How to create
an online marketplace
The four steps of building an online marketplace business, from building your website to launching and growing the platform. With links to relevant articles for each step.
Intro: What is an online marketplace?
The definition of a marketplace & some well-known examples.
You might have heard of makers selling their creations on Etsy or Tindie, individuals renting out their properties on Airbnb or Getaround, or service providers pooling their resources together on Uber, Fiverr or Handy.
All of these are examples of online marketplaces. These platforms bring together supply and demand, and provide an effective way to save costs by skipping the middleman, while maintaining convenience and upholding quality.
Are you interested in such online marketplaces, or do you have an idea to build the next Airbnb, Fiverr or Etsy? This step by step guide will help you to get started.
As you can see in the timeline image above, we have broken down the entire process into four phases, and also in two areas of activity that run parallel: Marketing & Business, and Technology. For each phase there are a number of important steps to take for both areas. Each step has a short description, and a link to a more in-depth article on the Marketplace Academy.
Phase 1: Getting Started
How to find a great marketplace idea and validate it before you build your platform.
MARKETING & BUSINESS: Getting & validating your marketplace idea
At the very beginning, it is all on Marketing & Business. You shouldn’t even think about what kind of software or platform you will use. Instead, focus on finding or finetuning your idea and validating it with actual people. There’s no need for building anything, if you can’t prove demand.
This phase can be divided into four steps. For each of these steps we have written a dedicated article on the Marketplace Academy, linked below:
› Learn about marketplaces
What you need to know before starting your marketplace business
› Find your marketplace idea
A method to find a good marketplace idea
› Validate your marketplace idea
Arguably the most important step in the beginning: is anyone in need of your idea?
› Find the right marketplace business model
How will you make your money?
Phase 2: Building your MVP
How to find the fastest way to launch the first version of your platform.
TECHNOLOGY: What technology/software should you use?
Now that you’ve validated your business idea and model, you can start building the platform. There are many different ways to build an online marketplace, and we compare six of them thoroughly in this article. In a nutshell, the different ways can be divided in two:
- Code a website from scratch (or pay someone to do it).
- Build on top of existing tools or software.
Both methods have pros and cons, and if you choose to use existing tools, there's a selection of different approaches to compare. This article about ways to build a marketplace can be helpful there, as well.
Here are some questions that might help you forward in your choice:
- What kind of marketplace are you going to build?
Are you building a multi-vendor e-commerce site where multiple big companies sell new products to their customers? Or a platform where parents can sell second hand baby gear, or a location based marketplace for renting boats nearby? Your marketplace type will affect your exact feature requirements.
- What is your budget?
If you have only $1k to spend, your choice might be different than if you have $100k. With a lower budget, you probably don’t want to spend a lot upfront on design, hosting, development etc.
- What are your own technical capabilities and resources?
Are you a talented coder with loads of time on your hands? Are you a relatively internet-skilled person (have you had a blog for example)? Or are you really not that great with technology? However, even if you are technically very capable or not tight on cash, as a general rule you should to try to launch your site as early as possible, without spending too much money and time up front.
Remember: The trickiest part in building a marketplace business isn't building the software, but actually making the marketplace idea work both for your customers and your providers.
Launch your Minimum Viable Platform as fast as possible.
The true learning and validation process only happens as soon as you've launched your Minimum Viable Platform, and to avoid waste you should get to this point as fast as possible.
Now, if you decide to go for option #2, an existing software platform, here are things you should think about:
- Does the provider of the software platform offer hosting, server monitoring, automatic software updates, backups, payment bureaucracy, and technical support?
It comes often as a surprise especially to non-technical people how big hurdle this actually is. Many people think you simply install a chunk of code to your server as a one time thing, and that's it. That's not the way it works. If you want to run things on your own server, you really need to have a technical person in your team, since there's always something to do in this front.
- Does the software allow you to grow and expand your marketplace?
This is quite important. If you're using proprietary software that doesn't allow custom-coding, you're locked in to the services of the marketplace provider. If you later wish to hire a developer team and build new features, that might not be possible. An API-based software-as-a-service solution, or alternatively a solution that is open-source or source-available, is usually a more future-proof choice.
- What are the costs?
What's best obviously depends on your budget. In general, a big payment upfront should be avoided, as it will leave you with a lot of risk. You want a software provider who has invested in your success, which means that it should be relatively affordable to get started, but you will pay more if you are successful.
Why choose Sharetribe Go for your MVP?
If you aren't a coder, or if you don't have a huge budget and you want to launch something fast, Sharetribe Go is an excellent option.
Go lets you create, configure and launch your site in one day, without technical skills. Hosting is included, and Sharetribe handles all the technical stuff related to installation, maintenance and software updates, so you can focus on building your user base. The free trial lasts 30 days, and after that there is an affordable monthly fee, starting at $79 per month.
Create, configure, and launch your marketplace in one day.
What's more, Sharetribe Go offers a transition to Sharetribe Flex. Flex is a headless, API-based marketplace solutions that allows you to create a unique user interface and custom-build features and integrations at a fraction of building a marketplace from scratch.
Flex is an ideal next step once you've validated your marketplace idea with Go. Go is source-available, so you also always have the choice of moving the code and data to your own server at any point and modify the code as you wish.
