How to build a peer-to-peer (P2P) marketplace
Peer-to-peer (P2P) marketplaces are exploding in popularity. This guide takes you through the steps of building a successful peer-to-peer business — from validating your idea to building a site and growing your audience.
Table of Contents
- Introduction: Why build a peer-to-peer marketplace?
- Building a peer-to-peer marketplace in five steps
- Peer-to-peer marketplaces built with Sharetribe
- Start building your P2P marketplace today
Introduction: Why build a peer-to-peer marketplace?
There are many benefits to the peer-to-peer business models, but also challenges entrepreneurs need to solve.
Peer-to-peer (P2P) marketplaces are exploding in popularity, and it’s easy to see why. For aspiring entrepreneurs, marketplace businesses are an attractive business model; a way to start a scalable, game-changing business with limited resources.
It’s important to start by defining what a P2P marketplace is (and isn’t!). At a high level, a peer-to-peer marketplace is a platform that connects people who need a product or service with people selling or renting these products or services.
The role of the marketplace platform is to connect supply with demand while handling payments. P2P marketplaces don’t need to own or provide any of the products or services offered on their platforms. This makes it relatively inexpensive to start a marketplace business.
The most famous examples of peer-to-peer marketplaces include Airbnb, Etsy, and Uber. Almost any product or service can be sold through a P2P platform. Our clients have used Sharetribe to build sites for everything from selling automotive parts to private swimming pool rentals.
There are many reasons why a peer-to-peer marketplace can be a tremendously successful business. But there are also challenges successful marketplaces need to solve.
Low startup costs
One of the primary advantages marketplace business models hold is that setting up a marketplace is relatively inexpensive. Often, founders find it’s possible to bootstrap their marketplace business.
In most industries, investing in inventory is the biggest startup expense. But marketplace businesses don’t have to pay for inventory; suppliers create it for them.
Consider a marketplace like Airbnb. They’re now the biggest travel business in the world, and they don’t own a single hotel. Instead, they have millions of listings on their marketplace platform, enthusiastically provided by hosts around the world.
A peer to peer marketplace can be a tremendously successful business.
Other marketplace businesses are similar: building a website like Etsy doesn't require manufacturing products. Uber doesn't own cars.
Not having to invest a five-figure sum in platform technology or inventory makes it much easier to start a business. Instead, founders get to spend their budget on growing their marketplace.
Peer-to-peer network effects
P2P marketplace businesses have the chance to enjoy powerful built-in network effects. Businesses with network effects often scale much quicker than those without. If each new user increases the overall value of the platform, then the business has network effects.
Network effects represent a significant growth lever for marketplace businesses. More customers means more demand, which brings in more suppliers. More suppliers means more selection, which creates a better customer experience and brings in more customers.
Done right, this creates a flywheel effect, where the marketplace grows exponentially through the power of network effects.
Powerful P2P marketplace builders
For a long time, the primary barrier to building a multi-vendor marketplace business was the complexity in developing a two-sided platform that could handle both buyers and sellers. Building a marketplace was extremely expensive and time-consuming, and required a team of highly-skilled developers.
But technology has advanced rapidly. You no longer need to code a platform from scratch. At Sharetribe, for example, we make software solutions that help entrepreneurs launch their marketplaces faster. Sharetribe Go is ideal for founders who want to launch fast without coding, and Sharetribe Flex suits people who want to develop a unique marketplace on top of APIs.
In addition to using marketplace software, there are many alternatives to building a marketplace from scratch that fit all skill levels and budgets. This detailed guide on ways to build a marketplace may help you compare the different approaches and choose the best one for you. If you decide to use marketplace software, we also have an article that helps you compare marketplace software solutions.
Challenges of the peer-to-peer marketplace model
Of course, building a P2P marketplace isn’t all plain sailing, and there are some common challenges that marketplace businesses might face. Here are the biggest challenges and our recommendations for solving them. You may also find this piece on the three of the most common P2P marketplace pitfalls useful.
