There are many ways to build an online marketplace platform. Each of them has clear benefits, but also some significant drawbacks or trade-offs. This article will help you make the right choice for your specific situation.
So you have decided to start a marketplace business. Congratulations! There truly has never been a better time to become a marketplace entrepreneur.
After you’ve come up with a brilliant marketplace idea, the next step is to decide how to turn it into reality. How you build your marketplace platform is one of the most important decisions you make. It’s also one of the hardest. If you make the wrong choice, it could end up costing a lot of money and delaying your project by months for no real benefit.
There are five ways to build an online marketplace platform:
- Code it from scratch.
- Pay someone else to code it from scratch.
- Build it yourself on top of existing marketplace software (self-hosted).
- Pay someone else to build it on top of existing marketplace software (self-hosted).
- Build it yourself using a hosted software solution (SaaS).
Each of these approaches has its own pros and cons. Let’s go over them.
1. Coding a marketplace from scratch
Description: Developing your online marketplace platform from scratch using modern programming languages and frameworks.
Biggest benefit: You can make it work and look exactly as you wish.
Biggest drawback: Takes a lot of time and expertise.
Benefits
Developing your marketplace from scratch allows you to build exactly the kind of platform that you have in mind. If you are an accomplished developer, the do-it-yourself option is often tempting. There are a number of other benefits, too: you have access to all the source code, you’re not dependant on other people’s software, there are no licensing issues and no subscription costs.
Drawbacks
As tempting as this option may sound, there are considerable drawbacks. First of all, no matter how accomplished a developer you are, building a marketplace website from scratch will take time—a lot of it. Building a multi-sided platform with a flawless transaction flow is a very complex project. And although this option might be cheaper than paying someone else to develop your platform, time is money: there are many reasons why you should launch your marketplace as quickly as possible.
Another downside is that learning and iterating takes long. You might end up spending dozens of hours developing a feature only to notice it isn’t very useful or have the impact you planned.
Finally, it is not only about getting the site built—you also need to maintain it, which is a lot of work. Technology, user experience trends, and even payment regulation evolve quickly. Existing software tools would take care of maintenance work and updates for you.
2. Paying a developer to code from scratch
Description: Hiring a developer or an IT-company to build a custom online marketplace platform.
Biggest benefit: You can make it look and work exactly as you want.
Biggest drawback: Takes a lot of time and money.
Benefits
Developing everything from scratch allows you to build exactly the marketplace that you have in mind. If you have a big budget, this approach might sound the best. You don’t need to spend time comparing software solutions, you’re not limited by their restrictions, and you don’t have to pay subscription fees or licensing costs.
In addition, with someone else taking care of the technical work, you can focus your attention on the business side of the marketplace, which is no small benefit.
Drawbacks
This is likely the most expensive option. Naturally, pricing and quality varies a lot between different freelance coders and professional software development agencies. But even the most cost-efficient choice might set you back north of $50,000 USD. And that is just to get your first version launched. Once the site is live, you will need to continue development work to improve your platform based on feedback, pay monthly hosting bills, and update and maintain your platform.
Secondly, your time to launch your first version will be rather long—very likely at least 3 months. As a result, you won’t really know how well your idea and your platform work until you’ve spent the time and money to develop it. Features that were expensive to develop might be deemed useless by your first users.
Finally, simply finding developers that you are comfortable working with and who deliver high-quality software can be a challenge and easily take a lot more time than comparing software providers.
3. Developing on top of existing (open-source) marketplace software
Description: Using marketplace software solutions that can be downloaded as open-source or for a one-time fee, modified, and hosted on your own server. For the purposes of this article, we separate these from the so-called software-as-a-service (SaaS) solutions (see method 5).
Biggest benefit: Cheaper and faster than building it from scratch.
Biggest drawback: Requires upfront investment.
Benefits
This option is faster than building your marketplace platform from scratch. Every marketplace, no matter the type or the business idea behind it, has some basic functionality requirements, such as creating a listing, communication between users, and handling bookings and transactions. Existing marketplace software will already have most, if not all, included.
If you have the skills for it, you can build additional features on top of the existing feature set. Or at the very least, customize the look and feel of the marketplace exactly to your needs.
From a financial perspective, if the software of your choice is not open source, it will only require a one-time fee, which is probably a lot more affordable than paying someone to develop it from scratch.
Drawbacks
Setting up and maintaining the marketplace still requires significant technical knowledge. Even though the software has a one-time fee for the license, hosting incurs monthly costs.
If the software is not open source, the license might need to be renewed regularly or you may risk losing access to support and technical help.
4. Paying a developer to build on top of existing (open-source) software
Description: All approaches where you pay a third party to build the marketplace on top of existing marketplace software.
Biggest benefit: No technical skills needed.
Biggest drawback: Requires a bigger budget and upfront investment.
Benefits
The main benefit of this approach is that no technical skills are required. If you are able to find a good programmer or agency, they can take care of all the technical work. The marketplace can likely be customized to match your needs. If you can pay for multiple developers, the platform will be ready to launch a lot sooner than if you would be doing it yourself. In any case, it will likely be a lot less expensive than outsourcing the development of the marketplace from scratch.
Drawbacks
Although not as expensive as building something from scratch, this method will still require upfront investment. The required budget depends on the software and developer or development agency you use. In addition, if you are unwilling to pay the developers a retainer fee, you will still need some technical knowledge for maintenance and hosting.
