What is a service marketplace?
A service marketplace is a website where private individuals, professionals, or companies can offer their service. Examples of online marketplaces for services are Fiverr, Upwork, and Thumbtack.
Typically, marketplace platform business are thought of as peer-to-peer sharing websites like Airbnb. However, many investors and experts expect services to be the next big marketplace revolution.
The service industry is massive – worth almost $10 trillion each year in the US alone.
Marketplace platforms have huge advantages in this industry.
Firstly, marketplaces can beat the competition by making buying services a lot cheaper, faster, and easier. This is what Thumbtack did for micro jobs. It didn’t only help people in the market for a house cleaner to find a professional. It made the experience so much better that more people started considering paying a house cleaner instead of doing the job themselves. This also brought new providers to the platform – people that otherwise might not have considered offering their cleaning services.
The second big benefit is that you can start a service marketplace without being a professional yourself. Certainly, having a deep understanding of the services you focus on is extremely helpful. But because providers create the supply, you can start a marketplace for personal trainers, language teachers, or marketing professionals without having those skills.
Third, building a service marketplace website has never been easier.
Nowadays, you can use dedicated software to build your online service marketplace platform quickly, easily, and with a low budget.
Business models for service marketplaces
If people use a marketplace website to buy services from individuals, professionals, or businesses, how does the marketplace entrepreneur make money?
Service marketplaces like Fiverr and Upwork take a cut out of each transaction that happens on their platform. This revenue model is called commission, and it’s by far the most popular monetization strategy for marketplaces.
The most obvious benefit of the commission model is that every time money changes hands on your marketplace, you get paid. Typically, it’s also the fee structure that is easiest to justify to users. Most importantly, it’s the fastest model to get your business off the ground: when users don’t have to pay anything upfront to sign up and interact, they are much more likely to give your marketplace a try.
Some services marketplaces charge a fee from users to join the platform or post a listing. This can be a good strategy if, for example, your customers are so difficult to find that your providers are ready to pay to access them. Or vice versa.
Some marketplaces may also sell ads or additional services. Typically, these strategies are most useful as additional revenue streams on top of the commissions.
Though commissions is usually the best and most scalable revenue model for service marketplaces, it does bring a challenge. Namely, what is to stop people from using your platform to get connected, but then pay each other in private and bypass your commission?
As you’ll find out later, there are many things you can do to prevent this. The first step, though, is making sure you have a great marketplace idea that users are willing to pay for.
How to come up with a great service business idea
Successful service marketplaces solve a real problem for both user groups extremely well. To compete for the vast opportunities in the service industry, your marketplace idea should achieve what Thumbtack did: make buying and selling services a lot faster, easier, and cheaper than it previously was.
Try to spot marketplace ideas by analyzing the services you encounter at work or in your free time. Look for inefficiencies, underused assets, fragmented markets, or services where adding a layer of trust would make sense.
Does it take ages for you to find a repairperson for a specific task? Is comparing print providers and asking for quotes so time-consuming that you just use the one you always have? Would you be willing to pay someone to set up a Google Ads campaign, but find hiring and briefing a stranger too much of a hassle? When you come across a hurdle like this, stop and think about how a marketplace could make the experience smoother.
It’s possible that someone else has come up with the same idea as you have. But don’t shy away from the competition immediately.
For instance, there are many freelance and microjobs marketplaces around. But that doesn’t mean you shouldn’t build a website like Fiverr, Upwork, or Thumbtack. A dedicated, niche marketplace might be able to compete with the giants by making finding specific expertise a lot easier.
You could also analyze what people list on generic platforms that aren’t optimized for services. Are lots of professionals trying to offer certain services on Facebook Marketplace? That might just mean an opportunity for a service marketplace to improve their experience.
How can you be sure your idea offers an improved experience?
By getting the first version of your business in front of real people as quickly as possible.