Solving for the wrong problem
Before making significant time and financial commitments, it’s important for marketplace entrepreneurs to validate their idea. Focus on launching the first version of your marketplace as soon as possible. Feedback from early users to determine the level of support for the business.
Finding product-market fit
Another common challenge is finding the right niche for your marketplace business. At first, it makes sense to focus on a small niche and vertical. While it’s great to dream big, in reality, the lack of focus can hamper your business, especially in the early days. Focus on finding product-market fit, and then scale.
Identifying the right business model
There are a few different options when it comes to choosing your marketplace business model. Focus on finding a sustainable model that will scale with the business. Make sure your marketplace pricing works for your sellers, customers, and your business.
Focus on launching the first version of your marketplace as soon as possible.
At first, the idea of sleeping in a stranger’s apartment seemed terrifying. But now, millions of people stay in Airbnbs across the globe every night. As consumers, we implicitly trust brands we know. But as a new marketplace, you won’t have that level of brand strength; it’s something that needs to be built over time. Fortunately, there are strategies you can employ to build marketplace trust.
As you build your marketplace, be sure to watch out for these challenges, but be confident in your ability to deal with them. There are things you can do to mitigate the risks when you build your business with an iterative mindset. Next, we’ll look at how to build a peer-to-peer marketplace in a way that leverages the potential of the business model and solves the challenges.
Building a peer-to-peer marketplace in five steps
Building a marketplace is a process — not a project.
Building a successful peer-to-marketplace business doesn’t have to be a months-long, expensive project. Instead, treat it as a process of learning and iteration. Great businesses take time to build. In a nutshell, there are five key steps you can to take to get your marketplace business up and running. We’ll cover them briefly here, but for a more detailed breakdown of each step, check out our complete guide to building an online marketplace.
Find and validate your P2P marketplace idea
All great businesses start with a great idea, But at first, it can be difficult to tell whether your idea is a good one or not. You might think it’s great, and the potential users you interview might also think so. But what really matters is whether people will like it enough to pay to use it.
At their core, successful businesses solve problems for their customers. Often, founders start companies in response to their own problems. The idea for Airbnb came when the founders were having trouble making rent.
Our advice — launch fast, and launch cheap.
Marketplace businesses have to offer a solution to the problems of both prospective customers and prospective vendors.
Once your idea passes this test, validate it with potential users. Validate your idea by talking to prospective users and challenging your assumptions. There are structures you can use to do this.
Ultimately, while talking to prospective users will provide valuable insights, you won’t truly know if you're solving a real problem until you launch your marketplace business. Our advice – launch fast, and cheap. The most valuable insights come from live users who are paying to use your service.
Take Raphaëlle de Monteynard, founder of Swimmy. She had the idea for a peer-to-peer marketplace that lets people rent private swimming pools, and started researching the market. Soon, she realized the best thing she can do is to launch her business quickly for the summer season and give it a try.
“Everything doesn’t have to be perfect when you start a business. The most important thing is to learn if your idea will work, and you don’t need a lot for that,” she says.
Today, Swimmy has over 45,000 users.
Failing to validate a business idea is one of the most common mistakes founders make. It’s all too easy to get excited and throw yourself into building a platform. But before you do that, make sure people are actually interested in using your platform. If your idea fails, it’ll fail fast. You’ll have time to pivot to a new idea, and you won’t have wasted months and thousands of dollars developing a complex marketplace that nobody wants to use. But if you see signs of initial traction, it’s go-time.
Nail the P2P business model
As you’re building your marketplace, it’s important to think through your business model. At first, it might make sense to keep costs low to attract more users, but ultimately, the revenue model must finance the operations of the business.
The majority of P2P marketplaces use commission-based models. With this model, the marketplace takes a commission on every transaction made on their platform; either as a percentage cut or as a fixed fee. The most successful P2P marketplaces—Airbnb, Etsy, Uber—all built their businesses on a commission structure.
Check out this guide for information on other marketplace business models.