MARKETING & BUSINESS: Building supply & demand
One of the biggest hurdles in building an online marketplace is the so-called chicken and egg problem: How to get customers with little supply and how to get supply with only a few customers.
For marketplaces it is usually a better idea to start from the supply. Providers typically have more incentive to use your platform, as it could be a major and constant source of future revenue for them.
You can (and should) start building the initial inventory without actually launching your site to the buyers. It's perfectly ok to communicate this to your sellers: they should not expect any sales yet, as you are currently in a phase of building the initial supply, and will later launch to the customers with a bang. It's very important that when the first customers arrive, they already have plenty of selection to choose from.
While your providers should be the first ones to get access to your platform, this does not mean you shouldn’t also be talking to your potential customers from the very beginning. Creating a simple email list to collect subscribers is a good idea, but there are many other ideas on how to find customers before launch. These initial customers can help you in the next phase, when you want to test out your platform.
Phase 3: Launch your marketplace
The launch is a very important moment in the timeline of your marketplace, but at the same time, it is only a very short moment in time. Be careful not to overstate its importance. For many beginning entrepreneurs, the launch forms the horizon of their perspective, and there is some hope that some of the difficulties, such as getting supply/demand, might magically dissapear after launch. In most cases, this couldn't be further from the truth.
However, a well-prepared launch can give your marketplace that much-needed initial boost. Here are some things you can do to make it a success:
TECHNOLOGY: Expose your MVP to a select audience
Your platform is now ready for its first customers. Before going for a big launch, it is time to put your marketplace to its first true test: can you facilitate transactions between your customers and providers? A private test can still reveal some pain points in your design. Can your customers find what they are looking for? Maybe your transaction flow requires redesign, or your value proposition needs to be rewritten.
MARKETING & BUSINESS: Work on PR
Besides continuing the work on building supply & demand, valuable work can be done in working on PR for your big launch. Good press coverage is a lot of work, consisting of crafting your message, finding and building a relationship with journalists and influencers in your industry and preparing all the materials.
Phase 4: Grow your marketplace
You now have launched your marketplace, have a stable initial user base and some transactions are flowing in. However, the size of your user base is still quite small. It’s time to grow your marketplace.
MARKETING & BUSINESS: Track your performance
How do you know if your marketplace is successful? Growing your user base and having transactions occur is not enough, if you don't know where your users are coming from, and why they are doing transactions. You need set up a number of Key Performance Indicators (KPIs), that you track and follow. They will help you identify areas that need improvement, as well as which marketing channels are working and which aren't.
- Usage Metrics
Usage metrics, such as Monthly Active Users (MAU), Bounce Rate and others help you understand how many people visit your site and how they spend time on it. These metrics are not specific to marketplaces. Every website monitors the same basic metrics to track their growth.
- Transaction Metrics
The number of transactions alone is not enough: it doesn't tell you how you can improve. Instead, we recommend to focus on Liquidity, Provider-to-Customer Ratio, and Repeat Purchase Ratio
- Business Metrics
These should answer questions related to your revenue, profitability, and customer acquisition. The three most important figures are gross merchandise volume, customer acquisition cost, and customer lifetime value
Read the article below for an in-depth description of each of these metrics.
MARKETING & BUSINESS: Start marketing for growth
The key to growing a marketplace is to reach a virtuous cycle: high-quality providers bring in more customers, and the growing customer base in turn attracts more providers. However, it is important to note that marketplaces usually grow slower than other online business. For one thing, you need to establish both buyer and seller communities, and that simply takes more time. For example, Airbnb took 4 years before it really took off.
In addition, it isn't always healthy to grow too fast in the beginning, while you are still figuring out your platform and your business model. Potential flaws can be amplified by too fast growth.
How to find the right growth channels
Different kind of growth strategies exist for all types of marketplaces. To find out what works best, you need to quickly test different channels, and focus on the ones that work. An effective way of doing so is a framework called Bullseye, which consist of a simple method:
- Start by brainstorming potential growth ideas.
- Select the most promising ones, and perform quick tests with each, all in parallel. Each test should last no more than a month.
- Once the tests are done, select the channel that worked the best and focus on it until it no longer “moves the needle”.
Repeat these steps over and over again. Observe where you marketplace could improve, Experiment with a test, Analyze the results and Learn for the future.
TECHNOLOGY: Observe › Build › Learn
The steps that the technology needs to take after launch, should follow a similar "scientific", data-driven approach as the marketing for growth. It is crucial to develop your marketplace in close cooperation with your users. Find out what is lacking on your platform, by looking at a combination of metrics and customer feedback.
For example, if you see from your metrics that a lot of user are not finalizing a booking, try to contact them and aks them why they didn't. Perhaps they feel that listings are missing crucial information, or there is a lack of trust in your marketplace community. These are problems that can be solved through technical improvements, such as adding more fields for specific info to your listings, or motivating users to use the review feature.
Develop your marketplace in close cooperation with your users.
By looking closely at the data and regularly interacting with your users, you will be able to quickly identify areas that need technical improvement, and they can help your marketplace grow tremendously.
At some point of your growth, this process very likely reveals feature needs that aren't possible to build with your MVP solution, such as Sharetribe Go. At that point, moving your platform to an extendable, API-based solution like Sharetribe Flex allows you to keep expanding your platfrom and your business.
Let's build a marketplace!
- Launch quickly
- Expand on-demand
- Support every day