Just as with building a platform from scratch, the time to launch—and thus to learning—is still a factor to consider. The software used and your development budget will play a role, but 1—3 months is a realistic estimate. And again, comparing and deciding on a reliable agency to work with can be very time-consuming.
5. Building with an online marketplace SaaS tool
Description: Building a marketplace platform using a marketplace software-as-a-service solution where hosting is included.
Biggest benefit: Fastest to launch and learn.
Biggest drawback: Limitations in customizability.
Benefits
Building with a marketplace Saas tool (sometimes also called marketplace-as-a-service) is the fastest way to launch an online marketplace platform, which in turn lets you validate how your business idea works in reality and which features are important for your targeted users.
Secondly, this method will be a lot more affordable than the other methods, particularly in the early stages. It might not be as cheap as coding it yourself, but the costs will be very well below $1000 USD.
Additionally, SaaS software is usually battle-tested. The companies behind them continuously test, improve and update their product. This is included in the subscription cost.
A final benefit is the required technical knowledge. Although the needed level depends on the exact marketplace software, in most cases, basic internet savviness is enough. You will rarely need to read or write code, but still get to feel in control over your own business.
Drawbacks
As these marketplace software providers attempt to serve as many customers and cases as possible, they will have certain limitations. You might not be able to launch with all the features that you had in mind. However, it is more important to launch your marketplace as early as possible than it is to make it perfect. There are so many unknowns when you start out, which means that testing out your idea on real users at the earliest possible stage will help you move in the right direction and prevent you from making costly mistakes.
What is the right approach for creating your online marketplace?
We cannot emphasize strongly enough the importance of building your Minimum Viable Platform as quickly as possible. From that perspective, using an existing marketplace SaaS platform is almost always the best method to start with as it is the fastest way to start learning and iterating on your marketplace idea and your business model.
But if we leave this assumption aside for a moment, the right method for you depends heavily on your answer to these three questions:
- How big is your budget?
- What are your technical skills?
- How quickly do you want to launch your marketplace?
How big is your budget?
Less than $5K
With this budget, paying someone else to build a marketplace platform from scratch is pretty much out of the question. Your best option is to start using a SaaS solution or existing marketplace software, or code the platform from scratch if you’re technical.
Between $5K—$50K
You might be able to find a freelancer through platforms like Upwork who can build a basic marketplace on top of existing software. However, you will still incur monthly costs for hosting and maintenance. Additionally, you will likely receive feedback from users after launching your first version, and you’ll want to save an additional budget to implement these feedback ideas.
If you are somewhat tech-savvy, this is a perfect budget for building the platform yourself on top of a turnkey marketplace solution and modify it to fit your needs. You can use the money you save on development costs for much-needed things such as marketing and promotion.
$50K and higher
With a budget of this size, you should be able to find companies that can build a high-quality custom marketplace, either from scratch or based on existing software. Various options exist. The right choice depends mostly on the type of marketplace needed, your exact customization requests, and how quickly you would like to launch.
How technical are you?
Not at all
Coding from scratch is obviously not an option, unless you first want to invest a year or so learning how to code. Your best choice is to either launch using a SaaS solution that is aimed at less technical users or hire someone to build the platform for you.
Somewhat technical
You might at one point have used a WordPress blog, or maybe even edited some HTML or CSS. With this technical proficiency most marketplace SaaS platforms are a perfect fit. If you feel like expanding your coding skills, you could try building a marketplace on top of (open source) software.
Experienced developer
As a developer, building the platform from scratch is always an option. However, using one of the many existing marketplace software packages out there—both open-source and proprietary—will give you a head start, letting you focus on developing the features that are specific to your marketplace. If you have a bit of a budget, you could also buy one of the more expensive solutions or work together with an agency to speed up the development.
How quickly do you want to launch it?
Within 1 month
Having only a month seriously limits the amount of work you can do. The only real option is to use a SaaS solution that has all of the essentials (hosting, transactions, reviews, etc.) and only needs visual customizations. Even the most expensive developers/agencies will unlikely be able to deliver a fully functional marketplace platform in less than a month.
Within 1—3 months
With this timeframe, being able to build a marketplace platform from scratch is very unlikely unless you have a team of multiple skilled developers. You might be able to find an agency to build it for you.
A SaaS solution is still a great option, as is customizing existing marketplace software, either by yourself or using a third party. Three months should give you enough time to set up hosting, a development environment, and modify the code to your needs.
In more than 3 months
With this schedule, all options are on the table. What you end up choosing will be mostly determined by your budget and your technical skills.
The graph below provides a very rudimentary summary of what we discussed above.
Deciding how to build your online marketplace platform
We have now described the different methods of building a marketplace, and the benefits and drawbacks of these methods. We’ve also discussed other factors that might affect your decision: your budget, technical skills, and how much time you’re willing to spend on the development phase.
This information should give you a good idea of what approach best fits your situation.
If you’re leaning towards using a Saas tool, this article might help you with comparing marketplace software providers. This article about deciding your first year’s budget might also be helpful.
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Article by: Sjoerd Handgraaf
Sjoerd Handgraaf is a Growth & Product Marketing Specialist, with nearly a decade of experience in SaaS startups & growth companies (both web & app) in digital media, B2B & B2C software & clean-tech.
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