#Guides #Marketplaces | 11 min read

How To Create an Online Marketplace You Can Be Proud Of

Pavel Obod , Founder of Sloboda Studio


Who doesn’t like to be spoiled? 


Quick food delivery, instant flight booking or online shopping. The Internet has made our lives easier but online marketplaces have taken the service industry to the next level.

Now, literally within a click, you can book any service: house cleaning, accommodation for the weekend or food delivered to your doorstep.

Not only are marketplaces some of the most awesome examples of how the Internet makes peoples’ lives easier, but they also provide great business opportunities.  

create an online marketplace

Table of content

1. Why is it a great idea to create an online marketplace?

2. Types of Online Marketplaces

3. Step-by-step Guide on How to Create an Online Marketplace

1) Discovery Phase

2) Development Stage

3) Fundraising


1. Why is it a great idea to create an online marketplace?

An online marketplace is a digital platform 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.


Why do startuppers love online marketplaces?

  • Marketplaces are attractive for investors
  • Marketplaces grow quickly
  • Marketplaces are easier to promote than standalone companies
  • Creating a marketplace is a cool way to digitalize offline business


Why do customers love marketplaces?

  • Trust: marketplaces inspire more trust than self-standing companies due to numerous reviews and feedback.
  • Low prices: marketplaces offer lower prices than standalone businesses.
  • Convenience: the booking of the service is just one click away.
  • Broad range of services: marketplaces offer a wide variety of choices from different suppliers and at different prices


Did you know that there are almost 6,000 marketplaces in the world and 2,144 out of almost 6,000 are marketplace startups?


Mind-blowing, right?


There have been $72.4B of investments in the marketplace industry and more than 9,000 investors have participated in funding marketplaces.


building a marketplace


The market for online marketplaces continues to grow.

According to Crunchbase, in 2019 more than 200 marketplaces were created and the total amount of funding has reached $50M.

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

marketplace payment

Why are investors are fond of marketplaces?

  • Marketplaces are a big part of the e-commerce market
  • Marketplaces are highly defensible
  • Investors love how marketplaces grow, evolve and perform


Marketplaces are also alluring for corporations.

Basically, there are two 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 services/products on an online marketplace platform to widen their audience and create a new channel for distribution.


2. 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 your future marketplace is one of the things to define in the very beginning.


By participants:

  • B2B (Business to Business) – an online marketplace platform 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 platform. This type is also called Peer to Peer (P2P).
  • B2G (Business to Government) – a platform for transactions of services or products between businesses and the government.


By the offer:

  • Service marketplace – a platform that offers services from different service providers.
  • Product marketplace – a platform where various suppliers 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 filters, view profiles and communicate with suppliers or service providers before buying.


3. Step-by-step Guide on How to Create an Online Marketplace

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

This often happens due to the fact that products have no market fit, lack the core functionality or their technical implementation was poorly calculated


1) Discovery Phase

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

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


Discovery Phase helps to figure out:

  • The problem to solve: a marketplace that you want to create must solve a real problem. There should be a need for your product.  
  • 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 analogues on the market, what features your competitors have, and which ones can be implemented on your online marketplace platform.
  • Marketplace business models: here you decide the best method of monetizing your marketplace business. 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.


What is the outcome of a Discovery Phase?

After running a Discovery Phase, you will have:

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


2) Development Stage

After running a discovery phase, you move over to the online marketplace development where you are actually building your online marketplace platform

However, you need to make a few decisions on further development.


Choice #1: Custom development or marketplace software 

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

marketplace software vs custom development


Types of marketplace software


There are 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 and allowing a personalized payment method.

2) CMS (Content Management System): 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): 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 development or outsourcing

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.  

How to create an online marketplace: Pros and Cons of outsourcing

Pros and Cons of outsourcing


Related: How to overcome outsourcing development challenges


How to create an online marketplace: Pros and Cons of in-house development

Pros and Cons of in-house development


Choice #3: Choosing 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 project. 


Things to take into account while choosing a development team:

  • Reputation in the market: I bet you don’t want to hand over your precious idea to some strangers. What we’d recommend you to do is 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 the best if you manage to find a company specializing in startups and even better, a company that knows how to create an online marketplace – they 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.


Marketplace MVP development

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


Why Start With a Marketplace MVP?

  • Marketplace MVP has enough features to attract early customers
  • Marketplace MVP 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 
  • Marketplace MVP is a life-proof for investors and an essential element of your startup pitch.

marketplace mvp

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 benefit.


Core features every marketplace should have:

marketplace main features

  • 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. 

How to create an online marketplace: search


  • Booking of time slots

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

The booking feature is universal and can be introduced on various types of online marketplaces: cleaning marketplaces like Helpling, freelance marketplaces like Fiverr or expert marketplaces like Clarity.fm

During the booking process, users indicate the most desirable time and 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.

How to create an online marketplace: booking


  • Marketplace Payment


There are 3 types of marketplace payment flow:

1. Prepayment:

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

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


  • The customer will cancel a task
  • The payment 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. 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. Postpayment

The least used type of payment in marketplaces. Here, the charge is made after delivering a service. 

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


Payment providers for marketplaces:

  • Stripe
  • Braintree
  • Adyen
  • Mangopay

The most popular payment provider for marketplaces is Stripe. Stripe is a marketplace payment gateway that has several pros. It allows the marketplace to manage the accounts of its employees.


Related: How to choose a Marketplace Payment solution?


How to create an online marketplace: marketplace payment


  • Reviews & Feedback

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

Every marketplace founder wants to build trust on the platform. 

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. After the service is completed, a platform asks to rate the host, answer a multiple-choice questionnaire, and write feedback. 


How to create an online marketplace: reviews and feedback


  • Admin Dashboard

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

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

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

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


How to create an online marketplace: admin dashboard


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.


Related: 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. 

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 be able to develop a fully-functional product that will attract even more customers and service suppliers.

building a marketplace startup

2019 is not over yet, but there has already been $72.4B invested in online marketplaces. 

Your marketplace startup can be the next one.


There are just a few decisions to make and a few steps to complete.

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

2. Development Stage: requires solving questions, such as:

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

After releasing a marketplace MVP and getting some traction, you’ll be good to go fundraising. 

We’ve been building marketplaces for 6 years and we know how to build them right.

Need a consultation? Drop us a line.


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