Do one thing. Just list out the well-known products or services of the world that connect two distinct groups of users with each other for fulfilling their aims. If you look closely you would find that many of the world’s old products and services were built for doing that. Connecting two sides of groups. Case in point: think of the concept of a newspaper. A newspaper company connects advertisers with readers. Also, one of the revolutionary changes in the finance industry came with a credit card that connects customers with merchants.
More recent two-sided marketplace examples are Uber, Airbnb, Taskrabbit, and more. These companies aggregate two groups to achieve their means.
What is a Two-Sided Marketplace and How it Works?
In a nutshell, the Two-way marketplace is a platform where two parties connect and transact. These parties are important stakeholders of the whole marketplace. They could be buyers and sellers of products/services, drivers and riders, hosts and guests, advertisers and readers, or anyone who is part of any specific marketplace.
The platform or the marketplace is at the center around which everything revolves. It gives them the opportunity to connect with each other. One of the best things about owning a marketplace business is that you don’t have to own anything. You just provide the IT infrastructure for both parties.
Uber marketplace matches riders with nearby drivers. But it doesn’t own a single car. Airbnb, the rental marketplace connects guests to find the host for their stay. But it doesn’t have its own property. Thumbtack or Taskrabbit allows customers to find nearby home service providers. eBay, Craigslist, even freelancing platforms are double-sided marketplaces whose sole goal is to connect two needy parties on a single platform. These all marketplaces work on the marketplace business model.
How a Two-way Marketplace Makes Money?
To fit into the market, various two-way marketplaces have a different business model canvas. With that, their way of making money also differs.
Two way markets have three stakeholders who take part in platforms to achieve their goal.
1. Platform Owner: One who builds the whole IT infrastructure, creates policies, decides business models, decides fees, adds new services, and intermediates in other conflicts. The owner could implement any kind of monetization model depending on the service the marketplace provides. In fact, the owner could invent a new business model on his own provided that it is trusted by their stakeholders.
Taskrabbit earns through service fees and support fees. It charges 15% service fees to the taskers and 7.5% support fees to the customers.
Uber charges a 25% commission from the drivers on each successful ride. Airbnb on the other hand charges from both hosts and guests to use its service. It charges 3% fees to the hosts and 5-15% fees from the guest. You could adopt any of the monetizing strategies considering your product or service.
Two-sided marketplace business models:
2. Seller (One end of a Marketplace): These could be anyone including drivers, sellers, service providers, hosts, etc. They connect to the other end users of the marketplace and make money by using these platforms. Depending on the platforms’ payment policies they have to pay the commission to the platform owners on a fixed based or a percentage based charge.
3. Buyer (Another end of a Marketplace): These end of marketplace mostly consist of buyers or customers who need to use the main service provided by the marketplace. In most marketplaces, customer segment is charged per decided product or service fees.
How to Start a Two-sided Marketplace?
If you are wondering how to build a 2-sided marketplace, then don’t worry. Here we have curated a list of strategies for two-sided market development. Implement them and kick start your business as soon as possible.
Before you take the plunge into a two sided network business, you will need to decide your niche. Ask yourself in which domain you want to create a marketplace. Do you have a different platform idea that solves the problem of two user groups? Or you want to stick with tried and tested marketplaces like on-demand taxi, home rental business, grocery delivery, service marketplace, or any other platform that aggregates two parties.
There is less risk in starting above mentioned business ideas because they have been implemented by various startups in various cities.
But if you are to build something different then you must research the idea properly. You will have to figure out if users are searching for that service or product in your niche. And if they search it then what is their search intent. Who provides them the products or services? If these businesses do not have a marketplace, then you have an open space to start your marketplace business and build a community of that user group.
Here is the example of how two partners bootstrapped a two-way marketplace for “Bootstrap template and themes” by digging deeper into the design market. Today the website is called Bootstrapbay which connects thousands of theme creators and its buyers.
One of the classic mistakes most startup aspirants make while building a two-sided online marketplace is that they forget to gather up one end of users. Initially, to buy anything on a platform there must be something to sell. Hence, while you start creating your website and apps for your business, simultaneously you have to start marketing your idea.
The platform’s IT infrastructure is of the utmost importance when you create something at this level. First of all, you have to figure out the app functionalities your both parties will need. List out what will aid them to connect easily. Know how your app will provide them a value that other online websites and businesses are not providing.
Once you have a fair list of features, you could start hunting for an app development company that has in the past worked on marketplace projects. If you are thinking of outsourcing your project then run through some important outsourcing tips so that you could choose a perfect development partner. Some companies provide you guidance by signing an NDA (Non-disclosure Agreement) if you have a marketplace idea.
