Marketplaces are hugely sought-after in this era of digitalization. It’s hard to imagine how it is to live without an opportunity to order goods or different types of services online. Thus, the idea to develop Upwork-like online marketplace efficiently arises before companies and startups strive to build an immensely successful business.
The revenue of marketplaces grows higher as we see the most popular of them getting more and more traction. The most popular marketplace platforms have reached astounding results. For example, eBay in 2023 had over 132 million active buyers, and Etsy reached 96 million in 2022. Overall, in Q4 2023, online marketplaces got over 2K investors engaged, and now venture capital is $74B.
For over 13 years of experience, we’ve worked with over 20 service marketplaces and cracked the code to build a marketplace from scratch. This article will share the most impactful insights on how to develop a markteplace.
What Is a Marketplace
A marketplace is a space where individuals who have an idea to buy and sell can connect to exchange goods, services, or information. Generally, the marketplace operator helps facilitate these transactions and may generate income through fees, commissions, or advertisements. Some examples of marketplaces include online platforms such as Amazon, Etsy, eBay, and more traditional markets or bazaars.
Benefits of Building a Marketplace
Marketplaces offer advantages that make the experience so appealing. Let’s take a look at the benefits of a decision to create a marketplace.
1. Easy Scalability: Marketplaces can easily accommodate sellers and buyers without significant infrastructure or increased expenses.
2. Wide Range of Options: They offer various products, giving customers numerous choices in one place.
3. Multiple Revenue Streams: Operators can earn money through listing fees, transaction fees, advertising, and premium service.
4. Trust and Credibility: Review and rating systems enhance trust between buyers and sellers or providers.
5. Cost Efficiency: By managing inventory, operators can concentrate on the platform, reducing overhead costs.
6. Network Effects: As more customers join the platform, it becomes more valuable, attracting additional customers to the platform.
7. Valuable Data Insights: Operators gain insights into indicators such as customer behavior, preferences, and market trends.
8. Global Reach: Online marketplaces can cater to an audience, expanding the customer base significantly.
9. Community Building: They foster communities comprising clients who share common interests while providing reviews and recommendations for others to benefit.
10. Adaptability: Marketplaces can readily adapt to customers’ feedback and changing market conditions by changing their strategies accordingly.
The creation of a marketplace has the potential to unlock economic opportunities. It can also foster a community of customers and provide a distinct value proposition by meeting the varied needs of sellers and buyers.
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 the use of 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)
SaaS gives a possibility to build a marketplace website by creating
- an account
- connecting a domain
- allowing a personalized payment model.
2) CMS (Content Management System)
It is a software you use to form and handle digital content. CMS gives full control over a codebase, custom UI, and business logic.
- Self-hosted (open- or closed-source)
3) API (Application Programming Interface) is a number of requests and methods between a server and a customer.
- with SDK
- with a basic front-end template
4) PaaS (Platform as a Service)
This kind of software development takes over both back-end and front-end support and gives flexible customization.
Choice #2: In-house Development or Outsourcing
If custom development service 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 experience, on the other hand, is about hiring a team of developers outside the company.
Both in-house development and outsourcing cooperation model have their ups and downs if you need to develop a marketplace.
Pros and Cons of Outsourcing
Pros and Cons of In-House Development
Choice #3: Choosing and Building Your Team
Most of our clients say that people are the force that led their startups to success. Co-founders, managers, and developers are all in the same boat. Each decision they take will significantly impact your website.
Things to take into account while choosing a team to develop a marketplace:
- Reputation in the market: We bet you don’t want to hand over your precious idea to some strangers to develop. What we’d recommend you start doing is checking the company’s portfolio, feedback, and reviews on top rating platforms, e.g. Clutch.
- Expertise: Building a marketplace startup is a different experience. 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 steps such as 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 service when you build 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 a service you have an idea to develop. 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:
- Software requirements specification (SRS Document)
- Technology stack
- Platform architecture
- Product functionality
- User journey
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 customers to buy and use 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
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 but 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.
Looking for Markeplace Development?
Step-by-step Guide to Creating a Marketplace
In this block, we will go through the steps of how to build the marketplace itself, after you’ve gone through fundraising and other stages mentioned above.
Step 1: Identify and Validate Your Marketplace Idea
Identifying a market or potential can serve as the cornerstone of your business. Engage in market research by utilizing tools as SEMrush, Ahrefs, or even the tried and true SWOT analysis to pinpoint areas of opportunity. Engage in conversations with customers or stakeholders to further fine-tune and validate your initial concept. Utilizing prototyping or wireframing can also prove effective in validating your idea.
