How To Create an Online Marketplace in 2023

Once business enthusiasts woke up with the idea of how to create an online marketplace, our life took to a whole new level.

It isn’t easy to imagine that we couldn’t book a room, order a taxi home, or order food delivery. With the advent of the online marketplace, our daily life has become easier. Wherever you are, one click is enough to book the service you need.

Nowadays there are over 10K of online marketplaces in the World. And 30% of them are startups.

Do you need proof, right? We’ll help you to lay everything out.

There are 2,624.18 billion investments in marketplaces, and 10K investors have invested in this industry at least once.

No wonder. Not only online shops are examples of how the Internet makes peoples’ lives easier. And they also build great business opportunities.

4 Ways How to Create an Online Marketplace

Choice #1: Custom Development or Marketplace Software

Custom development refers to building software from scratch, whereas marketplace software implies using marketplace ready-made solutions. 

Types of marketplace software to build:

We start with 4 types of marketplace software builders:

1) SaaS (Software as a Service)

This type of service gives a possibility to build a marketplace website by creating

• an account
• connecting a domain
• allowing a personalized payment method.

2) CMS (Content Management System)

It is used to form and handle digital content. CMS gives full control over a codebase, custom UI, and business logic.

• Vendor-hosted
• Self-hosted (open- or closed-source)

3) API (Application Programming Interface) is a number of requests and methods between a server and a customer.

• plain
• with SDK
• with a basic front-end template

4) PaaS (Platform as a Service)

This kind of service takes over both back-end and front-end support and gives flexible customization.  

Choice #2: In-house Development or Outsourcing

If custom development is what you decide to go with, then there is one more choice you need to make: in-house vs outsourcing software development. 

In-house development or insourcing stands for development within a company. Outsourcing, on the other hand, is about hiring a team of developers outside the company.

Both in-house development and outsourcing have their ups and downs.  

Related: How to overcome outsourcing development challenges

Choice #3: Choosing and Building Your Team

Most of our clients say that people are the force of what led their startup to success. Co-founders, managers, and developers are all in the same boat. Each decision that they make will have a big influence on your website. 

Things to take into account while choosing a development team:

• Reputation in the market: We bet you don’t want to hand over your precious idea to some strangers. What we’d recommend you to start is to check the company’s portfolio, clients’ feedback, reviews on Clutch, and other top rating platforms.

• Expertise: Whatever some developers say, building a marketplace startup is different in a way. It would be best if you manage to find a company specializing in startups and even better, a company that knows how to create an online marketplace. The vendor will share insights and warn you on the pitfalls.

• Experience: number of years in the market is definitely not everything, but still worth considering.

• Pricing: Last, still not least. Time and money are valuable assets for any startup. But your cost-cutting shouldn’t cut the quality of your product. 

As long as development rates are pretty high in your region, it’s usually more reasonable to hire highly qualified offshore developers rather than beginning local developers for the same price.

3 Steps to Know How to Create an Online Marketplace

As mentioned earlier above, there are a lot of newly-opened websites that have received huge investments. But the other truth is that many digital shops fail. 

This often happens due to the fact that products:

• have no market fit
• lack the core functionality
• their technical implementation was poorly calculated. 

We’re going to share the core steps when you build a website. They shouldn’t be ignored and would help to avoid typical failures when you build your excellent idea.

1) Discovery Phase

The Discovery Phase is an initial stage of product development that helps to prevent a marketplace website from failing.

This meaningful stage of creating an online platform involves profound market research, analyzing the goals, and building a development plan.

Discovery Phase helps to figure out:

• The problem to solve: a website that you start to build must solve a real problem. There should be a need for your thing when you create an online marketplace.  

• Competition: a discovery phase implies conducting a comparative analysis of direct and indirect competitors. During this stage, you find out whether a product has any analogs on the market, what features your competitors have, and which ones can be implemented on your online marketplace.

• Marketplace business models: here you need to start with the best method of monetizing. There are 3 main marketplace revenue models: commission, subscription, and listing fees.

• Customer journey map: a discovery phase helps to map out a customer’s journey from the initial contact with a platform to retaining a customer on a platform after the purchase.

After running a Discovery Phase, you will have the best preview like:

• Software requirements specification (SRS Document)
• Technology stack
• Platform architecture
• Product functionality
• User journey
• Wireframes

Read more: The Project Discovery Phase or How to Avoid Failure

2) Business Development Stage: Marketplace MVP

Having handled all the market research and development plans, it is time to move to build your Minimum Viable Product (MVP). MVP is the minimum version of your online marketplace website with its core functionality only.

Why Start With a Marketplace MVP?

• Marketplace MVP has enough features to attract early customers
• It helps to gather feedback for future product development
• Marketplace MVP provides you with a solid basis for building a fully-featured product in the future 
• It is a life-proof for investors and an essential element of your startup pitch.

Minimum Viable Product (MVP) is a product that has enough value and features for users to buy and keep using the platform. 