Benefits of commission-based models
Commission-based marketplace business models are popular for a reason: they make it easy to recruit providers, and they’re very powerful as the business scales.
Providers aren't charged until they get value from the marketplace: they rent out their car , or sell a pair of wheels. This makes it easy to bring providers on board; it doesn’t cost them anything to get started, and they only pay if they successfully make a sale.
The majority of P2P marketplaces use commission-based models.
The commission model scales well. The marketplace receives a commission on every transaction, so as the marketplace grows, so does revenue.
Drawbacks of commission-based models
While the commission-based model is a good fit for many, there are some drawbacks to note.
One issue is platform leakage. If your platform doesn’t provide value in line with your commission structure, users will take business off your platform, meaning you miss out on the commission. There are strategies to mitigate this, but generally, you want your value proposition to be so strong that your users see no reason to leave your marketplace.
Another challenge is building a payment structure that can apply a commission structure to all transactions on your platform. This is difficult to build on your own. However, if you build your marketplace platform with Sharetribe, you’ll be able to use pre-built integrations with Stripe and PayPal to support transactions, making getting paid a breeze.
Identify the core P2P features
P2P marketplaces demand a distinct set of features compared to other eCommerce businesses. Here are features that the majority of marketplace platforms have:
Profiles are an essential component in building trust between customers and providers. Users will share information about themselves on their profile: their name, picture, and location. Some platforms might verify phone numbers and identities, but these typically aren’t shared with other users.
A listing page allows providers to showcase what they’re offering, and commonly includes pictures, videos, pricing, a text description, and reviews. The more complete and professional a listing page a seller has, the better they will typically perform on the platform.
Website navigation and search
Your marketplace needs navigation to ensure users can find what they’re looking for on your platform. Typically, customers will either search for a product, or navigate to a particular category.
Keyword searches work well for marketplaces dealing with shippable products or online services, whereas location-based marketplaces like Aribnb will also require a location search.
Alternatively, customers can navigate by categories that you define. You’ll need to determine how to best categorize your listings; most sites have a hierarchical structure, with main categories and subcategories.
Creating a frictionless payment experience is one of the biggest ways to build trust in your marketplace business.
With your own payment system, it’s possible to delay payments, or hold funds in escrow until a service has been fulfilled. This model is appropriate when the customer is booking something in advance; an equipment rental, or a day at a private pool.
Online payments is a heavily regulated field, and the legislation can differ greatly from country to country. One of the biggest benefits of peer-to-peer marketplace builders is that they offer in-built payment processing. This will save you both the time of building a payment integration from scratch as well as the trouble of maintaining and updating your payment system to comply with regulatory changes.
Frictionless payments build trust in your marketplace.
Reviews are essential for building trust between users, especially on a P2P marketplace. They give customers confidence in the product or service, and offer providers assurances the sellers will treat their belongings well. After the transaction is completed, reach out to both groups to ask for a review.
Customers and providers on a peer-to-peer marketplace need to be able to communicate. This is achieved through a messaging service that supports multiple conversations. The communication platform should also be used to send notifications about new requests, transactions, and reviews.
Behind every successful peer-to-peer marketplace is daily monitoring and management. As a marketplace admin, you'll want to be able to moderate user-generated content like profiles and listings, control user access, see your transaction processes, send notifications, and so on. Powerful admin tools let you make sure your marketplace user experience works smoothly for your users. They also let you track user behaviour and come up with ways to improve your platform.
In addition to the essentials listed above, there are other features you might want to consider, depending on the needs of your users:
- Booking management and availability calendars if you’re dealing with peer-to-peer rentals or services.
- Integrated maps if your marketplace is location-based and your users need to meet face-to-face.
- Shipping might be required if your marketplace deals with peer-to-peer product selling.
- Identify verification protocols are useful for trust-intensive markets, like peer-to-peer babysitting, apartment rentals, or the like.
Build your MVP
A Minimum Viable Product, or MVP, is the earliest iteration of your platform that you share with customers. While it’s important to launch quickly, don’t rush – it’s important to offer even your earliest users a great experience.