Step 2: Define Your Target Audience
Apart from gathering demographic information, it is crucial to delve into the psychographics, aspirations, behaviors, and challenges that your target audience encounters. Utilize different tools, e.g. Google Analytics and Facebook Insights. Conduct direct surveys to obtain a comprehensive understanding. Use these insights to refine the offerings of your platform to better connect with potential users.
Step 3: Choose a Business Model
For any marketplace to thrive, it is essential to have a revenue model that can be sustained. Understand how your audience prefers to make payments, study your competitor’s strategies, and evaluate how valuable customers perceive your platform. This will help you identify an efficient revenue model. Additionally, as your platform expands, it may be beneficial to review and expand your sources of income.
Step 4: Develop a Business Plan
Describe the vision, mission, and strategic goals of your marketplace. Provide a plan for entering the market, managing risks, and considering possible exit strategies. This plan will guide you, helping you make decisions as your marketplace evolves.
Step 5: Decide on the Marketplace Type and Features
When choosing the type, it’s essential to consider preferences, cultural differences, and current technological trends. Gathering user feedback and conducting A/B testing can help you tune your list of features, prioritizing those that genuinely bring value.
Step 6: Choose the Right Technology Stack
To effectively assess prevailing trends, anticipate potential future integrations, and address the specific needs of your platform, it is crucial to collaborate with technology experts or employ a skilled tech team with comprehensive knowledge about marketplace development. This will guarantee progress and scalability throughout the entire process.
Step 7: Build the Minimum Viable Platform (MVP)
Work together with designers, developers, and potential customers to streamline the creation of your viable product (MVP). During development, prioritize functionalities that impact the user experience and provide tangible value. This iterative approach will help reduce time to market and optimize the allocation of resources.
Step 8: Ensure Legal Compliance and Security
Hire advisors who can help us understand the regulations in different regions, international laws related to transactions, and any possible liabilities we might face. At the time, investing in high-quality cybersecurity measures and conducting regular security audits is important. This will build trust among our users and safeguard your service against potential threats.
Step 9: Develop a User-Friendly Design
Work together with UI/UX designers to create a smooth user experience. Conduct usability tests even while in the development stage to identify any possible issues and enhance the overall user journey.
Step 10: Implement Robust Search and Discovery Mechanisms
Utilize cutting-edge search algorithms, artificial intelligence, and machine learning to provide customized recommendations for customers. We can significantly improve customer engagement and satisfaction by implementing a search system and intuitive categorization into the marketplace.
Step 11: Focus on Supply and Demand
When you’re looking for sellers, prioritize both quality and variety to make the buyers more interested. You can build partnerships, provide early bird incentives, or establish programs for sellers to build a thriving community of sellers.
Step 12: Launch the MVP to a Limited Audience
For this phase, you can involve beta testers, industry influencers, or passionate community members. Their valuable feedback can provide insights and ensure that your platform is strong and prepared for a broader audience.
Step 13: Full-Scale Launch
Build a captivating story for your launch. Work together with PR agencies to utilize influencer marketing and take advantage of advertising channels to reach as many people as possible. Offering bird deals or running limited-time promotions can also help increase the number of initial customers you acquire.
Step 14: Gather Feedback and Iterate
Develop open communication channels for users to voice concerns, offer feedback, or suggest features. Consider tools as UserVoice, feedback widgets, or even community forums to facilitate this. Regularly iterating based on this feedback fosters community and customer loyalty.
Step 15: Scale Your Marketplace
You might have an idea about working with others, merging with another company, or exploring the possibility of franchising as a way to grow quickly. Another option could be expanding into areas targeting related market segments or providing additional products that complement your existing offerings.
Step 16: Monitor Key Performance Indicators (KPIs)
Make use of analytics tools as Google Analytics, Mixpanel, or even custom dashboards to stay updated on the well-being of your marketplace. Consistently keep an eye on it. Analyze metrics in order to adjust and improve your strategies.
Step 17: Continuous Improvement and Expansion
Make sure to foster a culture that values learning and innovation. Stay informed about the trends in your industry advancements, technology, and your users’ preferences. Regularly update your platform, introduce features, and occasionally make significant improvements to keep your marketplace current and competitive.
Core Features Every Marketplace Should Have
Search & Filtering
To make the choice easy and fast for customers, you need to provide them 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 provider, users probably would have an idea to book the goods.
The booking feature is universal. It can be introduced on various types of online websites:
- cleaning website as Helpling
- freelance marketplaces similar to Fiverr
- expert marketplaces, e.g. 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.
There are 3 types of marketplace money flow:
- at the moment of booking
- on the day of goods delivery
With prepayment, users need to pay in advance for some things that they will receive later. This type of payment flow is not beneficial for either party.
