While the tendency for launching online businesses continues to grow, two-sided marketplaces take the leading part among entrepreneurs when they choose between a single online store and a marketplace.
In this post, we’ll shed light on online marketplaces, their advantages, and the brightest representatives. We’ll also consider the trends you should follow when building your platform to make it successful.
What is a two-sided marketplace and why build one?
The term “two-sided” implies that there are two sides, and in the case of a marketplace, they are supply and demand. Vendors or service providers are the supply side while buyers and customers make the demand side.
A two-sided marketplace platform is suitable for customer-to-customer (C2C), business-to-customer (B2C), and business-to-business (B2B) purposes. In addition to their universality, two-sided marketplaces have other advantages:
Ability to attract more customers than an online store. It’s possible due to the nature of a marketplace that implies two types of users cooperating on the platform. Moreover, both user groups find it convenient to use a marketplace.
For buyers, marketplaces provide a wide choice of goods as well as an ability to shop in a fast and easy way.
For sellers, a marketplace is a place where they can find a lot of potential buyers.
They also don’t need to make large investments to sell on a marketplace.
No need to produce and sell goods or services. Being a marketplace owner, you should provide your customers with the best conditions for trading or offering/ordering services. You don’t have to be a seller yourself. As a result, you get rid of the headache of producing goods, storing them, dealing with orders and shipping, etc.
Scalability is a great property of a two-sided platform that allows you to gradually expand your business. A number of famous marketplaces started locally but managed to scale so that now they have users from all over the world.
Before we move to the questions about the best practices of marketplace development, let’s see how successful marketplaces can be on several famous examples.
Successful Representatives of Two-Sided Marketplaces
There are more than 150 marketplaces known globally, and the number is probably a few times higher if we speak about local ones.
When building a two-way marketplace, entrepreneurs want to gain the same success as the world’s giants. So let’s have a look at them.
Known as the world’s number one online product marketplace, Amazon started as a small bookstore. Since 1994, it managed to grow to a global scale and now it’s a top platform for B2C and B2B companies to grow their businesses.
During its existence, besides its worldwide popularity, Amazon had several achievements such as the production of its own ebook Kindle and the launch of Amazon Go, an innovative offline shop that is aimed at eliminating queues at cashdesks.
eBay is another world-known marketplace that, similar to Amazon, developed from a simple website. Nowadays, eBay users can participate in auctions or simply buy goods as the marketpalce widened opportunities for its users.
eBay made its way to success through the acquisition of different companies that strengthened its position in the market. In particular, eBay bought PayPal – one of the largest payment gateways – to make purchases on the platform as secure as possible.
When making the first steps to building their business, Airbnb founders Brian Chesky and Joe Gebbia had nothing but an idea of an apartment renting service.
At the very beginning of their success path, they had to contact hundreds and thousands of potential landlords and offer them to join a new platform.
They also visited each apartment in person and took photos to place them on their website.
Nowadays, Airbnb is used by 4 million people all over the world. During its existence, Airbnb moved far beyond apartment rentals. As of 2020, people could rent homes, castles, farms, treehouses, and even igloos.
Moreover, Airbnb implemented an additional service called Experiences that makes the platform even more attractive for travelers. There’s also the Airbnb Plus service where only exclusive offers are posted.
Industry-Leading Trends to Know About
Once you decide to build your 2-sided marketplace, you should know about the trends that rule the industry. Moreover, you should try to implement these innovations into your platform. Otherwise, your marketplace can fail to withstand competition.
Use of AI and Machine Learning
Although artificial intelligence (AI) and machine learning (ML) are used in marketplaces for a long time already, these technologies develop rapidly, and you can benefit greatly from using them.
One of the possible implementations is AI-powered chatbots that can communicate with customers 24/7 and provide them with support whenever needed. Due to the constant training and analysis, such chatbots ensure a better shopping experience and customer satisfaction.
Another benefit of AI and ML is the ability to improve the matching process and, as a result, enhance personalization in your two-sided marketplace.