Before you launch an MVP, your marketplace should be functional. Users should be able to accomplish the basic goal of what your marketplace promises to do, whether that’s renting a camera, or finding a teacher.
There are a lot of different ways to build a marketplace platform, but at this stage, focus on an approach that helps you build as fast as possible. Invest the majority of your time and initial budget on growing your audience, building your brand, and learning about your users.
Build your MVP with Sharetribe Go
If you’re looking to launch your MVP quickly, Sharetribe Go could be a great option for you. You can set your marketplace up in minutes, and all the essential peer-to-peer marketplace features you need to get your business up and running come included.
You don’t even need to be able to code, and technical details like hosting, maintenance, and updates are taken care of for you. You can use Go to launch your marketplace in less than a day and start learning from early users.
Learn from your early audience & grow
Once your MVP is ready, it’s time to launch.
While it’s tempting to jump in at the deep end, your launch should be a thoughtful process. Marketplaces are challenging businesses to build. You need to develop both supply and demand – no easy feat.
Begin by recruiting an initial group of providers to seed your marketplace with. Finding the right vendors can be challenging, and how you recruit them depends on the business you’re in. To start, contact providers on other marketplaces, search on Google, and reach out to forums and Facebook Groups.
It's ok to do things that don't scale.
At this stage, it’s fine to do things that don’t scale – the first hundred or so providers are the lifeblood of your platform. Make sure your new providers are comfortable using your platform, understand the benefits you offer, and see the potential in the marketplace.
As you approach your launch date, consider doing a product launch before your big marketing launch. This lets you onboard a small initial group of users on the platform to iron out any bugs before your big launch.
Post-launch, establish the key marketplace metrics for your platform, and track them over time. As the saying goes, what gets measured gets managed. You should intentionally track metrics that offer a true insight into the traction of your marketplace.
As you scale, conduct growth experiments to determine the optimal ways to build your business. Marketplaces can grow slowly; it took Airbnb four years to see real traction. It’s critical to experiment with different growth channels and perfect your strategy for each.
Take your marketplace to the next level with Sharetribe Flex
Once your marketplace starts to grow, you have more resources to develop your marketplace further. You’ve also learned a lot about your audience and know what kinds of custom features and additional tools bring the biggest boost to user experience – and the biggest ROI for you.
Sharetribe Flex is an API-based, headless marketplace solution that is ideal for entrepreneurs who want to take their business to the next level. It offers all essential features off the shelf and gives marketplace owners the ability to custom-develop a unique user interface on web or mobile on top of the Flex-powered backend. You can also build custom features and add integrations to third-party tools like marketing and email software. And yet, you won’t have to invest in building the marketplace essentials, and updates, maintenance, and security compliance are handled for you as well.
We're proud to power over 1,000 marketplaces around the world. Here are a few inspiring examples of peer-to-peer businesses – you can find more Sharetribe examples and inspiration in our customer gallery and customer stories.
Peer-to-peer rental marketplaces
Peer-to-peer rental platforms allow people to rent out tangible physical resources that belong to others. Some of our favorites include:
Peer-to-peer product marketplaces
Peer-to-peer product marketplaces let people buy products from independent sellers. Popular platforms include:
swap-studio lets users swap items–clothing, furniture, and more–with strangers on the Internet. They’re building a community of like-minded people working towards a future with less waste. Powered by Sharetribe Flex.
Start building your P2P marketplace today
It’s never been easier to build a peer-to-peer marketplace business than it is today. There’s so much upside to the P2P model, with unlimited potential for creativity and growth.
By taking time to validate your idea, nail the business model, and build a platform packed with powerful features, you’ll be well on your way to success. Keep an open mind — stay committed to learning and iterating, and always listen to your users.
We’ve worked with peer-to-peer marketplaces for over a decade, and there are more than 1,000 marketplaces built on Sharetribe infrastructure doing great things all around the world.
Ready to get started?