- The users might cancel a task
- The money transaction that must happen on the day of delivery might not go through.
2. Escrow payment
The most popular and safest type of payment on your website. A marketplace charges users at the moment of booking. However, a payment provider withholds the money until the service is carried out. Only then does a supplier receive the payment.
3. Post payment
The type of payment on thr website you use the keast. Here, the charge is made after delivering products.
In order to facilitate transactions on your platform, you need to have a Payment provider.
Here is the list of the best payment providers:
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.
Reviews & Feedback
We’ve already discussed that trust is what attracts both suppliers and users in online shops.
Every marketplace founder’s idea is to start the platform with users’ 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.
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 decided to use 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.
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 how to develop websites for interpreters and cleaners. Both of them currently lead in their niches.
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.
Another online marketplace that we are very proud of is a Cleaning Marketplace. It connects local cleaners with the users. It used to be an offline business, but the client decided to digitalize the business and use the benefits.
The Cleaning Marketplace has the most valued features in use 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.
- B2B (Business to Business) – an online marketplace website for transaction of 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, and products.
By the focus:
- Commoditized – clients 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 – consumers can set filters such as viewing profiles and communicating with suppliers or providers before buying what they need.
Why Marketplace Businesses Are So Alluring
An online marketplace is a digital website that connects consumers 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 2023 and discovered a few valuable insights.
By 2027, the online segment of eCommerce, which is closely related to marketplace websites, will make up approximately a quarter of the global retail sales.
Moreover, the industry continues to grow. In 2022, on Black Friday, shoppers spent over the outstanding $9.12 billion in the US alone. So, the growth for the next few years is secured as Insider Intelligence forecasts that over 20% of all retail sales will be eCommerce. And the borders are not an issue, as PayPal reports that over a half – 57% to be precise – of global online shopping is international.
Talking about business-to-consumer (B2C) marketplaces and eCommerce in general, we see proof of incredible growth in this region. For example, B2C marketplaces like Deliveroo are expected to reach $3.5 trillion in sales by 2024. One of the reasons this happens is also the rise of demand in investors towards B2C, B2B, and service marketplaces.
On Crunchbase, service marketplaces like Thumbtack, Houzz, Porch Group, and others have shown drastic change over the past year. For example, Thumbtack and Houzz have a total funding amount of over $600M. Porch Group has shown an increase of 67% over this year in total revenue and $458.4 million in unrestricted investments. The general dynamics demonstrate that the investors are ready to support service marketplaces and show interest in new startups in the niche.
So, if you are one of those business owners who like to look at the long-term perspectives and account for every possible change in the market, marketplace software can be one of your best shots.
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
- Deciding to develop a marketplace is an excellent way to build your offline business digital.
Why Customers Love Online Shops
With the help of the website, users 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 like Amazon. 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 is played by companies like 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
- Ability to grow, evolve and perform
Why Online Shops Are Also Alluring For Corporations
Basically, there are 2 ways you can use 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.
Need a Development Partner?
The online marketplace is alluring to all groups of people like startuppers, client base, investors, and corporations.
There are just a few decisions to make and a few steps to complete in order to find out how to develop 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.
Frequently Asked Questions
Why should you start an online marketplace website?
It would be best to start an online marketplace website because it’s a robust platform that facilitates buying and selling various products. A marketplace website is also a place where you can get decent revenue at minimal business costs.
What are the different types of online marketplaces?
Marketplace models can be divided by participants, offer and focus. By participants we have:
B2B (Business to Business)
B2C (Business to Customer)
C2C (Customer to Customer)
B2G (Business to Government)
By the offer we have a service marketplace and a product marketplace.
By the focus, we have commoditized and non-commoditized marketplaces.
What are the benefits of an online marketplace website?
There are many benefits of creating an online marketplace website like:
1) Marketplace websites are attractive for investors to make their money powerful working tools
2) Online websites multiply and make them possible to scale
3) Websites make the promotion process easier than standalone companies
4) Creating a marketplace is an excellent way to make your offline business digital.
What is the first step in creating an online marketplace?
The first step is to identify and validate a niche or industry with high demand. This involves conducting market research to assess interest from the target audience.
How do I choose the right business model for my marketplace?
When deciding on a business model, take into consideration how your target audience prefers to make payments, the value of your platform and insights about your competitors. Some used models include earning a commission, offering subscription-based services, charging fees for listings, or incorporating advertising.
What are the key features that a basic version of a marketplace should have?
A basic marketplace should include:
– user registration & profiles
– product/service listings
– search & filter tools
– shopping cart & checkout
– secure payment integration
– a review system
– communication tools for users