During the last six months, almost 80% of online shoppers made their purchases via mobile gadgets. For entrepreneurs, it means that they shouldn’t neglect mobile orientation when building a marketplace. You can follow one of these ways to make your online marketplace operate flawlessly on mobile devices:
- create a native app that will have unique features, outstanding design, and flawless performance
- develop a progressive web app (PWA) – an app that combines the best of mobile and web applications
- when building your marketplace, pay attention to its design and ensure its responsiveness
Multiple Payment Options
It’s important to provide marketplace users with the ability to choose the most convenient payment option for them. PayPal, Stripe, credit cards, wire transfers are among the most popular payment methods users choose during online shopping.
Some marketplaces even offer cryptocurrencies as a way to pay for purchases.
The more convenient and various payment methods you offer to your platform users, the more likely they are to make a purchase and return to your platform in the future.
Dynamic pricing is about changes in price (usually for services) depending on demand, time of the day, location, etc. Such a scheme works great in C2C service platforms like Uber. Actually, Uber uses this scheme to encourage drivers to take advantage of increased demand. The use of dynamic pricing not only allows drivers to earn more but also to satisfy the demand at the same time.
Voice search is a part of modern mobile devices for several years already, and now it’s being implemented into marketplaces. With the voice search functionality, shoppers will be able to find what they’re looking for in a matter of seconds.
With all these modern features, your two-sided marketplace website is likely to attract customers and satisfy their needs. So let’s see how you can build your platform to make it successful and profitable.
How to Build a Prosperous Two-Way Marketplace?
Although there isn’t an algorithm by following which you’ll definitely build a marketplace that will become successful right away, you can stick to several steps that are crucial for building any software product. Let’s consider them one by one.
- Define your niche
Since the competition among online marketplaces is fierce, and there are giants in almost every industry – travel, bookings, hand-made goods, on-demand services, etc. – it’s crucial to find a niche where your two-sided marketplace will be in demand.
To find your niche, you can research the market and your competitors. Another option is to launch a marketplace in the industry you know well.
If you have worked in some industry for a long time, you probably know the pain points of its customers and see the ways for improvements. If you can solve existing problems with a new marketplace, you have all chances to make it successful.
- Solve the chicken-and-egg problem
A lot has been said about the chicken-and-egg problem but it still exists. The dilemma of whom to attract first – buyers or sellers – will never end, and you have to find a solution that will work best for your marketplace.
There are several proven ways that help marketplace owners attract and retain users:
- Offer incentives to attract one or both sides so they are interested in joining your platform
- Target the party that is hardest to gain and work on attracting it in the first place. Once you get one side, another will join.
- Act as a seller or service provider on your own until you find enough vendors to maintain the proper functioning of your marketplace.
- Make sure your marketplace is liquid
A successful two-sided marketplace is a liquid marketplace. Liquidity is about how satisfied your platform users are and if they get what they want when using your platform.
To reach liquidity, you should do more than providing a platform for buyers and sellers to meet. You should also consider such factors as density and category concentration.
Good density means that the supply and demand sides are in the same region and it’s convenient for them to cooperate within a certain location. If your marketpalce operates globally and there are no geographic boundaries, you should make sure that the number of offers is enough to meet demand requests and vice versa.
Category concentration means that the demand and supply are distributed equally among categories represented in your marketplace. For example, you have a dog walking marketplace that offers services in three categories: dog walking itself, dog sitting, and grooming.
70% of users come to your marketplace to order dog walking services, 29% of users are interested in grooming, and only 1% need dog sitting.
It means that the dog sitting category isn’t in demand and isn’t profitable. Your task is to make every category be in demand and bring profit.
All in all, the main thought concerning marketplace liquidity comes down to the conclusion that there should be a balance everywhere on your platform.
- Be ready to adapt
While you might launch a perfect 2-sided marketplace in the very beginning, your customers’ needs might change with time. Plus, it’s important to gather feedback from your users to improve the daily operation of your platform.
In a nutshell, you should be flexible and ready for improvements to provide the best experience for your customers.
Two-sided marketplaces have a great potential to succeed in any sphere of online business.
If you want to build a successful marketplace, it’s important to consider trends that lead the industry at the moment and implement progressive features into your platform.
It’s also crucial to choose the right niche and be ready to constantly improve your product.