Apart from the apps, you will also need an alluring website to attract new visitors. An admin panel is also an inseparable part as it provides a bird’s eye view on your business. You could manage your stakeholders through this panel and know your dairy financial reports.
“Which payment gateways should I use in the Marketplace?” is one of the frequently asked questions by the startups. Well, the answers depend on the region the startup owner chooses. If the startup targets the local market, then it is better that they go with local payment gateways. If you are eyeing up for the global market, Stripe and Braintree are the best payment solutions.
You have your websites and apps ready. But how will you attract both sides of users to your two-sided marketplace platform? What will buyers buy if there is no seller? And how will sellers sell if there aren’t any buyers registered in the marketplace? This is a classic egg and chicken problem.
The conventional wisdom says you ought to start with a one-sided marketplace first. And most marketplace businesses preferred to chase after product side partners first rather than buyers.
Once you get a nudge, you can start to promote your platform through websites and other social media platforms. You could even advertise your platform on google Ads to attract both end-users of your platforms.
Points to Remember when getting initial Boost;
Awareness and value proposition is the key to the success of your two-sided marketplace business. For that, you should create informative content on your website. Start writing blogs and articles on various topics that relate to your niche. Write about the problems your users face and how your platform could help them solve their problems.
If you roll up new features, keep your end-users informed by writing its benefits. Be active on social media and create insightful posts that establish you as a brand. You will have to be empathetic towards buyers and sellers and then create new content frequently. Provide them promo codes, discount coupons, or free guides. Also, run some loyalty programs to keep your users attracted to your business.
Big marketplace like Uber, Etsy, Airbnb has a community that supports the platform and takes an active part in its growth. These are the reasons that guarantee these marketplaces hefty revenues.
The marketplace community is built with buyers and sellers. You must foster it for the long run of your business. Ask yourself how to increase the buyers and sellers who are interested in your marketplace. You need to understand their demographics and behavior. Once you have enough signed up members you should take feedback from them to make your user experience even better.
As you grow, establish the tone and voice of your brand. Be empathetic as much as you can be. It will be hard for other competitors to compete with you once your business creates a network effect in different cities.
Uber has run a campaign for their driver in this COVID-19 outbreak, which allows Uber users to donate some money so that the money could help drivers who earn on a daily basis. This creates loyalty in drivers and attracts new drivers and riders to use the platform.
What Are the Challenges in a Double-Sided Marketplace?
As mentioned earlier in the section, for the new marketplace startup, initially it becomes confusing to know which side the startup should procure first. A demand-side or supply side. Because initially, the marketplace is void. There is nothing to be sold and nothing to buy. Nothing to be listed or nothing to book.
Usually, the challenge is addressed by including the side which is harder to get in the marketplace. Most startups prefer approaching the supply side first to register in the marketplace and then proceed further to get the demand side.
Creating a two-sided market is like operating two separate businesses. Providers and customers are two different kinds of users who react to different values propositions, features, and incentives.
It becomes a little hard to reach liquidity until you have sufficient numbers of both suppliers and consumers. You will have to start small and gradually step up the game to reach that level. But once you clear, once you have enough community that trusts you, vertical and horizontal expansion becomes simple.
In traditional business, it is not hard to conquer the trust of the customers. Because it is one-sided. You don’t have to worry about pleasing both parties. On the flip side, a two-way network business is hard. Two-sided marketplace companies usually have to win the trust of both parties. Suppliers have joined your marketplace because they were optimistic about getting more sales. Also, they wouldn’t have to do extra efforts in marketing and other things to attract customers. If they don’t get enough buyers, they would look for other ways of getting customers.
On the other hand, customers also have joined the marketplace because they can have their product at a single place and have the option to select the seller they want. It takes time to gain the trust of both end-users in the marketplace.
Running different loyalty programs for both parties could help you win the trust and grow your business.
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There is no doubt that 2 sided marketplaces are the most lucrative business today. Most startups prefer to go with tried and tested models of the market. Because they know they don’t have to create a separate business model. All they have to do is just research the market opportunity in their local area and build the marketplace app.
On the other hand, a new derived marketplace is a little hard to establish but once you set the foot in the door, there will be no competition for you and you can easily expand your Two-sided marketplace globally.
We have worked on multiple marketplace projects in the past. Some clients come up with fresh ideas while some don’t want to take risks and play it safe by creating something that is already proven. If you have any marketplace app ideas, feel free to contact us. We assure you that your idea will be safe with us.