on top of their own backend, deployment, and monitoring systems and offer it as a service. However, the UI and specific marketplace builders logic development is a burden for the marketplace development team.

Creating an SDK can make the life of a marketplace developer easier: a library (or set of libraries for different programming languages) wraps low-level calls to your API from marketplace front-end over HTTP or GraphQL and speeds up the development.

Moreover, some marketplace API providers offer a frontend boilerplate that uses their marketplace API (+ SDK). A particular marketplace developer may use it as a starting point to test the hypothesis and customize or even rewrite it from scratch later if needed.

Pros of API

The maximum level of the UI and business logic flexibility (within the API functionality)

• Ability to integrate the API into existing e-commerce or marketplace websites (sometimes, API vendors even offer connector scripts for some target e-commerce platforms)
• No headache for a marketplace builder in terms of API support, QA and DevOps

Cons of API

• UI and UX for a new marketplace need to be created from scratch
• Hosting, deployment, and backups of the front-end part is still the responsibility of the marketplace builder
• Flexible functionality is still limited.

Good examples: Stelace (actually, they had a front end as well, but it’s abandoned now), Sharetribe Flex (API, SDK, and front end boilerplate), Arcadier, Izberg (API with SDK).

#4 Platform as a Service (PaaS)

One solution is to rule them all. “Platform as a Service” or “Marketplace Platform” appears to be the most enterprise-flavor type of marketplace tech approach. PaaS is a digital platform that allows people to build marketplaces and services by using the Internet.

While a marketplace builder is free to build, the UI and logic is provided by the platform (similar to CMS) and around its APIs (like in the “API case”), the deployment and administration are done through the platform portal interface. Simply put, it’s a blend of open-source CMS, API as a Service and vendor hosting. Of course, such an approach has its benefits and drawbacks.

The advantage here is that it gives a great deal of flexibility within the realm of customization. Another perk is that you don’t have to choose between front end and back end – the platform has got you covered on both sides. The downside is that you’re tied to the platform’s grid of deployment and scaling servers. For some, this means no hassle with DevOps and support. For others, it can lead to lock-in and scaling problems.

Pros of PaaS

• All pros of the API
• Vendor support and consulting for both front-end and back-end parts of a marketplace

Cons of PaaS

• Vendor dependency in terms of deployment and scaling

Good examples: PlatformOS (PaaS brand of NearMe marketplace) and Mirakl.

These platforms are practically the same, though there are some distinctions. For instance, Mirakl has Loyalty Program, Promotions Management and Returns Management whereas NearMe offers Account Management.

Factors to consider when choosing the way to develop a marketplace

Budget

Is your capital under $20,000? An off-the-shelf solution could be an option of low-budget to start with limited functionality. Another option available to you is starting with a discovery phase and tech pitch deck, if you plan to pitch your idea to investors.

Do you have $20,000+? We recommend that you consider custom outsourcing.

Deadlines

Want to launch a marketplace MVP in less than one month? Your choice should be SaaS or PaaS.

Investments

Are you willing to fundraise further? Custom development would probably serve you better so that you can introduce unique killer features to the market.

Size of your marketplace

Do you plan to have over 100,000 users in your marketplace? Then, SaaS or PaaS is off the table. Custom development is the best choice here.

Technical background

You don’t have it? Choose between custom outsourcing and SaaS, PaaS

The most important benefit of custom development is personalization. By building a marketplace from scratch, you will be able to design it exactly the way you want it to be. The biggest drawback is money.

Word of advice: raise money from investors before building an MVP (assuming you have a tech pitch, of course) or after your marketplace first gets traction.

Off-the-shelf software has some disadvantages too. The biggest are limited customization and functionality. The advantage here is quite simple: no tech knowledge is required if we’re talking about SaaS or PaaS.

Sum up

When building an online marketplace you have two options: custom development or an off-the-shelf solution. Off-the-shelf software for marketplaces comes in four different shapes: SaaS, CMS, API and PaaS.

While deciding which approach is most convenient for you, try answering the following questions:

• What is your budget?
• When are your deadlines?
• Do you plan to fundraise?
• What is the desired size of your marketplace?
• Do you have a technical background?

Looking for an easy and cheap fix for the short term?

Then an off-the-shelf solution is your friend. All you have to do is decide which builder will best suit your needs.

Want to build a marketplace that is adaptable, scalable, secure, and personalized?

Then custom development is your pal. Here at Sloboda Studio, we build custom service marketplaces for a reasonable price and with a trusted team of developers, QAs and PMs.