Every marketplace differs and yours has to differ too. It should have some unique features that no one has. 

However, there are some features that each marketplace has, and having them on your platform will definitely work for your need.

Recommended: How to Develop Online Marketplace MVP

3) Fundraising

You have your marketplace MVP and there are so many features to implement, so many marketing activities to try out… but there is an everlasting startup issue – lack of budget.

The solution is as simple as that – proving your product is worthy and finding internal investments.

We advise you to pay attention to the guide on getting your online marketplace funded.

Sometimes startuppers seek investments before they start building a marketplace MVP. In this case, there is not much to show investors rather than numbers and market research when you build your project. 

With an already-developed MVP and high traction, chances for winning the hearts of investors double.

After receiving the first round of investments, you will start to build a fully functional product that will attract even more customers and suppliers.

Your marketplace website can be the best one.

Core features Every Marketplace Should Have

Search & Filtering

Whether you are building a marketplace like Airbnb or creating an Upwork-like or eBay-like platform, it is going to have lists with offers to choose from.

To make the choice easy and fast for users, you need to provide users with a well-designed and advanced search & filtering system. In addition, you may add sorting and tagging to your marketplace website. 

Booking of time slots

After finding the most suitable service provider, a customer is probably would want to book the goods. 

The booking feature is universal. It can be introduced on various types of online websites like:

• cleaning website like Helpling
• freelance marketplaces like Fiverr
• expert marketplaces like Clarity.fm. 

During the booking process, users indicate the best possible time and desirable date for the task. That means that the booking process should be a no-brainer. One of the features that it helps to achieve is implementing a built-in calendar.

Marketplace Payment

There are 3 types of marketplace money flow:

1. Prepayment:

• at the moment of booking
• on the day of goods delivery

With prepayment, customers need to pay in advance for some things that they will receive later. This type of payment flow is not beneficial for either party. 

Risks like:

• The customer will cancel a task
• The money transaction which must happen on the day of service delivery might not go through.

2. Escrow payment

The most popular and safest type of payment on your website. A marketplace charges a customer at the moment of booking. However, a payment provider withholds the money until the service is carried out. Only then does a service supplier receive the payment?

3. Post payment

The least used type of payment on your website. Here, the charge is made after delivering products. 

In order to facilitate transactions on your platform, you need to have a Payment provider.

Here the list of the best payment providers:

• Stripe
• Braintree
• Adyen
• Mangopay

The most popular payment website provider is Stripe. Stripe is a marketplace payment gateway that has several pros that help your customers feel comfortable. It allows the marketplace to manage the accounts of its employees.

Related: How to choose a Marketplace Payment solution?

Reviews & Feedback

We’ve already discussed that trust is what attracts both suppliers and customers in online shops.

Every marketplace founder wants to start the platform with customers’ trust. 

One of the most powerful ways to inspire trust in your online marketplace is to introduce a rating and feedback system on your marketplace website. 

Airbnb, for example, is an obvious example of solid ratings and feedback features that help. After the products are completed, a platform asks to:

• rate the host
• answer a multiple-choice questionnaire
• write feedback. 

Airbnb

Admin Dashboard

An admin dashboard should contain an expanded functionality. It should give admins the ability to meddle in the process and help to edit data.

From our experience: In one of our projects – an online marketplace for interpreters Salita – a number of users didn’t want to make a profile on their own, instead, they used to call Salita’s support.

Hence, we provided Salita’s admins with the ability to make user-profiles and send the login and password back to them. 

Another example that can happen a lot: a supplier clicks on the ‘Complete’ button by mistake. Admins should be able to reopen the job/task.

Salita

Our Expertise in Building Online Marketplaces

Sloboda Studio specializes in building online businesses for 7 years now. We have built numerous websites in different industries. Below we start sharing our experience in creating websites for interpreters and cleaners. Both of them currently lead in their niches.

Salita

One of our first clients was Salita. It is a B2G and B2C marketplace that provides interpretation services for Norwegian immigrants.

The Sloboda Studio team started building this marketplace with an MVP and showcasing the essential features of this platform. After the initial launch, Salita raised around $1 million. Our team continued to build other components to turn it into a complete product.

Cleaning Marketplace

Another online marketplace that we are very proud of is a Cleaning Marketplace. It connects local cleaners with customers. It used to be an offline business, but the client decided to digitalize the business.

The Cleaning Marketplace has the most valued and used features for this kind of marketplace, starting from registration and ending with leaving feedback.

After the marketplace launch, the client raised a significant budget in Series A and continued to work with us to scale and support the platform.

Types of Online Marketplaces

Below, we’ll discuss that the crucial part of successful projects is knowing what exactly you are building.

And a type of future marketplace you build is one of the things to need in the very beginning.

By participants:

• B2B (Business to Business) – an online marketplace website for transaction of services or products between businesses.

• B2C (Business to Customer) – businesses sell to individuals through a third-party – an online marketplace.

• C2C (Customer to Customer) – transaction happens between individuals on the website. This type is also called Peer to Peer (P2P).

• B2G (Business to Government) – a website for transactions of different things or products between businesses and the government.

By the offer:

• Service marketplace – a website that offers goods from different providers.
• Product marketplace – a website where various suppliers start to sell different goods, items, products.

By the focus:

• Commoditized – Customers don’t have access to reviewing suppliers’ profiles. The platform setting the price is responsible for removing as much friction as possible and providing enough value to both sides. 

• Non-Commoditized – Customers are able to set some filters like view profiles, and communicate with suppliers or service providers before buying what they need.

Why Marketplaces Business Are So Alluring

An online marketplace is a digital website that connects customers with suppliers by providing value and trust for both sides.

A marketplace trend started not long ago but had already taken a big piece of the market.

The Sloboda Studio team analyzed all marketplace trends in 2021 and found the info you need to know:

Source: Statista, Digitalcommerce360, Dealroom, Finance Yahoo, FinancesOnline

In 2021, online marketplace website startups made a real splash. Despite the Covid restrictions, many website startups have appeared in healthcare, medicine, and education.

According to the Dual Room study, 55% of these startups perform well in the short and long term. Covid-19 has only strengthened the trend towards digitalization. We can see sharply increasing demand for telemedicine, B2B, and online delivery.

Nevertheless, Covid-19 has accelerated the change in the priorities of startups in the market. As medical organizations struggle to find the necessary equipment quickly, online B2B markets such as Kwipped are becoming indispensable tools for medicare staff, which significantly affects the results.

For example, in April 2020, fan orders increased by 32,000% using the Kwipped platform. Similarly, charges for beds in clinics increased by 1705% in February.

Why Startuppers Love Online Marketplaces

With the help of the website, your newborn business can be successful for some reasons like:

• They are attractive for investors to make their money powerful working tools
• Online websites you build can multiply and make them possible to scale
• Websites make the promotion process easier than standalone companies
• Creating a marketplace is an excellent way to build your offline business digital.

Why Customers Love Online Shops

With the help of the website, customers find everything they want. Also, people make their decisions to make based on such criteria like:

• Trust: the websites you build can inspire more trust than self-standing companies due to numerous reviews and feedback.

• Low prices: the websites offer lower prices than standalone businesses.

• Convenience: the booking of things you need is just one click away.

• A broad range of services: the websites offer a wide variety of choices from different suppliers and at different prices

Why Investors Are Fond of Marketplaces

The global investment market grew to $ 2,624.18 billion in 2021 at a CAGR of 12.1%.

The growth is mainly due to companies’ restructuring and recovery from the impact of COVID-19.

Before, we had some containment measures like social distancing, teleworking, and business closings.

However, the forecasts for the investment market are favorable. So, you need to stay in trend.

The market will reach $ 3,631.22 billion in 2025, with a growth rate of 8% per year.

The pandemic has had a beneficial effect on the rapid development of the marketplace website giants. It’s not a surprise because the world has focused its attention on online opportunities that digital provide.

As a result, the online marketplace grew to $5 trillion in value in a short period. A significant role in the growth played the leading market unicorns.

Source: Dealroom, Analysis of Google finance data, Speedinvest, Adevinta Ventures

What Website Types Are Popular with Investors

We saw the most substantial website valuation growth in the wake of Covid in categories like:

•  fashion jumped by 142%,
•  food delivery by 132%
• digital health by 120%

No matter how strange it may sound, Covid turned out to be the very medicine for the marketplace industry since it started. Now, the websites build a more comfortable place.

3x year on the period of 2020-2021 – record investment for online market platforms.

During the first three months of 2021, global investments reached an all-time high of $28 billion.

Investing in the marketplace industry has become not only fashionable but also reliable.

So, it is quite visible that investors are captivated by the value that marketplaces offer. 

3 Core Reasons Investors Find Website Shops Promising

Online websites you build can attract investors with the help of some great benefits like:

• Opportunity to be a part of the e-commerce market
• Defensibility
• Ability to grow, evolve and perform

Why Online Shops Are Also Alluring For Corporations

Basically, there are 2 ways of using marketplaces for corporate advantage:

• A corporation can either build its own marketplace to promoting and broadening its initial business or
• Place their products on an online marketplace website you build to widen their audience and develop a new channel for distribution.

Conclusion

The online marketplace is alluring to all groups of people like startuppers, customers, investors, and corporations.

There are just a few decisions to make and a few steps to complete in order to find out how to create an online marketplace.

1. Discovery Phase: focuses on issues of unique value proposition, marketplace business model, competitors, and journey map.

2. Development Stage: requires solving questions like:

• custom website development vs ready-made solutions
•  in-house development vs outsourcing
• Choosing a development team
• MVP development
• Core marketplace wesbite features

3. Fundraising: gives you the ability to start or scale up a high-quality platform and get extra credibility.

The Sloboda Studio team would be happy to create an online marketplace website for your exciting business.